Big companies selling nontraditional goods via machine

By Lisa Cornwell

CINCINNATI – Miner Gross likes the convenience of being able to rent a DVD with a couple of taps on a touch-screen and a quick swipe of his credit card.

“It only takes a few minutes, I don’t have to stand in line like I would at a video store and I can just drop it back in the machine the next day,” the 41-year-old said while scanning selections at a kiosk at a Cincinnati grocery store. “I’d get more things this way if they were available.”

The idea also is catching on with more major companies, which are turning to self-service to sell or rent goods formerly not available in machines. Macy’s Inc., Motorola Inc., McDonald’s Corp. and others are offering electronics, DVDs, cosmetics and drug prescriptions through emerging uses of automated retail that combine the self-service concept of traditional vending machines with the software of digital kiosks.

With stores and products across the country or around the world, the companies are spreading the do-it-yourself concept to larger numbers of consumers.

“The thing that has been made clear to us is that people like the experience of being able to stand in front of a machine, see the products and accessories, and buy them right there,” said Geoffrey Baird, Motorola’s senior director of global retail and distribution.

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Macy’s department stores began using machines from San Francisco-based ZoomSystems in 180 stores in 32 cities last year.

Electronic products including iPods and headphones are visible through the glass front of the kiosks, or robotic stores, which are about the size of two vending machines placed side by side. Customers press a picture of the item on a touch-screen and other parts of the screen for item information.

To buy a product, shoppers run their credit or gift card through a slot and a robotic arm selects the item and places it in the delivery bin for the customer to retrieve.

The machines give Macy’s a secure yet accessible way to sell electronics, company spokesman Jim Sluzewski said.

“In many cases, items like iPods are behind locked glass and you have to find an employee to unlock it and assist you,” he said. “With Zoom, you can clearly see what’s there and it’s easy and simple to buy.”

Suburban Chicago-based Redbox Automated Retail LLC provides kiosks for DVD rental.

About the size of a soda machine, the units offer 70 titles that are updated weekly and selected via touch-screen. The DVD can be returned to any Redbox location by touching the return part of the screen and dropping the DVD in a slot.

Salt Lake City-based Smith’s Food & Drug Stores Inc., a division of Kroger Co., started installing Redbox kiosks in its Las Vegas area stores a couple of years ago and now has them in most of its stores in seven Western states.

“It has taken off like wildfire,” Smith’s spokeswoman Marsha Gilford said. “We’ve had video rental departments in our stores in the past, but this allows us to use that space for other products for our customers.”

The technology now moving into traditional retail outlets not only gives consumers the convenience and speed they want but allows retailers to deploy their people to help customers in other ways, said Greg Buzek, president of the marketing research firm IHL Consulting Group based in Franklin, Tenn.

Neither Redbox nor ZoomSystems, which are privately held, release financial results, and the companies that partner with them would not disclose how much has been sold via kiosks.

But an IHL study released in July projects that North American consumers are on pace to spend more than $525 billion at self-checkout lanes, ticketing kiosks and other self-service machines including postal kiosks in 2007, an increase from $438 billion last year. The study says that number could reach nearly $1.3 trillion by 2011.

“Retailers can’t simply put self-service kiosks in and expect consumers to know how to use them,” Buzek said. “Those that train a staff person to help customers learn how to use these devices will be the successful ones.”

C. Britt Beemer, chairman of America’s Research Group, in Charleston, S.C., believes the negatives outweigh the positives in self-service retail.

“Shoppers who love to feel and hold things aren’t going to buy products through a machine, and those who don’t want to deal with long lines can shop online,” he said.

Redbox and ZoomSystems say they can handle most problems that might occur from a central location and have toll-free phone numbers on their machines if customers encounter problems.

Automated teller machines and pay-at-the-pump technology helped consumers get more accustomed to self-service.

Francie Mendelsohn, president of Rockville, Md.-based Summit Research Associates consulting firm, thinks use of the new kiosks will grow steadily.

“But it took nearly 20 years for ATMs to catch on,” she said.

Motorola and Sony Corp. have been testing ZoomSystems machines that sell only their brands in malls and airports, offering cell phones, batteries, digital cameras and MP3 players.

The kiosks allow companies without their own stores to expand distribution in high-traffic locations without having to compete with a mix of brands as they do in megastores, said ZoomSystems CEO Gower Smith.

Baird would not disclose how many kiosks Schaumburg, Ill.-based Motorola has in North America but said the company also is trying out automated retail with providers in major markets in Europe, Latin America and Asia.

Redbox CEO Gregg Kaplan said his company has rented 50 million DVDs, and the number of locations has grown to 4,200 since the units were introduced in 2003.

Minneapolis-based Supervalu Inc., operating grocery stores such as bigg’s and Albertsons, began using Redbox DVD rental units this year and now has about 900.

Fast-food chain McDonald’s, an investor in Redbox, started installing the units in 2004 and now has them at 1,400 restaurants. Customers of the Oak Brook, Ill.-based restaurant chain can rent a DVD when they come in for a meal.

Other new forms of self-service kiosks continue to emerge.

Kroger’s Great Lakes Division is trying out a 24-hour automated kiosk near its fuel pumps that offers deodorant, eye drops and other goods traditionally found in convenience stores. San Diego-based Asteres Inc. provides pharmacies with self-service kiosks where customers can pick up and pay for prescription refills.

No one argues that self-service can replace retail’s human component.

“Companies interested in using this to pay fewer people won’t succeed,” said Rob Evans, industry marketing director for Dayton-based NCR Corp., which makes automated teller machines, and retail checkout scanners. “The challenge is to enhance consumer experience and make it something customers want and appreciate.”