The Invasion of the DVD Rental Kiosks
By George Anderson
A&P and McDonald’s are just two of the retail and foodservice companies looking to drive additional customer traffic by placing DVD rental kiosks in their stores.
TNR Entertainment Corp. (The New Release), the nation’s largest owner/operator of DVD rental kiosks in grocery outlets, announced yesterday that it had signed an agreement with A&P to place rental kiosks in 30 company stores covering Delaware, Maryland, New Jersey and Pennsylvania.
According to a TNR press release, the company’s kiosks dispense DVDs to roughly 1 million consumers a month. Individual units store up to 200 DVD titles that are updated on a weekly basis. Rentals cost consumers $1 a day.
McDonald’s is also pursuing the DVD rental opportunity but instead of using a third-party to supply and operate kiosks, it has created its own vending unit, Redbox Automated Retail.
To date, The Associated Press reports, the fast food chain has installed hundreds of the Redbox kiosks in restaurant locations covering six states.
While traditional movie rental stores have been struggling, Redbox and others in the kiosk space believe they offer an attractive alternative for consumers and retailers alike.
“We think it’s a tremendous opportunity,” said Greg Waring, vice president of marketing for Redbox. “We think we’re providing a new model for the industry that is going to be difficult for the traditional retailers to compete against.”
“We have some very aggressive projections in terms of our growth, led by McDonald’s locations,” he added. “There’s over 13,000 McDonald’s restaurants in the U.S. We foresee a day when we’re in the vast majority of those.”
The company, however, is not just looking to McDonald’s for placement of its machines. According to the AP report, Redbox currently has kiosks in 75 grocery stores and it recently signed a deal to place units in 400 Stop & Shop and Giant Food stores.
Moderator’s Comment: Do DVD rental kiosks offer retailers the opportunity to drive frequency of consumer visits and additional profits either through
the rentals themselves and/or add-on sales made while customers are in the store? Do you see DVD rental kiosks as a smart merchandising and customer service move by retailers?
Teresa Kliner, a customer at a McDonald’s in Apple Valley, MN told The Associated Press that she appreciated the restaurant having the DVD rental
kiosk.
“With kids, it’s easier this way, because they’re not running all over the store,” she said. Ms. Kliner’s daughters were busy playing with Mr. Kliner in
tow at the restaurant’s indoor playground at the time. – George Anderson
– Moderator
Only if the McDonald’s or other store locations are so convenient that consumers will be frequenting the area on an almost daily basis, will the kiosks be very effective. They will drive incremental sales, but continuous, frequent use runs into the same problem as Hollywood and Blockbuster face: the inconvenience of picking up and returning the videos vs. Netflix. The convenience of ordering online from home, receiving the DVDs in the mail, and returning them in your own mailbox is very enticing. Going to any other location to pick up and/or return the videos is inherently less convenient.
It would be interesting if McDonald’s could offer the additional benefits of picking up the DVD at one location, then dropping it at a different one. Think about how many families driving in SUV’s and Minivans who have in-car movie capability to help with the trip would stop at McDonald’s along the route to pick up a new DVD for the next phase of the trip, and also grab coffee, food, snacks, for the family.
More shopping trips translate to increased sales and increased shopper loyalty…now, that would offer a very, very interesting value added benefit. Just take a look at the parking lot of a McDonald’s any summer day, and see who the target audience could be….
The growth of kiosk locations is growing but to what degree are consumers responding? If consumers are embracing these options, stores will see increased revenues directly related to rentals as well as add-on sales of other products. I’m just not convinced there is tremendous growth opportunity in this area, considering movie rental stores are hurting. The growth of DVD rentals/sales is happening through the web.
Traditional video rental stores are suffering long term sales declines, so it will be interesting to see if the vending machines are long term winners. The future of mass video is DVR, iPod, and internet download driven. If the machines are being depreciated over more than 2 or 3 years, it’s likely that the profitability is being overstated.
The kiosks do drive traffic at non-traditional rental locations, and consumer acceptance and usage have been at or above projections and growing. In fact, they even prove to generate incremental usage in outlets that also offer videos for sale.
The advantage vs. a Netflix is immediacy and impulse. Ease of return for a college kid is as easy as getting his next meal (since 50% of them come from McDonald’s anyway!!).
Ryan is right about the future being “streaming video” but he is looking FAR into the future for the average consumer. The early adopters who are willing to watch movies on the PC screen or who have the savvy to connect the PC to the TV are already in the market, but it is a smaller percentage of the population than you would think. “Streaming” direct to TV or other viewer has to get a lot easier before penetration grows substantially. To be sure, it will. But it will be 5 – 10 years and still may never totally replace the physical rental market.
Mark’s on the money. The future is in downloading or one time use “rentals.”
Yes and yes. Where I live, there are two small shops within a one mile radius that stocked DVDs. One has just discontinued them but it is such a poor shop that no one is likely to buy anything else from them in any case. The other is only marginally better and has a very small selection of DVDs. Otherwise, you have to drive 5 miles to choose then 5 miles to return. I’ve been using a Netflix equivalent for the past two years because of this. Basically, then, I think it depends on the location of the store or McDonald’s as Camille points out. Only if it is relatively convenient to do the two trips is it likely to be profitable as an incremental item/service. Otherwise, especially with all the howls coming from over there about gas prices, I can’t see a lot of people making a special trip.
This is not something that will drive traffic or induce consumers to come into the store. It should, on the other hand, contribute to incremental sales and profit. What will, I’m sure, be watched very carefully, are the sales and profits per square foot. Many supermarkets are already selling DVDs. Now the questions is, to what degree will consumers rent from the kiosk?
Being familiar with most of the A&P/SuperFresh stores involved in the DVD rental kiosks, I feel that they will compliment the shopping experience. Most of these locations have in-store bank branches. Customers already have many store in a store features.
These kiosks are yet another example of shopping convenience.
I won’t yet count out DVD rentals. Sure, downloading off of Big Brother TiVo and others internet is coming, but it may take a while for all consumers being able to afford and benefit from it.
I feel that this additional feature will make SuperFresh customers more devoted to their store, and bring in others who prefer the one stop shopping experience.
A quick add-on to Dan Nelson’s comments…the Redbox model does include “pickup here / drop-off anywhere” within their kiosk system. The benefit to the traveling family Dan envisions is one great example. My own yet unrealized dream would be a Redbox in every American Airlines Admiral’s Club!