November 12, 2003

Redbox Shut Down

After a year-long experiment, the fast-food giant is pulling the plug on all four Redbox automated convenience stores in the Washington area


Lid Is Closed On Automated Redbox 'Stores'

By Michael Barbaro
Washington Post Staff Writer
Wednesday, November 12, 2003; Page A01

Turns out McDonald's was thinking a little too far outside the box.

After a year-long experiment, the fast-food giant is pulling the plug on all four Redbox automated convenience stores in the Washington area, dashing the hopes of vending industry executives who predicted that time-strapped U.S. consumers were ready for a 24-hour glass box that dispensed products as varied as portobello-and-goat-cheese sandwiches and toilet paper.

The 18-foot-wide, 130-item Redbox machines -- in Adams Morgan, Bethesda and Baltimore-Washington International Airport -- remain in place for now, their contents removed. A cardboard sign inside the Adams Morgan Redbox thanked loyal customers for their support.

The decision highlights the challenges companies face in trying to sell American consumers -- long infatuated with quality control and customer service -- on the idea of buying groceries from faceless machines.

McDonald's would not comment on the performance of the four coin-, cash- and credit-card-operated machines, the largest experiment of its kind in the United States. "We are focused on bringing more customers to our 30,000 restaurants around the world," said spokeswoman Lisa Howard. "Unfortunately, the Redbox automated convenience store did not fit into our long-term growth strategy."

She said, however, that the 12 McDonald's-owned vending machines in the Washington-Baltimore region that dispense DVDs draw customers into stores and thus will continue to operate.

In Japan, a country that has eagerly embraced automated shopping, consumers can buy beer and even ties from street-side vending machines. But in the United States, where vending industry sales now total $24.3 billion a year, according to the 2002 report of Automatic Merchandiser magazine, the technology is tucked away in office hallways, where machines dispense such mundane products as bags of Doritos and bottles of Diet Pepsi.

"People still want to touch an item in a convenience store or supermarket," said Michael L. Kasavana, a Michigan State University professor who teaches a course on vending.

McDonald's believed it could overcome that barrier with the kiosks designed by Belgium-based New Distribution Systems NV, which operates automated convenience stores in Europe.

McDonald's billed the 24-hour automated systems as the future of convenience stores, which are plagued by low profit margins, high property costs and relatively expensive labor. In 2002, per-store profits fell by 27.9 percent to $20,400, the lowest level in a decade, according to the National Association of Convenience Stores.

The Redbox machines carried a wide variety of goods -- milk, eggs, bread, laundry detergent, shaving cream, paper towels, Band-Aids, tampons. Items sat behind a large glass wall. The machine was designed to cool its contents at precisely 40 degrees. It took credit cards. And if anything went wrong -- if, for example, the coin dispenser ran low or Advil sold out -- the machine sent an e-mail and page to McDonald's support staff operating out of a Bethesda branch.

Richard Geerdes, president of the National Automatic Merchandising Association, said vending machines can be surprisingly expensive to operate. Fresh foods, for instance, must be replaced daily. Profit margins hover around 5 percent, Geerdes said.

"The technology to vend a gallon of milk is not cost-effective right now," he said.

After the Redboxes were installed, they attracted crowds mesmerized by their high-tech gadgetry, even if the gawkers often did not place much money into the machines.

Last night a group of college-age women, walking by the red steel box on the corner of 18th and California streets in Adams Morgan, stopped when they saw the machine was shut down. Then they had their picture taken in front of it.

"Oh, that's so sad," said 32-year-old Arlington resident Sibel Kulaksiz, who also strolled by last night. "I always saw this as the future supermarket."

Posted by Craig at November 12, 2003 08:42 PM