C-Stores Go To The Movies

Convenience retailers find DVD rental kiosks are a hit with today's on-the-go consumers

From blue boxes to red boxes, DVD rental kiosks are popping up at more and more convenience stores, becoming the latest smash hit in alternative profit centers.

C-store retailers, ranging from the industry's largest chains to one-store operators, are adding these kiosks as a way to deliver further convenience to consumers, drive more traffic to their stores — and of course, generate additional revenue.

At the same time, DVD rental kiosk providers such as redbox, NCR Corp.'s Blockbuster Express and DVDNow Kiosks Inc. are targeting the convenience channel for continued expansion, since c-stores fit the bill of being high-traffic locations frequented on a regular basis, and close to where consumers live and work.

"DVD rental kiosks are right in the sweet spot for convenience stores, since they're all about convenience as well," said NCR Corp. spokesman Jeff Dudash, noting the kiosks fulfill c-store retailers' desire to have many different points of purchase, while satisfying consumers' desire to rent DVDs from a place they're already visiting on a daily basis.

"It's a combination of location, price and optimal convenience," he said.

For Thorntons Inc., which has had a partnership with redbox since 2008, the DVD rental units featured at more than 120 of its 160 convenience stores support the retailer's philosophy of being "a one-stop shop," said Kristin Morhet, grocery category manager for the Louisville, Ky.-based chain. "Our customers are on the go and looking for convenience; redbox gives them just that," she explained.

redbox kiosks feature up to 200 titles and 630 DVDs in each location, and are operated on a revenue-sharing basis between the company and the retailer, according to Gary Cohen, senior vice president of marketing and customer experience for redbox.

Consumers can rent at one location and return their DVD to any of redbox's 21,000-plus locations nationwide. The company also allows customers to reserve a title online at its Web site, www.redbox.com, and pick it up at the kiosk of their choice.

In addition to Thorntons, redbox kiosks are featured at 7-Eleven, Circle K, Kum & Go and Maverik stores. "These partnerships provide redbox with an extensive retail footprint that makes renting and returning anywhere even easier for our consumers, while providing our partners a new service for their customers," Cohen said.

Aside from giving consumers another reason to frequent their stores, DVD rental kiosks also present convenience retailers with multiple opportunities for add-on purchases.

"When they're here, customers buy gas, coffee, [packaged] drinks. There are very few [people] who just come to the box, rent and go," said Mike Creef, director of marketing for Charlottesville, Va.-based Virginia Oil, which offers NCR Corp.'s Blockbuster Express-branded DVD rental kiosks at its 18 c-stores in southeast Virginia.

The company chose Blockbuster Express based on availability and the well-known brand name. "In the central location where we do business, the brick-and-mortar Blockbuster stores are closing down, so this was a good fit for us," he said. "We were the first one in our area to have the Blockbuster Express kiosks."

Each NCR-supplied unit holds more than 950 DVDs, and once a week, the company switches out titles to make room for new releases, according to NCR Corp.'s Dudash. "They're our kiosks. We handle all the media buying. The only thing a convenience store provides is the power outlet," the spokesman explained.

As with redbox, the retailer gets a percentage of each $1-a-night rental in exchange for the space. On average, most movies are kept for two or three nights, said Creef.

Virginia Oil is among several c-store operators that rolled out, or are planning to roll out Blockbuster Express kiosks. Others include Sheetz Inc., Kwik Trip Inc., NOCO Express, Rutter's Farm Stores, Tedeschi Food Shops and QuikTrip Corp.

"We're pleased with them so far," Creef said. "They're doing very well for us."

BE YOUR OWN DIRECTOR

While redbox and Blockbuster Express are structured on revenue-sharing, some operators prefer to have total control over their DVD rental kiosks. For these retailers, DVDNow Kiosks Inc. offers options such as leasing or outright purchasing of the kiosks, as well as revenue-share agreements. Depending on the model and quantity purchased, a kiosk is roughly $20,000 to buy outright, according to DVDNow CEO Scott McInnes.

Single-store owner Jimmy Keen, owner of BP One Stop in Parsons, Tenn., opted for this approach. He purchased his DVDNow kiosk in December 2009 after being told by a different DVD kiosk provider that his business wasn't large enough to qualify.

At the time Keen first added the machine, there was only one video rental shop in his small town of 2,400 residents, and he said the store was using its monopoly to overcharge. By setting his price at $1.99 for the first night's rental and $1.49 for the second night, he was able to attract DVD renters to his store and benefit from the increased traffic and secondary sales potential. "People are getting tired of making so many stops. They want to do as much as they can in one place," he noted.

Because Keen owns the machine, he also owns all the movies in it, and is the one who decides which films to stock. Most new movie releases come out on Tuesdays, so that is when Keen usually makes a trip to his local Walmart store or Sam's Club.

"If it's a big movie, I'll get three or four copies," he said.

Currently, the store averages 100 rentals per month, although Keen said that number increases significantly when school is not in session. He sees the most rental activity on weekends — Friday is No. 1 — and said more than half of all renters keep their movie for a second night. He's also been pleasantly surprised at how many people don't bring their rentals back at all, which after seven days, translates into $24.99 for the store.

In terms of profits, Keen pays DVDNow a monthly fee for hosting his own Web site, and he spends around $50 a month in processing fees for the credit and debit cards used to pay for the rentals. Aside from those costs, he said the remainder is "all mine."

The kiosk also drives add-on sales, especially snacks and two-liter drinks. Keen has a rack next to the kiosk that he stocks with microwave popcorn and other popular movie-watching fare "to make people think about it, even if they didn't have it on their mind."

Like all DVDNow kiosks, Keen's machine is located inside the store.

"If the customer can rent from a kiosk outside of a store, it doesn't solve the problem of getting customers into the c-store. It just becomes another transaction like pay at the pump that happens in the parking lot," DVDNow's McInnes said. "Our value proposition to convenience store owners is that we are going to drive traffic inside their stores, providing them with the opportunity to sell additional products to the customer."

Not everyone agrees with this line of thinking, however. Virginia Oil decided to place its kiosks outside, so they could be available at all times, even when the stores aren't open. Only six of the company's stores are 24-hour operations, according to Creef.

Thorntons, meanwhile, tested two kiosks inside stores but found sales were below average. Morhet said the retailer is in the process of moving the machines outside where they can better draw customers filling up at the fuel island.

Both NCR Corp. and redbox said the majority of its retail partners choose to place their DVD rental kiosks outside, creating another visual cue to attract consumers.

Whether the units are outside or inside, all of the convenience sotre retailers and kiosk providers said they are most successful when integrated into cross-promotions and other marketing initiatives. For instance, Virginia Oil started out by offering a free night's rental for a limited time, after launching its Blockbuster Express kiosks early this year.

Another effective marketing tool is offering a discounted movie rental with the purchase of a specific product inside the store, and vice versa. Thorntons' Morhet said the company's stores were successful in partnering with manufacturers, such as Kraft, to cross-promote their products with redbox. This fall, the chain plans to tie redbox in with its special holiday offerings to provide more value to the customer.

Soon, Thorntons will be incorporating redbox into its social media strategy as well. "It's a great way for us to tap into our customers and draw them into our stores," she said.

Which DVD Rental Kiosk is Right for You?

Convenience Store News asked representatives from NCR Corp.'s Blockbuster Express, DVDNow Kiosks Inc. and redbox to explain what sets their DVD rental kiosks apart from their competitors. Here's what they had to say:

• Scott McInnes, CEO of DVDNow Kiosks Inc.: "While other companies in this industry focus exclusively on the large-chain convenience stores, DVDNow is really the only company that provides DVD rental kiosks to the independent convenience store market, as well as to the larger chain accounts. Our competitors primarily install their kiosks outside, which doesn't do nearly as much to increase the convenience store's inside sales. Our kiosk also has a much smaller footprint, which makes it more suitable to be placed inside a c-store. Further, we are the only company to have kiosks with a clear glass front, which allows customers and their kids to actually see the inventory that is currently available, and rent or buy spontaneously. This results in much shorter transaction times, which in turn reduces the wait time for consumers."
• Jeff Dudash, spokesman for NCR Corp.'s Blockbuster Express: "The first thing is the appearance: they're newer machines, and we take advantage of a 32-inch LCD screen on the front that runs trailers. The most notable [difference] is that our kiosks hold more than 950 DVDs — almost double the capacity of competing kiosks, which hold about 500 DVDs. This gives us a lot more flexibility to not only offer more new releases, but also catalogued titles. For instance, ‘Iron Man 2' is coming out in theaters, so we're able to stock the first ‘Iron Man,' as well as other Robert Downey Jr. movies. Also, this is NCR technology, so the user experience is the same you will find in our other products. There is a lot of our ATM technology built into these DVD kiosk machines."
• Gary Cohen, senior vice president of marketing and customer experience, redbox : "redbox delivers state-of-the-art technology and proven operations to our retail partners. With more than 21,000 locations and more than 750 million rentals, redbox's loyal consumer base continues to grow. As the industry leader, we provide our retail partners with exceptional retail and marketing support, working together to drive traffic and business. At redbox, our focus is our customers. We continually look for new opportunities to service our customers through innovations including online reservations or our new iPhone application, which locates the nearest kiosks using GPS technology. Our focus on delivering exceptional service, convenience and value to customers has fueled our growth, and corresponds with the values of our convenience store partners."

For comments, please contact Linda Lisanti, Senior Editor, at [email protected].