DVD Rentals
Vending Machines Grow Up -- Washington Post 27jul03
JOSHUA PARTLOW / Washington Post 27jul03
If the portobello-and-goat-cheese sandwich doesn't drop at the Redbox vending machines that McDonald's has sprinkled around the Washington area, shaking the box isn't possible, and shooting it won't help. The average machine is 18 feet wide, weighs several tons and has a bulletproof glass facade.
In fact, if there is any problem with the more-than-130-item, 24-hour automated convenience stores -- if, say, the interior temperature rises above 40 degrees, the coin dispenser runs low or the tampons sell out -- the machine will e-mail and page the McDonald's support staff operating out of an office in Bethesda, before the customer can even finish cursing.
"In the future you will not find any
more video stores."
Vending Machines Grow Up: Candy Bars And Soda Make Way For Movies, Live Bait And Even Prescription Drugs JOSHUA PARTLOW / Washington Post 27jul03
"Our central server receives updates from each machine constantly. We're always processing data, analyzing sales, transactions, credit card matters, controlling inventory. . . . These machines are live all the time," said Mark McGuire, a director of business development at McDonald's.
Automatic vending has come a long way since Thomas Adams's coin-operated Tutti-Frutti gum machines were installed in New York railroad stations in 1888. McDonald's Redbox test project, started in January of last year under the name TikTok Easy Shop, has grown to include four unmanned convenience stores and seven DVD-only dispensers. These kiosks, among the first automated convenience stores in the United States, are the latest example of vending technology's continued expansion into broader retail realms. Other companies have sprung up selling such products as clothing, prescription drugs and live bait, all without on-site employees.
"I think automated convenience stores are of great significance," said Michael L. Kasavana, a Michigan State University professor who teaches a course on vending and whose position is endowed by the National Automatic Merchandising Association. "The industry trend toward wireless and cashless operations saves labor costs and allows you to have remote oversight of unmanned points of sale. From an industry standpoint, that's a great advance." Over the past decade, nationwide vending-industry sales have risen nearly 40 percent, to $24.3 billion, according to the 2002 report by Automatic Merchandiser magazine.
Those in the convenience-store industry say these robotic kiosks could succeed by being able to avoid the lower profit margins, rising labor costs, and higher real estate prices that have plagued traditional convenience stores. In 2002, per-store profits fell by 27.9 percent to $20,400 per store, the lowest level in a decade, while operating expenses rose $13,200 per store, according to the National Association of Convenience Stores (NACS).
"Redbox looks to minimize costs and still provide the convenience," said NACS spokesman Jeff Lenard. "If you're able to make a smaller footprint by not only the size of the store but taking away the parking spaces, it can dramatically reduce costs." McDonald's would not release information about costs, but other industry professionals said savings would depend on operating a larger number of such stores because of the high cost of investing in the technology.
'So Awesome'
On a recent Tuesday night, reaction among customers crowded around the Adams Morgan Redbox ranged from wonder to skepticism. "This is definitely great. That thing's awesome. So awesome," said Dan Walbillig, 12, who was down from New York visiting his aunt, as he watched the robotic arm snatch his $1.25 Snickers bar. "In this town it makes sense -- there's nothing open at night," said his aunt, Laurie Walbillig.
First-time customer Jeff Smith, 29, succumbed to the convenience of the Redbox against his better judgment.
"Y'all watching, right, make sure I don't get ripped off," said Smith, a lawyer, as he tentatively released his $20 bill into the Redbox and hoped that a disposable camera and $7.50 in change would come back to him. "I'd never support this thing normally because it's putting people out of work, but it's my birthday and I need a camera." Smith got his camera, and change.
Despite the automatic feel, several people micromanage the Redbox behind the scenes. A small core team works out of the corporate office and about 20 people are involved in maintenance, stocking and other tasks, McGuire said. One of those people, food consultant Laurence Cartoux, 41, manages the fresh foods, which are made three days a week at Izzy's deli in Bethesda. Cartoux, who studied food science in France, developed the menu, which includes her grandmother's recipe for carrot-cumin soup, and other exotic items, including almond couscous salad. The fresh foods have been the best sellers at the Redbox so far, McGuire says.
"When you talk about vending machines, people's reactions are negative. The food is not good, they're always out of products, the products are not fresh -- those types of things," Cartoux said. "I wanted to put in the machine high-quality products. . . . We have a brie-and-turkey sandwich, grilled chicken marinated with olive oil and provencal herbs. It's excellent."
McDonald's would not release sales information but said the machines have exceeded expectations. At locations like Adams Morgan, nights and weekends are the busiest times, while a new machine at the train station at the Baltimore-Washington International Airport does steady sales during the day. Jim Peiffer, manager of commercial development for the Maryland Transit Administration, said McDonald's paid a $15,000 fee for the one-year test, and customers seem to be accepting the technology.
"It's been a little bit demystified by now. At first our passengers didn't know quite what to make of it," Peiffer said. "I think the theory's good; it makes sense for a transit location, where it's much more efficient than to pay someone to man a stand for long, long hours."
The McDonald's experiment got off to a rocky start when the first test box, on Georgia Avenue in Northwest Washington, opened in January 2002. Performance was hampered by repeated glitches in the machine, called a Shop 2000, which costs about $80,000 and was designed by Automated Distribution Technologies of Exton, Pa.
"We found very quickly that the business was there but the technology didn't work," McGuire said. "I literally had to sleep outside the machine and baby-sit it on weekend nights to make sure that anytime people wanted to use the machine it would work."
Since then McDonald's has changed the name from TikTok to Redbox, and it now uses kiosks designed by Belgium-based New Distribution Systems NV, an industry pioneer founded in 1994 that operates 170 automated convenience stores in nine European countries. Chief executive Jo Robrechts would not comment on the McDonald's contract but said the average "Shop 24" store costs $90,000. European sales have risen rapidly, Robrechts said, with average revenue in the first year of a store around $115,000 and rising to $200,000 by the fifth year. Robrechts sees great potential for sales in the United States.
"A market where you already have a convenience culture is the most suitable market to enter with this type of store," he said. "The consumer is already accustomed to demanding immediate response to his consumer needs."
Divine Origins
Vending machines have a long history of innovative applications. Greek mathematician Hero described what some consider the first vending machine in 215 B.C., a coin-operated device that dispensed holy water in Egyptian temples. A contraption with a beveled-glass front in the 1890s called the Auto Doctor sold cold tablets and cough troches. In 1902, the Horn and Hardart Baking Co. introduced the Automat, the now-fabled restaurant that dispensed such foods as lemon pie and macaroni with a few coins and the pull of a knob. The onslaught of fast-food restaurants such as McDonald's, which streamlined food preparation, hastened the demise of the Automat.
More recently, concepts like the automated convenience store have caught on more quickly outside the United States. Timothy Sanford, editor of Vending Times, a trade publication, said that vending has had a clear niche in some Western European countries, where stores traditionally close earlier than those in the United States do, and in Japan, where urban real estate prices can be high. In Japan there are more than 5 million vending machines selling products including underwear, fresh vegetables, rice, alcohol and video games.
"You've got lots of people in the United States willing to run a convenience store and stay open all night. So it's been very difficult to find a reason why to apply automation to the industry," he said. "The logic of this current movement was that we have the opportunity to make more efficient use of space in an urban environment."
Some local residents have not fully embraced the idea of 24-hour mechanical capitalism. When the McDonald's box plopped down in Adams Morgan last August, several community members criticized the machine's aesthetics and said it might hurt small businesses.
"On one hand you have immigrant entrepreneurs running convenience stores doing their best to improve their lives," said Josh Gibson, vice chairman of the Adams Morgan Advisory Neighborhood Commission, "on the other hand you have the multinational corporation with its hyper-hygienic vending machine." Gibson, who lives two blocks from the Redbox, says the machines discourage personal interaction. "It's saying 'you don't need to go into that little corner store that makes you feel uncomfortable; just put your money into this robot-shop.' "
The automated convenience world is not limited to McDonald's. After hatching the plan in 1986 and putting in $9 million, entrepreneur Mike Rivalto opened SmartMart in May, a 450-square-foot unmanned store in Memphis. Customers drive up to the converted storage container and, using a touch screen, can choose from about 1,800 items, including beer and cigarettes. SmartMart uses video surveillance to record the face and license plate of each customer, and if problems arise, customer service is available by means of videoconferencing.
"Nowadays Mom works, Dad works, the kids don't play in the yard -- they're loaded into the Suburban and hauled all over the city to band practice and soccer games. Everybody is overscheduled," Rivalto said. "If there's anything that you can do to make somebody's life a little simpler, keep the kids strapped in the car seat, and pick up eight or 10 items for dinner without leaving the car, people will love it."
Novel Applications
Other companies, like Vending Concepts Inc. of Des Moines, have taken vending fresh products to a new level. The company converted a soda machine into a live-bait dispenser. Gary Harsel, a sales rep for the company and owner of Gary's Live Bait and Tackle in Birdsboro, Pa., said there are more than 3,000 such machines operating nationwide. He owns 12 of them and sells minnows, nightcrawlers and mealworms -- among other tasty treats -- for about $2 a cup.
"I tried leeches, but we don't have much of a walleye fishery around here, so they don't sell very well," he said.
For Ken Rosenblum, a former emergency-room physician in Minneapolis, not being able to get medication for his 5-year-old son's ear infection in the middle of the night was the impetus for developing a 24-hour prescription-drug vending machine. His company, Mendota Healthcare Inc., developed InstyMeds in 2001, a free-standing unit that's being tested in four emergency rooms. Rosenblum, who hopes to roll out about 1,000 machines across the country next year, says that after a doctor prescribes medication on a handheld electronic device, the patient can get a voucher with a security code to insert into the machine. Instymeds authorizes billing and insurance information over the Internet. The idea caught on quickly at the first test site in suburban Minneapolis, Rosenblum said.
"I thought people would have needed a fair amount of time to get used to the technology, but after 12 weeks, 60 percent of patients were choosing to receive medications from the InstyMeds dispenser despite the fact that there are three pharmacies within less than a block," he said.
Back at the newest Redbox on Rockville Pike, where the machine went into operation in late June, Micha Barnea, 43, who manages the DVD machines McDonald's has in 10 locations, was stocking new releases. To rent a DVD, which costs $2.97 for three nights, one can pay only by credit card. Late fees are charged automatically. Barnea pulled the facade forward and stepped inside the guts of the movie section of the Redbox. It didn't matter which thin metal slot he placed each DVD in, because a small robotic box soon traveled up the DVD rack, scanning a bar code on each movie to identify the title and its location for later retrieval.
Barnea has visions of a vending-only world.
"I have a dream to produce a better machine than any other one. Everything is moving toward automation," Barnea said. "In the future you will not find any more video stores."
Vending Machines Grow Up: Candy Bars And Soda Make Way For Movies, Live Bait And Even Prescription Drugs JOSHUA PARTLOW / Washington Post 27jul03
Posted by Craig at May 25, 2004 02:31 PM