DIGITAL DILEMMA

Digital image printing remains an area of vast potential for supermarkets, but many retailers are far from realizing that promise, and some perhaps never will.For most supermarkets, getting into the digital printing business will mean investing in a kiosk-based program that requires little space and comes at a much lower price tag than a full digital photo lab. This can be as low as $6,000 to $7,000

Digital image printing remains an area of vast potential for supermarkets, but many retailers are far from realizing that promise, and some perhaps never will.

For most supermarkets, getting into the digital printing business will mean investing in a kiosk-based program that requires little space and comes at a much lower price tag than a full digital photo lab. This can be as low as $6,000 to $7,000 per kiosk, according to sources. However, mass merchants and drug stores have a substantial head start in digital and some retailers wonder if their resources are not better allocated elsewhere.

Those who have seized the initiative have found it to be a popular service for their customers. Numbers from InfoTrends/Cap Ventures, Weymouth, Mass., indicate that more consumers would like to have the option of printing their digital pictures in supermarkets than those who now can do it, said Kristy Holch, group director.

The research company recently found that of people who have used a digital photo kiosk, 69% had used one at a mass merchant, 39% at a drug store and 11% at a supermarket. But when asked where they would choose to use such a kiosk, 70% said mass merchant, 44% said drug store, and 41% indicated they would prefer to use one in a supermarket.

"This tells us that there is potential for grocery stores to service the digital camera users in their stores," Holch said. Referring to the lead that other channels have over grocery in digital printing, she said, "supermarkets are not the No. 1 place that people get their film processed and the film business is declining. So if supermarkets want to keep that revenue, they've got to offer robust digital solutions."

Kiosks In Stores

Food Lion, Salisbury, N.C., has put digital kiosks in its five new Bloom stores, said Jeff Lowrance, spokesman. "We think digital imaging is a service that matches the Bloom concept well. Bloom customers have given the service high marks thus far," he said.

Bashas' Markets, Chandler, Ariz., this month embarked on a digital kiosk test in nine stores (see related story). "Everything that we see shows that all of the digital categories are going to continue to grow," said Bryon Roberts, vice president, general merchandise. "In-store photo developing looks to be an area of huge opportunity."

At larger stores of Giant Eagle, Pittsburgh, customers can either print their own digital images or have them printed by the mini-lab. The retailer also offers the increasingly popular option of uploading digital image files at the company's Web site and then picking the prints up in stores, including those that don't have print-making services. Giant Eagle executives declined to comment on their digital imaging program.

All 20 of the Lunds and Byerly's stores of Lunds Food Holdings, Edina, Minn., have digital imaging kiosks, and some have multiple units, said Dennis McCoy, category manager, HBC/imaging. This week, at the annual Photo Marketing Association International show in Orlando, with an eye toward putting more units in stores to save customers from waiting, McCoy will be looking at new kiosks that operate faster than the old ones in his stores, making prints in eight seconds compared to 23 seconds. "That's old technology now," he said.

"Anybody who is in kiosks tends to need or want more than one," said Gary Pageau, group executive, content development and strategic initiatives, at PMAI, Jackson, Mich. "If you are successful, you certainly don't want people waiting. So success breeds kiosks."

Cautious Retailers

McCoy is enthusiastic about the program, but is not beyond taking a critical view of the digital print-making opportunity. For example, he said, "every retailer is looking at this and wondering, will the digital printing volume offset what has been lost in film. Right now, I'm not sure that it will."

While much has been written about the many images stored on computers and other devices, and not printed, McCoy questions whether this represents a significant opportunity. "What we see is that more of the young people are printing less and less. They are satisfied viewing images on computers, cell phones or PDAs," he said. This does not bode well for the long-term future of photo print making.

Meanwhile, the cost of home printing has recently decreased "dramatically," he said. For example, one computer printer manufacturer offers a package that puts the cost of home printing in the 30-cents-a-photo range. "Pricing was one of the last advantages that the retailer had" over home printing, McCoy said. Additionally, the printer makers are claiming 200-year stability on homemade photos, he added.

At Save Mart Supermarkets, Modesto, Calif., Steve Urgo, GM buyer, does not have a digital imaging program, but expressed the same concerns. He said he is "cautiously" monitoring developments in that business. "It's a significant capital expenditure to get into it. You need the infrastructure to support it. You need the store space to support and you need to be very confident that you are going to be able to cultivate that consumer in a Save Mart store," he said.

Given the head start of the drug and mass stores in the business, the competition is tough. Meanwhile, Urgo said he personally prefers to make digital prints at home and finds the cost reasonable. "It's pretty easy to do at home," he said.

"The biggest concern I have about all of this today is the technology, and that six months from now, they are going to come back and say, 'You have to upgrade all your systems because the new technology is faster and better,"' Urgo said.

"At this point, we just feel like we have other opportunities and other businesses that we can focus on," he said.

"We see digital growing," said a nonfood executive with an east Texas retailer, who asked to not be identified. "Digital is going to be huge."

However, even though the price of the equipment has come down considerably, "it is not an area that we've decided to get back into on a full scale," he said, citing competition and floor space availability.

The kiosks may represent an affordable option for supermarkets, "but I'm not sure grocery is going to get into it very strongly," said Steve Paul, director of nonfoods, Affiliated Foods, Amarillo, Texas. "I just don't see anybody in our area that is doing that." The digital printing business is going to the drug and mass stores, as well as to online services, he said.

"What a huge opportunity," said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas. "That market is changing faster than anybody could imagine." However, he sees the future of digital imaging belonging to online services and home printing.

"We are still looking and we are putting in some of the media," said Dan Spears, director of HBC and GM, Ingles Markets, Asheville, N.C. "In the future, we will have to look at putting in digital [printing] as more people switch from regular film."

Outside Looking In

Observers see digital printing as not optional for supermarkets that want to provide a one-stop shopping environment for their customers.

"The service is going to be expected by consumers the same way that one-hour photo processing is. CVS, among others, continues to show real leadership," said Ted Zittell, partner, McMillan/Doolittle, Chicago.

"Film is not coming back, so if supermarkets are interested in being in the photography business, they are going to have to invest in digital," said PMAI's Pageau.

Supermarkets now have a window of opportunity to get into the digital printing business and keep customers from going to other channels, said Walter Haug, vice president of marketing, digital services, Fujifilm USA, Valhalla, N.Y. "If I could say one thing to supermarkets, it would be that it's not too late in 2005, but it will be in 2007. With all the opportunity that is out there, it's time for them to get started," he said.

A key consideration for supermarkets is that more women are getting involved in digital photography as household penetration of digital cameras is up to 40% and rising, he said. "More of the consumers who are coming in now tend to be female and more likely to print at retail than the early adopters. That is the supermarket's customer. It's starting now and will continue over the next three years," Haug said.

While other channels have a head start, the continuing growth in digital photography means many new customers are still coming to digital, he said. "Those customers are up for grabs and supermarkets can catch up, and start to gain that customer without taking anything away from mass or drug," Haug said.

"While mass and drug have a modest head start, the final outcome of how and where consumers will print their digital pictures is far from over," said Mike Saturnia, vice president, mass, food and key accounts, Eastman Kodak Co., Rochester, N.Y.

"It can be argued that food has an advantage because consumers are starting to re-establish behaviors right now. Couple that fact with the dominant number of store trips that supermarkets possess and the future is bright for food retailers that are willing to make an investment in this emerging category," Saturnia said.

There has been "explosive growth" in digital print processing in supermarkets, he said, although less so than in drug and mass merchant stores. "Food retailers that have enabled digital printing capabilities are seeing significant growth, which has resulted in significant investments behind digital printing," he said.

"Supermarkets have great opportunities [in digital printing] because they are a regular trusted destination for women who take pictures," said Laura Oles, vice president of strategic communications, Pixel Magic Imaging, San Marcos, Texas. "From that perspective, if you are promoting it, if you are getting your message across, if you have your folks take the time to be enthusiastic about it, there are all kinds of opportunities out there," she said.

Retailers that put effort behind a digital image printing program "are going to reap the rewards and they will be substantial," Oles said.