Coinstar gives vending machines a tech twist
The Bellevue company that gave us Redbox movie rentals has re-tooled the venerable vending machine to dispense everything from cafe-style coffee to tablet computers.
Seattle Times business reporter
All the buzz in retail these days is about the explosive growth in e-commerce. Traditional chains such as Costco and Nordstrom have made online business a top priority as Amazon.com reigns supreme.
But another Northwest company is making a case for why the lowly old vending machine could be retooled for the Internet age.
Bellevue-based Coinstar, which owns the Redbox movie-rental business, says today's technologically savvy shoppers are a prime market for a new lineup of self-serve products ranging from cafe-grade coffee to refurbished iPods.
Research firm IHL Group estimates the North American market for automated kiosks will exceed $1.1 trillion in 2015, up from $715 billion in 2010.
"People are much better at educating themselves about products, so they don't need a store's staff support as much as they used to. And people are busier," said analyst John Kraft, who follows Coinstar for D.A. Davidson in Lake Oswego, Ore. "They still have to go to the grocery store, but now they can get more things done while there."
A decade after starting as a McDonald's venture, Redbox has upended the DVD business with cheap movie rentals. It now stands as the nation's largest source of DVD rentals, accounting for 85 percent of Coinstar's annual revenue. The other 15 percent comes from Coinstar's namesake coin-counting business.
Redbox machines can be found at more than 30,000 Walmarts, McDonald's restaurants and other places where shoppers regularly visit. In total, Coinstar estimates that between 45,000 and 60,000 U.S. locations can accommodate Redbox machines.
But investors worry about Coinstar's long-term future as more people watch movies and TV shows streamed over the Internet.
Redbox joined with Verizon Communications in February to launch a new service that combines DVDs and streamed movies. Rollout of the new service is set for the second half of 2012.
Coinstar's expansion into new areas of automated retail also is part of an effort to ease investor concerns.
Coinstar, which has about 2,700 employees, including 370 in the Puget Sound region, acts a bit like a venture-capital firm, putting entrepreneurs in charge of each new business and setting stringent performance measures. Even ideas that start out with a lot of promise can crash and burn.
Last year, Coinstar pulled a machine that sold designer purses after talking it up to analysts. "We tried it for two years, but it just didn't hit the bill, so we ended up having to turn it off and shut it down," said Chief Financial Officer Scott Di Valerio.
Coinstar recently hosted about 80 analysts and investors at Bellevue's Westin hotel to introduce a few new ideas. Here's a look at four concepts in various stages of development.
Description: Grinds, brews and dispenses coffee and specialty drinks under the Seattle's Best Coffee brand.
Prices: $1 or $1.50 for a 12-ounce cup
Footprint: More than 50 kiosks in Seattle, San Francisco and Washington, D.C. About 500 kiosks are expected to be operating by year's end.
Target locations: Nearly 50,000 mass merchants, supermarkets and drugstores. Starbucks, which owns Seattle's Best Coffee, has mini-cafes in 2,000 of those locations. "We're after the other 48,000," says Ken Redding, general manager of coffee ventures at Coinstar.
Competitors: Coffee shops, convenience stores and fast-food restaurants.
Projected sales: $11,000 to $12,000 per kiosk annually.
Biggest surprise: Tastes pretty close to any cafe brew.
The challenge: Persuading coffee drinkers to give it a try. "Coinstar is going to have to convince people that a kiosk can produce a decent cup of coffee," says D.A. Davidson's Kraft. "If people are like me, they remember some old-fashioned self-service vending machine at their high school or out front of the DMV that produced poor coffee."
Description: Sells refurbished or overstock consumer electronics, including video-game consoles, tablet computers, iPods and cameras.
Sample prices: $179.99 for an Xbox 360 Slim 4-gigabyte model with two games ($220 list price); $169.99 for a fourth-generation, 8-gigabyte iPod Touch ($199 list).
Footprint: Nearly 10 kiosks in Los Angeles and San Antonio.
Competitors: Amazon.com, electronics discounter Woot.com, Craigslist and other websites.
Projected sales: $90,000 to $100,000 per kiosk a year.
Biggest surprise: On-site returns and 90-day warranties for purchases.
The challenge: Securing supplier relationships with popular consumer-electronics brands, which can be protective about where their products are sold.
Description: Pays for used, small portable electronic devices after identifying their make and model and estimating the current value.
Footprint: About 50 machines in malls on the West Coast.
Competitors: Your wastebasket or junk drawer.
Biggest surprise: Accepts most cellphones and MP3 players, even broken devices. "We'll pay good money for this," says Rick Segil, vice president of operations with EcoAtm, holding up a smartphone with a cracked screen. "Either the screen can be replaced or the silicon inside has value."
Key factoid: An estimated 130 million phones are retired annually in the U.S.
The challenge: Persuading people to resell devices that may contain photos, contact information and other personal data. "They're going to wipe the devices clean (of information) and tell you about that, but there still may be some uncertainty," Kraft says.
Description: Modernizes the old photo-booth concept. Customers can pose as rock stars, fashion models or world travelers, then decorate their photos, share them via email or Facebook and get prints on sticker paper.
Prices: $6 to $12, depending on the number of prints requested.
Footprint: Nine booths in Los Angeles.
Target audience: Girls 7 to 17.
Projected sales: $30,000 to $35,000 per booth a year.
Competitors: Smartphones, tablet computers and other devices that enable digital photo sharing.
Biggest surprise: Flattering lights, stereo surround sound and fun photo backdrops.
The challenge: Getting in front of lots of teenage girls with money to spend. "The traffic has to be the right demographic. That means mall traffic, and there are really only 400 to 500 malls that make sense," says analyst Michael Pachter, of Wedbush Securities in Los Angeles. "Although I'm sure each kiosk is quite profitable, I think we're talking about a really small impact on Coinstar's overall $2 billion in annual revenue."
Amy Martinez: 206-464-2923 or email@example.com