Space, shrink and consumer acceptance of automation technologies have created a new selling opportunity for supermarkets.With a diversity of new uses, automated kiosks are playing a bigger role in nonfood categories. The most prevalent so far are for digital photo processing and DVD rentals - however, more applications are on the horizon.Kiosks for music downloading, cell phone ring tones, prepaid

Space, shrink and consumer acceptance of automation technologies have created a new selling opportunity for supermarkets.

With a diversity of new uses, automated kiosks are playing a bigger role in nonfood categories. The most prevalent so far are for digital photo processing and DVD rentals - however, more applications are on the horizon.

Kiosks for music downloading, cell phone ring tones, prepaid gift and phone cards, and a device offering an array of upscale goods, like iPods, are being offered to supermarkets. Meanwhile, coin-counting machines, amusements such as "claw" games, and ATMs continue to validate their modest claim on in-store real estate.

Supermarket executives talk about how the machines minimize labor, help meet customers' one-stop-shopping needs, and protect against shrink in sensitive categories like DVDs, while adding good incremental profits for a modest investment of space, often in areas of the store that weren't productive before. However, the main reason this new generation of vending is taking off is because today's consumers are at ease with the devices and actually like using them.

Home computers, the widespread use of the Internet for making purchases, and the growth of automated technology in other parts of the store - like self-checkouts - have had a significant impact on consumer acceptance levels, retailers told SN. Many were interviewed during this month's General Merchandise Marketing Conference of GMDC, Colorado Springs.

"With the use of credit cards on the Internet, people are a little more comfortable using their credit cards in a kiosk. There isn't the resistance

that there was in the past," said Mike Juergensmeyer, group vice president, general merchandise and pharmacy, Schnuck Markets, St. Louis. "The consumer is becoming a little bit more savvy about operating kiosks. It's a little more mainstream outside of our channel - for instance, you're seeing video rentals at McDonald's."

The rise of computers in the home has created a more self-sufficient type of shopper, said Dewayne Rabon, vice president of GM, HBC procurement/sales, Winn-Dixie Stores, Jacksonville, Fla. "As the younger demographics get into the grocery shopping environment, they are so much more accustomed to doing things on their own that they aren't intimidated by it. They enjoy the flexibility."

For example, digital photography has encouraged consumers to take more of a self-service approach to photo processing. "The technology has advanced tremendously in the past three or four years. Your average person can walk up to a digital kiosk, maneuver through it to get the prints they want, and be both happy with the experience and happy with the product," said Dan Spears, HBC/nonfood director, Ingles Markets, Black Mountain, N.C.

"Customers aren't afraid to use a kiosk," said Jack Serota, vice president, general merchandise and health and beauty care, Price Chopper Supermarkets, Schenectady, N.Y. "Ten years ago, people were afraid to use kiosks because they weren't sure about how they worked, but the penetration of home computers has changed that," he said.

With consumer acceptance of electronic kiosks, supermarket retailers now can offer a wide variety of products that they otherwise may not have been able to carry, retailers and manufacturers told SN.

"It is a big opportunity if it allows a retailer the chance to put items in their store that they may not have the space to devote an entire section to," Spears said.

Entertainment Software

With music downloading, for instance, a kiosk can offer far more than what is carried in a typical record store, said Helen Seltzer, chief executive officer, Mediaport Entertainment, Salt Lake City, a provider of retail music kiosks. "The machine can offer you every song published since 1926."

With an Internet connection to the kiosk, "the consumer has the capability to choose from of over a million songs to create a CD, right there in the store," said Doug Barnett, director of GM/HBC, Brookshire Brothers, Lufkin, Texas.

"It offers you an opportunity to increase your mix without actually having to stock the product on your shelf," Juergensmeyer said.

"The retailer couldn't possibly inventory albums the way the kiosk does," Seltzer said. "There is no stocking or storing inventory or payment systems."

Retailers can benefit from such simplified inventory because "it reduces the need for intervention on the part of store personnel and it increases protection against shrink," said Larry Ishii, general manager, GM/HBC, Unified Western Grocers, Commerce, Calif.

"The No. 1 reason to have a kiosk is the old-time thinking about shrink," said Charles Yahn, vice president, merchandising, Associated Wholesalers Inc., Robesonia, Pa. "You put your money into the kiosks and you get a DVD or some other service out. It is a way to control shrink and still offer a convenient service."

For Stop & Shop Supermarket Co., Quincy, Mass., "the footprint is very small and convenient," said Mike Drumm, new ventures and projects manager. "Plus, getting DVDs for $1 a day is really convenient for the customer." Stop & Shop is expected to complete the installation of DVD rental kiosks from Redbox Automated Retail, Oakbrook Terrace, Ill., in 400 Stop & Shop and Giant Food Stores by the end of this month.

While the concept of a DVD rental kiosk represents a good deal for the consumer, "retailers should view it as an attractive profit center per square foot," said John Osborne, founder and president of TNR Entertainment, Houston, an owner and operator of DVD rental kiosks. "It generates over $49 per square foot in profit," Osborne said of TNR's 6+-square-foot kiosk offering.

Digital Photos

This type of profitability makes digital photo kiosks attractive to many supermarket retailers who are now seeing "dramatic losses of development and print revenue as the volume of film use drops each year," according to Ann Morris, research analyst, InfoTrends, Weymouth, Mass.

However, many supermarkets continue to offer traditional overnight film development and are not yet equipped to print digital photos, she said.

"Stand-alone photo kiosks are going to be a rough go unless you are already into one-hour photo processing," said Jeff Manning, president, F&M Merchant Group, Lewisville, Texas.

At Valu Merchandisers Co., Kansas City, Mo., digital photo kiosks are a major focus this year, said Bill Dunkle, category manager, general merchandise. "The photo-processing category is sinking so bad that we're trying to catch up by using digital photo kiosks."

Getting the right product for digital photo processing is the trick, according to a nonfood executive with a Southeastern retailer. "There has been a lot of change from traditional film processing and there are a few different solutions out there: Fuji, Kodak and Hewlett-Packard have all come out with something."

In-Store Automation

Retailers across the country are taking a wide range of actions in regard to digital kiosks.

It's a rare chain that hasn't at least tried a digital photo-processing kiosk, and several major chains, like Stop & Shop Supermarket Co., Quincy, Mass.; H.E. Butt Grocery Co., San Antonio; Bi-Lo, Greenville, S.C.; and various divisions of the Kroger Co., Cincinnati, particularly Smith's Food & Drug, have made a major commitment to DVD rental kiosks.

While Marco Leone, director of nonfoods, Stop & Shop, wouldn't discuss details about the retailer's redbox DVD program, which is often combined with Coinstar coin-counting units, he said it offers two advantages: "It offers the customer the ability to get something quickly or to get their change counted, while it allows us to get into a business without making a huge fixture investment - it's just a kiosk in the front of the store."

"It's a technology that is going to continue to grow and become more prevalent in the stores," added Jim Wonderly, vice president, nonfoods, Stop & Shop.

A number of chains are adding DVD rental kiosks either to replace video departments that have been pulled out, or for stores that don't have video because of space or demographics. For example, Brookshire Brothers, Lufkin, Texas, used to have an extensive video program, which is now discontinued, but in some rural areas, there is no alternative rental outlet, said Doug Barnett, director of GM/HBC. Brookshire is considering testing kiosks from TNR Entertainment, Houston, as well as music-downloading kiosks from Mediaport Entertainment, Salt Lake City.

"You can put 500 movies in a 2-by-2-foot space, rent them for a dollar and have the customer coming back over and over. For a dollar a day rental, you can't beat that anywhere," he said.

Others, like Schnuck Markets, St. Louis, are looking more closely at digital photo-processing kiosks, along with the DVD rental units, noted Mike Juergensmeyer, group vice president, general merchandise and pharmacy.

A Southeastern chain that has DVD rental kiosks is getting ready to venture further, said a nonfood executive. "We are testing MP3 downloads, ring tones, and we're getting ready to deploy a program with prepaid gift cards," he said.

Price Chopper Supermarkets, Schenectady, N.Y., had tried video vending years ago, but "we were a little ahead of our time," said Jack Serota, vice president, general merchandise and health and beauty care. Now the retailer is looking at DVD rental kiosks and music downloading units, he said.

However some, like Jeff Manning, president, F&M Merchant Group, Lewisville, Texas, take a skeptical view of retailers embracing automated kiosks. "The customer would rather buy from a display than from a machine, and the machine indicates that you don't have much interest in the category," he said.


Kiosks Direct Traffic

One of the challenges of offering customers service through in-store automated kiosks is deciding where the kiosks should go, retailers told SN.

"As a retailer, you have to think about the space capacity in your store and where to put these kiosks," said Maria Brous, spokeswoman, Publix Super Markets, Lakeland, Fla. "So while they are a great service, you can't inundate your space. You have to locate your power sources, and plan logistically so as not to clutter the store."

Even though it can get crowded, the front end is a good location for kiosks, said Mike Drumm, new ventures and projects manager, Stop & Shop Supermarket Co., Quincy, Mass. "The front end is a prominent location and a travel path of the customer as they exit."

"Kiosks are never usually looked at as strategic or as contributing in a favorable way to the bottom line, but they can drive retailer productivity and profit contribution and should be used to create a destination point," said Jim Blakely, senior vice president of sales, Coinstar, Bellevue, Wash.

One approach, Coinstar's "Fourth Wall," lines the front wall of the store with automated offerings, making it a prominent consumer destination. Coinstar markets a variety of kiosks to supermarkets, including the redbox DVD rental units.

"With all the machines that are out there, you really have to build that wall," said Doug Barnett, director of GM/HBC, Brookshire Brothers, Lufkin, Texas. "We are going to see more and more people looking at kiosks for quick sales and one-stop shopping."