March 21, 2005Price War Develops in Digital PhotosA price war has broken out in digital photo printing. Wal-Mart Stores Inc., Costco Inc. and other retailers are sharply cutting prices on digital-photo prints in a furious effort to win consumers who are switching to digital cameras from traditional film. The companies that make home printers are also stepping up their bid to grab more of this business. Hewlett-Packard Co., which has sold many consumers on the convenience of making digital images at home, says it will effectively cut the per-print costs 17 percent for people who own H-P printers and buy its paper and ink. The price cuts come at a critical time for retailers and printer makers. With the shift from film to digital picking up steam, the next two years are seen by many experts as crucial in forming consumer habits. As the heavyweights slug it out, digital-camera owners are the big winners. They are in many cases finding that it is cheaper to print digitally captured images than those taken with film. Two weeks ago, Wal-Mart cut prices on standard 4-by-6-inch prints made from stored digital images to 19 cents from 24 cents. Wal-Mart, the nation's largest photo finisher, charges 29 cents apiece for prints from film. For customers who don't mind transferring the images from their computers to Wal-Mart.com's Web site, the per-print price has dropped to 17 cents. (The prints are ready for pickup at the store in two days.) Wal-Mart's wholesale-club affiliate, Sam's Club, charges even less for a similar service: 15 cents, down from 16 cents before the recent round of cuts. To undercut Wal-Mart, wholesale-club leader Costco was planning to lower its rates on one-hour processing to 17 cents from 19 cents. Meanwhile, drugstore giant Walgreens Inc. is running a digital-print special at 20 cents a piece for 50 prints in some markets, compared with the 29 cents it normally charges for digital or film prints. Walgreen's store signs proclaim that its prints are "half the cost of printing at home," says a spokesman. The calculation is based on the prices of home-PC printer supplies like ink and paper. The other players in this battle are the online photo sites such as Shutterfly.com and Ofoto, which is owned by Eastman Kodak Co. These sites accounted for a combined 8 percent of all prints made last year. Photo finishers are hoping that the lower prices will induce consumers to print more of their digital pictures. Consumers spent an estimated $8.2 billion for prints last year, including both those made at retail outlets and at home, according to Photo Marketing Association International, a trade group. But that is a fraction of the potential market: Only about 20 percent to 30 percent of digital pictures taken are developed. The price cuts also come as digital cameras are rapidly stealing market share from film cameras. Of the cameras sold this year, about 80 percent are expected to be digital. But despite the growth in digital photography, the number of overall prints made at home and at stores fell 4.5 percent in the U.S. last year to 27.4 billion, according to PMAI. With the film business drying up, retailers can ill afford to lose printing revenues, too. After a slow start, retailers are beginning to gain traction with digital printing. Digital prints ordered at retailers more than tripled last year, says PMAI, while the number of prints made at home were up 37 percent. And the momentum is clearly with the retailers: Last year, while about 61 percent of all digital prints were made at home, that is down from 90 percent in 2000. One reason is the sharp increase in retail outlets offering digital printing. Most drug and discount stores can now handle digital prints in their one-hour photo-processing minilabs. Labs can produce prints at a cost to operators of less than five cents a piece, says Greg Joe, marketing manager for Japan's Noritsu Ltd., a big minilab maker. Retailers with less business can install cheaper, but also slower, digital kiosks. The number of photo kiosks in the United States is expected to grow to 121,000 by 2008, up from 75,000 today, says Kerry Flatley, a consultant with market researcher Infotrends. Last year, 17 percent of digital-camera owners used a kiosk vs. just 6 percent the year before, she says. Long term, home printing is likely to decline to just 15 percent of all prints, says Gael Lundeen, general manager photofinishing and Web services for Fuji Photo Film USA Inc., the leader in the minilab business.
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