Changing the Channel

Maybe it’s all headed toward a day of total convergence, when the lines separating one industry from the next will be irreversibly blurred.

Consider the freewheeling dynamics of retailing in the past few years: McDonald’s has been offering DVD rentals by way of in-store kiosks. Blockbuster stores have begun offering c-store fare such as fountain drinks and full-service coffee bars. And, in a move certain to spur copycat maneuvers from U.S. counterparts, UK grocery juggernaut Tesco is using its Web site to offer customers music and video downloads.

If you ask c-store industry experts, there’s little reason food stores and gas stations can’t join the fray, particularly when retailers like Blockbuster, led by former 7-Eleven head Jim Keyes, have no qualms about treading into c-store territory.

In hopes of "keeping its 4,800 stores relevant," Blockbuster Video recently embarked on a grand experiment at stores in Texas, where it expanded its product lineup to include cappuccinos, fountain drinks and full-service beverage offerings.

New trends and technologies in the movie rental market, however, could put c-stores in line to snatch back a share of customers they’d otherwise lose to Blockbuster’s c-store delusions.

"I think you’ll see more stores experimenting, whether it’s with used DVDs or video on demand or whatever," said Jeff Lenard, spokesman for NACS. "It’s about attracting convenience customers, (when) gas prices are at $3.60-plus a gallon."

Jim Kraning, president of the four-store K&B Kwik Stop chain in Pocatello, Idaho, operates a 4,500-square-foot video store next to one of his 3,000-square-foot Kwik Stop stores. The video store has been a terrific driver for c-store traffic, Kraning said.

"The customers always have to walk through the convenience store to get to the video store," he said, estimating that about 25% of customers in one store end up in the neighboring unit.

Kraning’s ample space for movie rentals lets him compete with the likes of Blockbuster or Movie Gallery, but it’s a setup the vast majority of c-stores could only hope for since most simply can’t devote hundreds of square feet to shelving for DVDs or video games.

Self-serve kiosks from manufacturers like Redbox and DVDNow are making a huge push to capture consumers as they shop at supermarkets, quick-service restaurants and c-stores. Owned by Coinstar and McDonald’s Corp., Redbox started in 2002 with just 12 locations, but has since grown to 7,400 kiosks across the country and has surpassed the number of Blockbuster locations nationwide. Renters can swipe their credit card at a Redbox location and choose from 500 DVDs, paying $1 a night for each movie. Movies can be returned at any Redbox location, but if it’s held more than 25 nights the DVD is charged to the consumer’s credit card.

 

Strong Upside

All indicators say the concept is going gangbusters. Redbox installed its first c-store location in December 2006, and has since added the program to 250 other c-stores in the U.S. Five years ago self-serve DVD kiosks claimed just 1% of the movie-rental market. By 2010, the concept is expected to secure 10% of the market share, said Sean Bersell, spokesman for the Entertainment Merchant’s Association (EMA).

"The kiosks make a lot of sense for c-stores," Bersell said. "The footprint is small, and the kiosk operator is paying rent to the supermarket. It’s very convenient for the consumer you’re going to the supermarket anyway, you’re going to the drug store anyway and you’re going to the convenience store anyway. You don’t have to make a special trip to the video store."

C-store chains like Circle K and Speedway have already added Redbox to a number of sites. At a Speedway in Ohio, store managers said Redbox was added in April this year and it’s already being used daily.

"I think you’ll find the c-store operators who are getting into this market are doing it through (kiosks)," Bersell said. "For them, it adds selection and it doesn’t cost the convenience store anything."

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