Reference no: EM13883354

Automated Retailing: A Driver of Profits and Cost Savings

Introduction

This case discusses the performance and the growing popularity of automated retail kiosks in the United States. These kiosks transactions have risen quite significantly in the past few years, and they are reported to have increased the sales of any stores where they are deployed. In addition, with the advancement of technologies such as touch-screen displays and card readers, these kiosks provide a cost-effective. Fast. And user-friendly experience to both shoppers and store owners. Also presented is a detailed analysis on the kiosks.

Automated Retailing Drives Profits

From the lottery to DVD rental and coin counting, automated retail kiosks increase store traffic and drive incremental sales. Automated retail kiosks are helping store operators boost traffic, incremental sales, and consumers purchasing of high margin convenience categories. They are also profit centers unto themselves.

Consumers first became familiar with automated kiosks in the early 1970's when ATM machines were introduced. Since then, the category has continued to grow. In 2008, self-service kiosk transactions in North America totaled $607 billion across all categories; in 2009, they exceeded $775 billion. By 2012, they were expected to reach $1.7 trillion, according topredictions by the information Technology and Innovation Foundation in a report titled, Embracing the Self-Service Economy. More kiosks are deployed by the retail sector than any other business category. Supermarkets and convenience stores are among the heaviest users.

Automated retail machines allow customer transactions to be performed via a self-serve, interactive kiosk. The kiosk handles all functions, from the selection to the transaction to the delivery of goods or services. Kiosks can be located inside or outside a store.
Advances in technology, such as touch-screen displays, card readers, and scanners, have made automated kiosks extremely cost-effective and user-friendly, says the ITIF. Neither consumers nor store employees need any special knowledge in order to use these kiosks. Some machines even have multilingual capabilities

With these advances and increased consumer adoption, it is o surprise that 75 percent of the convenience store and supermarket operators that participated I progressive Grocers and Convenience Store News Supermarket and Convenience Channel Automated Retail Study said that they currently offer some type of automated machines. Among the convenience stores, the rate is 68 percent; for the supermarkets, it is 85 percent. Lottery (48 percent), followed by soda (47 percent), DVD rental (34 percent), and coin-counting machines (21 percent) are the types of automated retail most frequently found in both channels.

Besides the convenience for shoppers, automated kiosks expand a retailer's product or service offerings and contribute to the bottom line. Since units are self-serve, they can reduce labor costs, indicates the PG/CSN study.

Automated kiosks can also help retailers differentiate from competition with services such as lottery tickets, coin counting, and DVD rental- that make their stores into shopper destinations. Consumers who use these kiosk often purchase snacks, beverages, and other impulse items. Many also pick up milk, tobacco, and other frequently replenished products. "DVD rentals create a destination for our store, as do lottery ticket machines, which are heavily used," says Karen Jackson, store director for a Fred Meyer (www.fredmeyer.com) in Kent, Washington. The Kent location also has ATM, soda, and coin-counting machines.

Benefitting from automated kiosks

The benefits of automated machines are determined by the type of unit, the retail channel, and the store location. Among supermarkets and convenience stores, 71 percent of respondents to the PG/CSN study say lottery machines add value to their business, followed by coin counting (63 percent), DVD rental (58 percent), and cosmetics, photo processing, and electronics ( each 46 percent).

There are several reasons why retailers may view lottery machines as most valuable to their business. For starters, retailers are more likely to have lottery machines than other type units. Among retailers that have lottery machines, 58 percent say customer satisfaction is the most important attribute considered when deciding to add an automated retail program to their store. Fifty-one percent cite the increase in store traffic these machines will promote as the most important attribute considered when deciding to add and automated retail program to their store. Fifty-one percent cite the increase in store traffic these machines will promote as the most important attribute. See Table 2

Coin-counting and DVD rental kiosks also rank high among survey respondents in terms of the value they bring. DVD rental kiosks offer flexibility in that they can be placed indoors or outdoors. This makes them suitable for both supermarkets and convenience stores that may have limited indoor floor space. The outdoor installation option has enabled many convenience stores to enter the DVD category for the first time. In the past, the square footage of live DVD or video rental counters (which are mainly display space) often made the segment prohibitive. DVD rental is also attractive to both channels because consumers make two stops, one to rent and one to return the DVD. This benefits the retailer on both ends of the transaction.

Coin-counting machines have greater penetration in supermarkets than convenience stores (c-stores). In part, this is due to convenience stores space constraints and the fact that coin-counting machines can only be placed indoors. Only 8 percent of the convenience stores queried by PG/CSN have coin machines. However, coin counting is a revenue and traffic driver. It is also a destination service that provides consumers with incremental dollars. Often, shoppers use these funds to increase the value of their shopping basket.

At Jacksonville, Florida-based Winn-Dixie stores (www.winndixie.com), DVD rental, water, and coin counting machines, followed by lottery machines, generate the most traffic and the heftiest profits, says Tom Barr, the 7 billion chains alternate source manager. Machines are located in many of the retailers 484 stores in Florida, Georgia, Alabama, Mississippi, and Louisiana.

DVD machines also lead the charge in terms of types of machines that retailers plan to install over the next year. Across both channels, 14 percent will add DVD rental kiosks, followed by coin counting (5 percent), and photo processing (3 percent), according to the PG/CSN study. In total, 21 percent of respondents plan to add more automated machines of some kind.

Large chains are not the only ones that benefit from automated retail kiosk. According to the PG/CSN stud, 61 percent of single location convenience store operators offer automated machines of some kind. Among supermarkets respondents, 87 percent of single store owners feature automated retail. See table 3.

Happy Shoppers

Customer satisfaction is the area in which automated kiosks have the most impact or success, notes the PG/CSN study. This benefit is cited by 69 percent of retailers with coin-counting machines and 75 percent of retailers with DVD kiosks. Customer satisfaction is followed by labor savings (62 percent and 64 percent, respectively), maximizing retail space (61 percent and 62 percent, respectively).
Convenience is the key driver behind customer satisfaction. Some supermarkets, such as Winn-Dixie, place machines both inside and outside to maximize shopper convenience. This meets the needs of people who are grocery shopping, as well as those who are rushed and do no want to enter the store, says Winn-Dixies Barr. "Everybody uses them," he adds. "They transcend everything. Convenience and price are the lures."

At Jacksons Food Stores, the kiosks are often the only place in small towns to rent DVDs, says Rich Levin, vice president of marketing. Some of the locations have done so well that Jacksons has added a second machine. Since the machines are destinations, the locations are listed on Jacksons Web site(www.jacksonsfoodstores.com) . Jacksons began offering Redbox kiosks about 18 months ago. Today, the Meriden, Idaho-based convenience store chain has DVD kiosks outside 80 or its 215 locations. Jacksons, which also has lottery machines, operates in Idaho, Oregon, Washington, and Nevada.

For other retailers, DVD kiosks give consumers a one stop shopping experience. They also replace some of the DVD rental options that have disappeared from the retail landscape. "When the Redbox units first came in, I thought, who would use those?" says Fred Meyers Jackson. "But Hollywood Video is gone, as are many Blockbusters." Certain serve movies online or via their mobile phones. This adds to the convenience. Movies are then picked up at the stores.

Labor and Cost Savings

Some automated Kiosks help eliminate errors and control labor and other costs. This particularly important during challenging economic times. "Self-service technology frees up workers who can be reassigned to more profitable jobs," indicated the ITIF report. In the case of many DD and coin machines, the retailers do not have to stock, empty, or maintain kiosks, everything is handled by the machine provider. "We have no responsibility," says Winn-Dixies Barr in discussing the retailer's role. "Its Turnkey".

When considering adding and automated retail kiosk, retailers should explore the different operating models and related services offered by various suppliers. Some suppliers provide services that are completely turnkey and pay retailers a share of machine revenue.

Brand Awareness

Retailers are more familiar with some automated kiosk brands than others.On both an aided recall and total(unaided plus aided) recall basis, the vendor that convenience-store and supermarket respondents are most aware of is Redbox (www.redbox.com). Total awareness is 76 percent. Coinstar (www.coinstar.com) is second at 62 percent. It is followed by Blockbuster Express at 60 percent and Kidak at 41 percent. See table 4.

Redboxs high brand awareness stems from its deep market penetration: the company operates more than 30,000 kiosks nationwide. Coinstar coin-counting machines number nearly 19,000 in the United States, Great Britain, Canada, and Puerto Rico. According to the retailers interviewed for this article, Redbox kiosks also have broader demographic appeal than many other machines.

Looking Ahead

With an eye toward the future, retailers and kiosk suppliers are developing new types of machines and new twists for old standbys. Coca-Colas Video Vendor has a 46-inch touchscreen display with video, sound, and graphics. It lets consumers obtain more product information, such as nutritional value. Freestyle, another Coke product, is a robotics-enabled kiosk whose 30 flavor cartridges let users mix unique beverages.

Other machines increase employees efficiency and decrease errors and food waste. Stop and Shop, and East Coast grocery chain, and Quick Chek, a regional New Jersey convenience-store operator, have implemented kiosks that allow shoppers to order prepared food. The consumers order is printed out and read by the food preparation staff. Since consumers can make choices in areas like condiments, somebody who wants mustard will not wind up with mayonnaise.

On the personal finance side, 7-Eleven has installed over 2,000 units that let shoppers cash checks, buy money orders, transfer funds abroad, and pay bills. Consumers do not have to join a store program. Services are attractive to lower income shoppers and immigrants who may not have bank accounts and / or want to send/receive money. Generally, retail-based check-cashing operations command lower fees than traditional check-cashing establishments.

There is no question that the self-service category is growing. But it remains to be seen which of the newer machine concepts will experience the most growth. In addition to being popular among consumers, successful kiosks must operate efficiently and be easy and affordable for retailers to service and maintain. If they can truly revolutionize the customer experience, some concepts could end up rivaling the unprecedented success level and worldwide penetration of the ATM machine.

Questions

1. What can any retailer learn from this case?

2. Comment on the findings in Table 1

3. Explain how automated retail machines can be best used in human resource management.

4. Discuss how automated retail machines can be best used in operations management. Relate your answer to Table 2

5. What is the impact of company size on the use of automated retail machines? Refer to Table 3 in your answer

6. Based on the data in table 4, would you select Redbox for placement in a supermarket? What are the pros and cons of doing so?

7. What other ways could retailers use kiosks?

Attachment:- Tables.rar