The photo-processing business will never be the same.While film and film processing appear to be in a steep decline, the in-store printing of digital images is increasing fast, more than doubling in the year ending November 2003, according to Photo Marketing Association International, Jackson, Mich.A new realm of opportunity awaits those who invest and promote digital printing, retailers and other

The photo-processing business will never be the same.

While film and film processing appear to be in a steep decline, the in-store printing of digital images is increasing fast, more than doubling in the year ending November 2003, according to Photo Marketing Association International, Jackson, Mich.

A new realm of opportunity awaits those who invest and promote digital printing, retailers and other industry observers said, although it may not completely replace the dollars lost to digital from film and film processing. However, those who don't get with the new technology won't be in a position to benefit when digital cameras become even more mainstream than they are today.

U.S. household penetration of digital cameras was 30% at the end of 2003, and is expected to reach 40% this year, said Kerry Flatley, senior research analyst, InfoTrends Research Group, Norwell, Mass. An estimated 12.5 million digital-still cameras were sold last year, PMAI reported.

"Film will be gone, but imaging is here to stay," said Dennis McCoy, photo operations manager, Lund Food Holdings, Edina, Minn. Lund has digital printing kiosks from Sony in all 20 of its Lunds and Byerly's stores, he said.

"The struggles of conventional film companies aside, this is the most exciting time in the history of imaging. There are challenges, but also great opportunity," he said. McCoy is scheduled to speak at a seminar during the PMA International Annual Convention and Trade Show in Las Vegas this week.

The Lunds and Byerly's stores operated by McCoy's company have had digital printing stations for about a year, "and it has grown exponentially. We've positioned these units in very convenient parts of our store, and people are comfortable with that. You can make prints, or you can burn a CD to keep an archival copy of your images," he said.

Statistics from PMAI's Market Research Department confirm that more prints are being made from digital images and at retail. The overall volume of prints made from digital-still cameras went up 64% for the year ended November 2003, and the share of all retailers -- PMAI does not track supermarkets separately -- more than doubled, to 12.7% from 6.1%. Meanwhile, the number of prints made on home printers declined to 68% from 83.8%, the association reported.

"We're seeing a lot of growth in retail printing, which of course impacts the grocery channel," said Gary Pageau, spokesman for PMAI. "Retail printing will grow quite dramatically over the next few years, mainly because the cameras themselves have become less dependent on PCs." Digital mini-labs and in-store kiosks are helping untether digital cameras from computers, he said. "You can take out your media card just like a normal roll of film, plug it in, and out come the prints."

The use of digital image-printing equipment was responsible for much of the retail share growth PMAI reported. While the number of prints made at retail stores increased 240% for the year ending last November, the number of images printed at kiosks rose 600%, according to the association.

It's relatively inexpensive to get into the digital image-printing business, with many good countertop units available for less than $10,000, said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas. However, retailers like Wal-Mart and Walgreens are taking the lead in digital printing. Walgreens identified it as partly responsible for driving record sales last year, Manning said. "Now, if the grocery industry can't look at those companies and wonder if there's something going on, there's something wrong."

Yet, he added, "there's still plenty of time to jump on it."

"We are trying to move rapidly into digital processing and support. That's going to be the growth area," said Ruth Mitchell, spokeswoman, Hy-Vee, West Des Moines, Iowa. Like other retailers HY-Vee will continue to offer conventional film processing, "but we want to have the latest technology available for people who are into the new breed of digital cameras and digital processing," she said.

Supermarkets' shares of conventional film processing have been 10% to 12%, Pageau said. "I would expect the shares they now have to be transferred to the digital world. I don't see consumers changing their habits that much. If they are comfortable taking their film to a supermarket, they will also be comfortable taking their digital images there," he said.

However, supermarkets need to adopt a flexible mind-set when it comes to digital photography, he added. For instance, cellular camera phones will deliver higher-quality pictures in the future, and create a demand for prints, he said. Also, the digital print customer buys relatively small orders by the sprint, not by the roll. "So it is going to take some adjustment to change from the roll mentality to the per-print mentality," Pageau said.

"I predict that in the next couple of years, every house is going to have a digital camera and printer, so the core film business is going to continue to slide drastically," said a nonfood executive with an east Texas supermarket chain, who asked not to be identified. The company's overnight developing service is off 12%, and film sales are down about 22%, the executive said. "The digital business has definitely hurt the overall category."

The retailer doesn't plan to get into digital image printing because of competition from Wal-Mart and Walgreens, he said. "We don't have the dollars to compete with them."

Viewfinder: Wal-Mart's Photo Strategy

BENTONVILLE, Ark. -- As in many categories, Wal-Mart Stores here is a leader in film, photo and digital image printing. Responding to a series of questions posed to Wal-Mart by SN, Danette Thompson, spokeswoman, explained the retailer's approach to this fast-changing category.

SN: How is the trend to digital photography impacting Wal-Mart's film and photo-finishing business?

THOMPSON: As an industry, film sales are trending down compared to last year. Comparably, we are seeing more and more customers utilizing our developing and printing business. Digital photography has opened many new doors for customers. Now more than ever, they can do more with their pictures.

SN: Will film remain a viable part of the business in the long-term future?

THOMPSON: We believe there will always be people that will take pictures with film in the foreseeable future. There is nothing wrong with pictures from film. It is simply that digital photography has brought picture taking to a different level. There are many people who believe the picture they get with their film cameras is just fine. We want to give the customer a choice: film or digital. We can take care of you either way.

SN: What timetable does Wal-Mart see for the transition from film to digital dominance of the photo-finishing business?

THOMPSON: The digital photography industry is increasing at a more rapid rate than first anticipated. It is a very strong force in the business. As for speculating about a timeframe for "dominance," it's hard to anticipate. Considering the movement to digital is being driven at this point by the "soccer mom" instead of the "early adopter," it is certain that we will see digital cameras at more mainstream events in life.

SN: What can be done to attract and keep the digital photo customer?

THOMPSON: We believe that providing our customers choices in photo printing at the lowest possible price is the key. We can't expect a customer to switch from a good film camera to a digital camera if we don't give them the products and services they need at a reasonable price. At Wal-Mart, a customer can get a high-quality, archival photo made on the same photographic paper that their film was printed on, at a much lower cost than what they can print it at home. Aside from quality and price, another important factor is making it easy to get pictures. A customer can either walk up to our Digital Photo Center counter and drop off their digital memory card -- just like a roll of film -- or load their pictures on our easy-to-use Digital Print Center, which sends them to our equipment behind the counter to be printed. With the Digital Print Center, the customer can do everything from getting single or double prints of what they want, to customizing their photos with cropping, text, borders, etc. Additionally, a digital customer can sit in the comfort of their own home and log onto, upload their photos, pick the ones they want printed, and have them sent to their nearest Wal-Mart store for pickup, or have them mailed directly to their house.

Tapping the Digital Image Backlog

A big part of the digital photo opportunity is the countless number of unprinted images sitting on consumers' computer hard drives. Taking advantage of it initially requires an investment in the printing equipment, but after that, the service needs to be promoted and the customers educated about it, industry experts told SN.

"It's a huge marketing opportunity," said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas. It's also an educational opportunity, "but no one has come to the forefront on that," he said.

"Today, there are more pictures out there waiting to be printed than ever. The consumer is taking all these digital pictures, but they are not printing them; they are storing them." Yet, many of these people don't realize how undependable and changeable computer equipment can be. If not printed, or otherwise safely stored, "that consumer is really not going to be very happy 12 to 15 years from now because they are not going to have any prints to look at," Manning said.

"The significant challenge we face is educating the consumers about digital images," said Dennis McCoy, photo operations manager, Lund Food Holdings, Edina, Minn. For example, they need to know how to store and retrieve images, and to make prints. In the past, people had to be computer-savvy to use digital cameras, but new digital camera technologies enable prints to be made without a computer.

"I see customers ramping up their education level with respect to digital photography," said Bill Mansfield, a nonfood supermarket executive formerly affiliated with Tom Thumb, Harris Teeter and, most recently, Marsh. Also, Mansfield is the immediate past chairman of General Merchandise Distributors Council, Colorado Springs, Colo.

"They are becoming more familiar with printing their photos at in-store digital print stations, as well as from their computers," he said.

However, the challenge is getting those digital images on paper. "The end result of photography, regardless of type, is the consumer satisfaction of the finished photo in hand. Seeing a picture on a computer does not give them the same satisfaction," Mansfield said.

Toward that end, supermarkets could offer in-store education courses on digital photography just as they do for cooking, floral design or cake decorating, he said, or sponsor other programming.

Photo Marketing Association International, Jackson, Mich., has launched an industrywide campaign to promote the printing of digital images, said Gary Pageau, spokesman. "We want to drive consumers to the message that, 'You should be printing your pictures.' A retail solution is one of the options. The point we are trying to make is, 'Please print your pictures because the alternative is disaster. No matter how long a digital print lasts, it will last longer than a hard drive." he said.

For retailers, the way to build a digital printing business is simple: "Supermarkets should advertise," said Kerry Flatley, senior research analyst, InfoTrends Research Group, Norwell, Mass. "At least 40% to 50% of digital camera users are not aware that their local film-processing location can print photos from their digital camera."

Retailers also need to understand that consumers who are aware of retail printing services think they are superior to home printing, Flatley said. "But home is more convenient, so retailers should do everything possible to make their solution convenient," he said.

"Supermarkets have an advantage in that regard because they are a location that every family needs to go to frequently. One form of convenience that supermarkets can employ is to allow consumers to upload their photos from their PC to the supermarket, and then they can simply pick them up when they do their shopping," he said.