CHAINS FIND NICHE IN DIGITAL PHOTOGRAPHY

Memories are going digital, and the new cameras that capture them are selling faster than ever before.Supermarkets are gradually getting up to speed with the digital camera popularity by installing digital photo-processing kiosks and other digital-related services to stave off the slow sales erosion of traditional film and one-time use cameras.For example, Lunds/Byerly's, two banners under Lund Food

Memories are going digital, and the new cameras that capture them are selling faster than ever before.

Supermarkets are gradually getting up to speed with the digital camera popularity by installing digital photo-processing kiosks and other digital-related services to stave off the slow sales erosion of traditional film and one-time use cameras.

For example, Lunds/Byerly's, two banners under Lund Food Holdings, Edina, Minn., recently purchased Sony Picture Station digital photo-processing countertop systems for all 20 stores, said Dennis McCoy, photo operations manager, Lunds/Byerly's. The countertop displays are the company's first full foray into digital photo-finishing services, he told SN.

"The growth of digital imaging created a great opportunity for us," he said. "Customers are migrating to digital, and the Sony Picture Stations afford us a nice way to maintain relationships with our customers. We wanted a solution where customers would be comfortable bringing in media cards and printing pictures on site." Twelve systems have already been installed, while the final eight systems should be fully installed by the middle of next month, McCoy said.

The countertop units are showcased near the photo mini-labs or near the customer service desk and film drop-off locations, depending on the store, he noted.

While Sony has an option of a full kiosk or a countertop display, the retailer chose the countertop version because "we wanted a smaller footprint to create a better merchandising effort [in close proximity to the film and batteries]," McCoy added. To promote the new digital photo-finishing system, Lunds/Byerly's is offering a complimentary 4-inch by 6-inch print to customers.

By the end of 2002, digital camera consumer penetration reached 20% of U.S. households, according to InfoTrends Research Group, Boston. Last year, 9.4 million digital cameras were sold in the U.S., and that number will climb to 12.8 million by the end of this year, according to the Photo Marketing Association International, Jackson, Mich.

"It's hard to measure," said Denis Oldani, director of video and photography, Schnuck Markets, St. Louis, referring to the popularity of digital cameras and its effects on traditional photo category sales. "Easy-print capability of digital pictures isn't totally consumer-friendly at this juncture. It's a gray area."

There are currently 29,000 photo-finishing kiosks installed in North America, said Kerry Flatley, research analyst, InfoTrends Research Group, Boston. Kiosks are expected to grow to 33,000 by 2006. A slew of digital photo processing services from Polaroid, Wayland, Mass.; Sony Electronics, Park Ridge, N.J.; Callisto, Natick, Mass.; and Coinstar, Bellevue, Wash., are coming to the supermarket aisles.

"Kiosks have a lot of opportunity, especially in supermarkets that have not embraced them as widely as other channels," said Gary Pageau, associate publisher, Photo Marketing Association International.

Digital cameras have moved from the early adopter "techno geeks" to the more traditional film user -- women, the supermarket channel's primary demographic, Pageau noted. Additionally, "home printing is a hassle, so kiosks [at retail] alleviate that concern," he said.

Supermarkets also have an opportunity to pair kiosks with digital camera accessories like ink jet cartridges, coated paper and other media tools for consumers who prefer printing digital images at home, said Steven Jacober, president, School, Home and Office Products Association, Dayton, Ohio.

"Cross-merchandising opportunities allow supermarkets to take advantage" of digital image printing, he told SN. "As people add digital to their record-keeping practices, it's a great opportunity for supermarkets."

Media accessories, including computer consumables like ink jet cartridges, have grown into a $10.2 billion industry, according to SHOPA.

Digital photo-finishing services should be placed in high-visibility areas in other appropriate parts of the store, such as the bakery department near holiday cake displays, along with signage referencing the capturing of memories, said Pageau.

Retailers should also "educate the public that they can print digital images at their grocery store, and make it as easy as possible for them," said Flatley of InfoTrends.

Photo-finishing manufacturers are heeding that call for accessibility and ease-of-use. Sony is conducting a promotion on the Sony Picture Station systems until March 31, cutting the price on by $2,000, said Deborah Szajngarten, public relations manager, Sony Electronics. For retailers, the full Sony Picture Station kiosk is $8,000, while the countertop version is priced at $5,000.

Meanwhile, Polaroid rolled out its new Instant Digital Print Machine last month, said Bob Barton, director of marketing for Opal technology, the advanced technology behind the company's new kiosk system.

The kiosk prints 4-inch by 6-inch digital prints at the rate of one print every two seconds, allowing the consumer to perform an entire 24-print transaction in less than two minutes. The machine supports any storage media, including SmartMedia, Sony Memory Stick, other memory cards and CDs. Like an ATM transaction, the consumer pays at the machine with a credit card. The machine costs around $20,000 for the retailer, he noted.

"Supermarkets are a very key channel for us," said Barton, although he declined to discuss specific agreements with retailers. "We think the speed and the notion of a single quick stop is very important in the grocery channel."

Meanwhile, Callisto introduced CD Picture Essentials software to one top national grocery chain and one major southwest regional chain, said Mike Barta, chief executive officer, Callisto. He declined to identify the chains. The software is designed for retailers offering CDs to customers as a way to view, share and print digital photos they receive on CD from their photo-finishing retailer.

The software allows retailers to put their customized store logo in the program and a link to the retailer's Web site to get new customers into the store, said Barta.

Customers can use the CD Picture Essentials to create photo screensavers, wallpaper or slide shows, Barta said.

Coinstar, the makers of the supermarket-based coin-counting machines, recently announced an agreement with PhotoWorks Kiosks, Seattle, to launch a pilot program that provides prints and photo CDs to digital camera users. The pilot began in January at about 50 supermarket locations in Reno, Nev., Charlotte, N.C., and Seattle, according to published reports. Among the chains reported to be participating are Market Place, Scolari's, Bi-Lo and Lowes.