quick hits
[ideas 2 go]
Red Hot Rentals
DVD kiosks offer cheap movie rentals for customers and solid profits for retailers.
by jerry soverinsky
I
t sounds like a retailer’s fantastical
Christmas wish: It’s a unique product, one whose promotion takes up
little floor space (less than a fully
stocked shelf of Cap’n Crunch, give or
take a few feet in height); it costs nothing, yet has customers lining up to buy
(rent, actually); it requires no inventory
processing — indeed, restocking is executed by customers, not employees; and
finally, its very presence is a traffic driv-
er that spikes sales in other product categories.
Confused? It’s a DVD rental kiosk,
and it’s far from conceptual, wishful
thinking. It’s becoming a valuable addition to the convenience store landscape,
a feature that promises generous returns in exchange for — well — not much
time or effort.
“In less than four years, Redbox has
served more than 40 million customers
and regularly rents upwards of one million DVDs in a single day,” said Denise
Labuda, senior client marketing manager at the Oakbrook Terrace, Illinoisbased Redbox Automated Retail.
Redbox, a leader in the video kiosk
category, maintains a presence at more
than 15,000 locations throughout the
continental United States, including select McDonald’s, Walmart, Walgreens
and Circle K — with more to come.
“[We’re] projecting growth to more
than 20,000 kiosks by the end of [this
year],” noted Labuda.
Redbox kiosks generated $154.7
million in annual rental fees last year.
10 www.nacsonline.com
july 2009
retailer benefits
Derek Gaskins, vice president of marketing at NACS, formerly worked as the
r ed box ®
How It Works
The DVD rental kiosk concept is a simple
one for consumers: A customer browses
DVD rental choices on the kiosk’s LCD
screen, choosing from among dozens of
popular titles. Machines focus on new
titles, skewing toward the 20 top titles in
their 500-count inventory.
After the customer makes a selection and swipes a credit card, the DVD
emerges. If the customer returns the
DVD by the following evening, $1 is the
only charge (except for applicable taxes) that shows up on the card. If the
customer keeps the DVD longer than
one day, the card is charged $1 per day
until it’s returned. ($1 seems to be the
standard fee.)
The simplicity and low cost make the
concept appealing to customers, and the
modest, unobtrusive start-up logistics
make it a compelling choice for retailers.
director of marketing for Giant Eagle,
an early DVD kiosk patron. “[GetGo, a
subsidiary of Giant Eagle] got involved
about four-and-a-half years ago,” said
Gaskins. “They were the first convenience store chain to offer them. Most
of the DVD kiosk companies didn’t
want to go into c-stores at the time.”
Redbox was receptive to the idea,
though, and Gaskins began a trial-anderror marketing approach with the
product, which he refined over time. “I
originally placed the kiosks inside the
stores, because of the sales potential,”
he said. But he found that outside locations performed nearly twice as well as
indoor locations, so he eventually
moved as many kiosks outside of GetGo
stores as local ordinances would allow.
“Some municipalities view outside
kiosks as vending, and there are restrictions,” Gaskins explained. “In those
cases, we worked with them to try to get
them to overturn the restrictions.”
While Redbox and other DVD rental
kiosk companies would not release
their agreement details, Gaskins provided insights into why the concept is
catching on so quickly with retailers.
“There’s no rental cost for the retailer,”
he said, “just the opportunity cost of
the lost space.”
Further easing the burden on retailers, the kiosk companies provide all
maintenance on the machines. But
perhaps the biggest appeal is customer
traffic. “You have to think of every
transaction as two trips for your store
— renting and returning,” said Gaskins,
whose company worked with Redbox
to offer cross-promotions to its customers.
Mobile campaigns sent text codes
to GetGo customers for free rentals
tied to food products, Gaskins explained. Pittsburgh stores customized
a free rental offer after the Steelers
won the Super Bowl. “It was a good
way to drive traffic and additional
rentals,” said Gaskins.
making money
Depending on the store location, DVD
kiosk companies pay a rental fee from
$100 to $500 per location, and then
share from 7 to 15 percent of the rental
fees. While DVD rental fees are only $1
per night, the average final cost for
customers is $2.30, owing to the duration that they keep the movies. All told,
it’s a tidy profit for retailers.
The concept is taking off with retailers. Indeed, earlier this year, Blockbuster announced a partnership with NCR
Corp. that will launch as many as 10,000
DVD Blockbuster Express rental kiosks
by the end of next year. And in May,
Coinstar, parent company of Redbox,
announced that its kiosks generated
$154.7 million in annual rental fees, up
from $60.5 million a year earlier — a 156
percent sales jump. It’s news that led
one industry analyst to predict rental
revenue to reach $1 billion by 2011.
No startup costs. No maintenance.
No inventory processing or stocking —
and a proven traffic driver. What are
you waiting for?
Jerry Soverinsky is a freelance
writer living in Chicago. He is also a
NACS Magazine and NACS Daily
contributing writer.
did you know?
According to Digital Entertainment Group, Redbox rentals
increased 180 percent to
$400 million in 2008, while
sales of DVDs slipped 9 percent
to $14.5 billion in 2008.
Redbox PCI DSS?
Reassuring retailers that it recognizes the security concerns inherent in
transactions that rely on card swipes, Redbox employs state-of-the-art
data security technology before, during and after every kiosk visit.
1.Customer credit card information is encrypted immediately after
the card is swiped through Redbox readers.
2.Further layers of encryption protect all data transfers.
3.Kiosks are actively monitored and regularly inspected both on-site
and remotely.
4.Redbox never moves or stores unencrypted customer information.
5.Credit card information cannot be accessed by outsiders or even
by Redbox employees once a card is swiped at a kiosk.
6.Additionally, Redbox checks credit card readers at its kiosks on
every visit, minimizing the risk of skimming.
july 2009
NACS Magazine 11