From the file  Company: Altierre Corp. Position: Co-founder, chairman and CEO Education: Master’s degree in computer engineering from Syracuse University and a master’s degree in solid-state engineering from the Indian Institute of Technolgy in New Delhi. Age: 49

SAN JOSE, Calif. – The American food-retail industry, which has always operated on razor-thin margins, has adopted a number of technological advancements and marketing ploys over the last decade or so in an effort to improve operational efficiency and attract more shoppers.

These days, all of the big national and regional chains advertise on the Internet, and most of them have some sort of frequent-shopper program. They’ve also invested huge sums of money on new technology for their stores, including self-checkout lanes and personal, touch-screen computers that mount on shopping carts.

But when it comes to shelf pricing, the supermarket industry remains stuck in the past: retailers continue to use paper shelf tags – an old-fashioned practice that consumes vast amounts of material and human resources, including paper, ink and labor.

But one California company has developed a new technology that could very well supplant the thousands of paper price tags that line store shelves. And that has the supermarket industry – and investors – very excited. Sunit Saxena’s Altierre Corp., a five-year-old San Jose-based firm that makes IT hardware and software for the retail industry, has developed a revolutionary electronic shelf label that displays product prices and other information and can be updated remotely in a matter of minutes, thanks to an internal radio-frequency microcontroller.

The innovation is the principle reason behind the success of Altierre’s recent third round of venture funding. In late May, the firm announced that had raised an additional $8 million in a second closing of the round, for a total of $30 million. The round, which included participation by D.E. Shaw Group., a New York-based investment and technology-development firm, and Palo Alto, Calif.-based Labrador Ventures, increased the total venture funding that Altierre has raised thus far to $60 million.

“This investment was driven primarily by one reason: We wanted to expand our horizons a little bit, to broaden the customer reach and take on a few more retail chains and diversify our risk,” said Saxena, Altierre co-founder, chairman and chief executive officer. “We decided on what we internally called a ‘break-out strategy;’ our customer base and market base is such that retail chains are large, and to do a good job of supporting them, we need to put in a sizeable investment”

He added that the $8 million investment by D.E. Shaw group and Labrador Ventures reflects rising customer and investor interest in Altierre’s wireless pricing technology. “The second closing of the [third round of funding] continues to demonstrate our investors’ enthusiasm for our technology, and our highly differentiated and strategic approach to a large market opportunity,” he said.

Altierre’s system mounts on the rail of a typical store shelf and features a liquid-crystal display that can be altered in as little as two minutes via a secure Wi-Fi connection. The small device communicates with a central computer in the store’s office or a chain’s headquarters. The displays run on inexpensive watch batteries that last about five years.

According to Saxena, the devices would pay for themselves within a couple of years simply by eliminating the cost of purchasing all the paper and ink used for traditional shelf tags.

“We’ve designed everything from soup to nuts ourselves,” Saxena said. “These things have memory, which enables you to download a product’s price and related information onto them; it can flip among screens, such as if there is a product recall; and it also serves as a portal of information at the shelf edge. Essentially, what we’ve done is taken a centralized headquarters and enabled it to communicate with the edge of the shelf.”

The technology has captured the attention of grocery chains and other retailers across the country – Saxena said one executive at a major U.S.-based supermarket chain likened it to the “Holy Grail” of retail – and investors have begun to court him. But it wasn’t always like that.

“Our technology is explosive and we have a huge opportunity here,” Saxena said. “But early on, it was a complicated product that was hard to make. In fact, when we first started the company, a lot of people were hesitant to touch it – they saw it as expensive and complicated. But now, we have a successful company and retailers and investors are approaching us – they’re saying to us, ‘How do I get a piece of this technology?’ It is very exciting.”

Altierre’s wireless shelf-pricing system represents tremendous promise for the entire retail industry, which considers paper shelf tags to be its biggest problem. “The [shelf-tag] system that retailers are using today is essentially the same one that they’ve been using for decades,” Saxena said. “It’s paper based and requires human labor to move all those price tags from the back room of a store, where they are printed out, out to the aisles. It’s laborious, it consumes a lot of paper and it’s prone to human error.”

Electronic shelf labels are nothing new – the concept has been around for nearly three decades – but it has gained little, if any, momentum in the retail industry because the technology requires a significant up-front investment. NCR Corp. tried its own version of an electronic shelf tag, but the company later scuttled the program.

The latest company to give the concept a shot is retail giant Wal-Mart Stores Inc., which is currently rolling out radio-frequency-identification tags to keep track of merchandise in the supply chain and in distribution warehouses. The Bentonville, Ark.-based company tried a different approach in 2003, but gave up on it after consumer advocates raised concerns that the tags infringed on consumers’ privacy.

For the most part, venture capitalists have shied away from investing in firms that make the technology because they considered it a huge gamble.

But Altierre’s success in developing its own product and attracting investors has converted a number of the nation’s largest supermarket chains from skeptics to believers. It’s easy to see why: the typical grocery store carries 40,000 different products, and most stores make anywhere from 5,000 to 15,000 price changes per week. Of course, the paper and ink used to make all those tags costs a substantial amount of money – Saxena estimates that a grocery chain of 2,000 stores goes through 100 million sheets of paper and 90,000 ink cartridges per year, while the food-retail industry spends about $40 billion annually to change prices manually – and the tags themselves  leave plenty of room for human error.

“The error rate for paper price tags has gone through the roof,” Saxena said. “The stores are routinely getting cited for mistakes by [local and state] departments of weights and measures, and this also makes customers very unhappy when they get overcharged.”

The current system is also incredibly inefficient, which prevents stores from anticipating whether other stores will lower or raise prices during any given week.

“The supermarket industry is paper-based – stores list their prices on paper tags and they advertise their prices in paper inserts – and what that does is bog them down,” Saxena said. “A typical store will mail out a flyer that advertises a sale, but that store’s competitor might not have anticipated this. If that is the case, it will take the competing store an entire week just to change its shelf tags to reflect lower prices. “On the other hand, when you do things electronically, you don’t have to live in fear that you made the wrong decision,” Saxena added. “Our technology gives retailers – especially supermarkets – the ability to be more nimble and carve our their own pricing.”

And that is critical to the grocery sector, which generated a net profit after taxes of just 1.91 percent in 2007, according to the Food Marketing Institute, an Arlington, Va.-based industry trade group. Food prices are soaring nationwide at a rate not seen in decades, brought on by drought in food-exporting countries, rising demand, sky-high energy costs and the growing use of food crops such as corn and sugarcane for biofuels.

In a recent report, Standard & Poor’s equity analyst Joseph Agnese said that the grocery sector probably won’t have any problems if stores pass along the rise in food prices to their customers, and some may even be able to widen their profit margins in the process. However, grocers tend to avoid this at all costs, which is one reason why they operate on such thin margins. To be sure, electronic shelf tags have shown the potential to help retailers cut costs by increasing efficiency, but stores have been hesitant to adopt them, mainly because the units were pricey.

“The cost of the technology has been the biggest barrier to its entry in stores; retailers operate on very thin margins as it is, and so they couldn’t afford these solutions,” Saxena said. “In the 1980s, these [electronic shelf tags] cost about 50 bucks apiece; in the ‘90s, the price dropped to about 10 bucks per unit. If you figure that the typical grocery store sells 40,000 different items, that works out to an investment of about half a million per store.”

Saxena said Altierre expects to sell its radio-frequency-identification tags for about $5 per unit. The company is currently developing the technology under agreements reached with several of the nation’s top grocery chains, and it is currently testing the electronic shelf tags at a San Jose-area supermarket that declined to identify. The next step is a planned 2009 rollout of the wireless systems nationwide.

“We’re giving retailers a medium through which they can communicate with shoppers, and it doesn’t matter if the store is located in the big city or on the outskirts of a small town like Bend, Oregon,” he said. “With our technology, stores can customize a message for their shoppers – it dramatically opens up the world for them. This is a major step forward for the retail industry.”

Saxena, 49, has over 27 years of experience in the technology sector. Prior to co-founding Altierre in 2002, he served in executive roles, including chief operating officer and vice president, of firms like Alliance Semiconductor Corp. and Sandcraft Inc. He was instrumental in the success of several startup companies. He has been instrumental in several start-up companies in industries like biotech, medicine and defense, and has designed complex projects such as tank-gunner training systems and 3-D medical-image-scanning platforms.

A native of India, Saxena holds master’s degrees in computer engineering from Syracuse University and in solid-state physics from the Indian Institute of Technology in New Delhi.