Hooking the Net

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Hooking the Net

Cassettes and CDs should be ideal convenience store items. Whether running errands or driving cross-country, c-store customers likely have their car stereos on, and chances are they're sick of the stash of tapes in their glove compartments.

The problem with the music segment in c-stores has always been a lack of space and variety; most stores that carry cassettes end up with an inscrutable assortment in which Emmylou Harris sits cheek-by-jowl with Ozzy Osbourne.

A solution to this problem already exists. MP3 software now allows users to handpick songs and download hours of music from the Internet onto miniature, portable hard drives or tiny flash memory cards in just a few minutes. Theoretically, the format could allow c-store retailers to host a music library larger than their local Tower Records in a space smaller than 3 square feet.

MP3s illustrate one possibility out of a vast number of uses for Web-based Internet and financial kiosks. Customers could use them to print out directions, get tickets to movies, concerts or local sporting events, send e-mail, perform wire transfers, pay bills or buy money orders or time on prepaid cell phones.

With quick-service restaurants already saturating many markets, and with competitive pressures from hypermarkets and supermarkets mounting, c-stores have been searching for a new draw. Kiosks have real potential for answering that need if retailers can shepherd their customers through an acceptance curve and market the machines well.

Killer App

"The verdict is out in terms of how the functionality of these kiosks is going to be valuable to customers," said Bob Gordon. An industry veteran, Gordon recently sold his c-store chain, Waltham, Mass.-based The Store 24 Cos., to Rockland, Mass.-based Tedeschi Food Shops Inc. He plans to spend his time working with private ventures including FREEosk, an Internet kiosk company in which he owns the majority stake.

Yet, to discover which kiosk functions are most marketable, operators must first give their customers a good reason to initially use the kiosks.

Many would argue that e-mail drove the phenomenally quick growth of home computing and the Internet. Right now, e-mail is still the killer app for basic Internet kiosks, as are mapping tools, so these machines will most likely attract customers who are already frequent users of the Internet.

"Our experience and research has shown that the user of [our ZapLink] kiosks is typically connected at work or home," said Jason Broussard, director of Internet services at Bartlesville, Okla.-based Phillips 66 Co., a division of Phillips Petroleum Co.

Financial kiosks, on the other hand, can have the advantage of hosting a store's ATM, drawing customers that wish to make withdrawals and enticing them with other fee-based functions. A disadvantage is that customers expect quick service at ATMs, and c-store owners wouldn't want someone browsing around or checking e-mail on a store's only cash machine.

Dallas-based 7-Eleven Inc., which is rolling out its proprietary Vcom financial kiosks to all of its 5,800 U.S. stores during the next year and a half, is attempting to solve this problem by limiting to about 10 the number of online merchants that can host sites on the Vcom. Each of these merchants will in turn be limited to offering only their top 10 or 15 items.

Setting these limits reduces the amount of time each customer will need to spend on the kiosks, allowing other customers to use them for functions such as purchasing money orders, check-cashing and bill payment.

Yet the company forsees a time in the near future when customers can download feature-length movies onto DVDs in less than two minutes. "Imagine what we could do to Blockbuster with that technology," said CEO Jim Keyes in a keynote address at the CSNews Top 50 Forum in June at Amelia Island, Fla.

Non-financial kiosks, such as those at BP Connect stores encourage more browsing, and many, including Gordon's FREEosks and Phillip 66's ZapLink kiosks, accept cash for online purchases.

Although ZapLink kiosks offer everything from video teleconferencing to a service that downloads software and burns it onto a CD, Broussard said that the most popular uses for the machines are proving to be e-mail, driving directions, lottery information and bill payment.

"In our Phoenix deployment we found that customers appreciate the ability to multi-task and take advantage of convenient services while on the go," he said. "Applications developed to increase productivity seem to be doing exceptionally well."

Net Benefits

A critical question is whether c-store customers even want the kiosks. Customers seemed to have warmed to the FREEosks in Store 24 fairly quickly, but Gordon said that the machines still have a way to go.

"We are running about 200 uses per week, per store, and we expect that will probably increase to about 400 per week per store," said Gordon. "The technology works, but there's a level of acceptance that has to be built."

Of course, the burning question for most retailers is, how can these things make money? This is actually one of the trickier parts to kiosk ownership.

7-Eleven is considering charging a transaction fee for items bought using Vcom kiosks, while regular kiosks often charge a browsing fee after a set limit of time and may garner additional revenue from attached Voice-over Internet Protocol (VOIP) telephones, which are as simple to operate as normal pay phones.

Advertising is another way to earn solid revenues from the machines, yet due to a protracted, nationwide advertising recession, retailers admitted that selling ad spots had been difficult during the last year.

"The key, for now, is illustrating with scan data that in-store advertising on the kiosk can actually move product," said Gordon. "There are some initial indications that this indeed is the case."

Store 24 spent the last year performing detailed research on the impact of the FREEosk using scan data to compare sales of advertised items during promotional and non-promotional periods with a control group of stores.

"If the advertising is compelling — supported by good video, coupons or contests — it can drive sales," said Gordon.

But the kiosks may be having their biggest impact in less tangible ways. Customer reuse is difficult to gauge at this early stage of the machines' development, although one could assume that the presence of a kiosk would already tilt the scales in a location's favor for Web-heads and others who obsessively check their e-mail. As awareness and popularity of other uses grow, broader appeal and loyalty will follow quickly behind.

Also, as Store 24 begins selling prepaid cell-phone minutes at the kiosks instead of the counter, Gordon expects improved customer service and an easier training workload for managers.

Selling cell-phone minutes "is a function that everyone that works in our convenience store has to learn," he said. "It's time consuming, it blocks the line. If you can get people to go over to the kiosk, you can save training time and prevent training glitches."

Similar time savings could be recognized if prospective employees use the kiosks to electronically apply for jobs in the store. And the kiosks can be used to broadcast a chain's promotions or public relations messages.

Net Catch

The kiosks can appeal to and attract an important c-store customer: the "unbanked." Fifteen to 20 percent of all U.S. households do not have checking accounts, said Phil Kasper, vice president of Dayton, Ohio-based NCR Corp. "And, frankly, we're seeing banks become less and less interested in having non-customers in their lobbies to cash checks," he said, citing shortened branch hours and a recent explosion of check-cashing services.

"The fees that can be generated by offering those transactions [such as check cashing, money orders, and bill payment] are now attractive enough for a deployer to make money," he said.

As a result, Web-enhanced financial kiosks could become an excellent source of loyalty for those customers, who will hopefully stay to buy something after performing their transactions.

Still, initial costs to purchase are prohibitively high for smaller chains. Machines such as 7-Eleven's Vcom cost between $40,000 to $50,000, according to ATM & Debit News magazine.

NCR, manufacturer of 7-Eleven's Vcom, currently offers leasing programs for its Web-enabled financial kiosks, which may be a good option even for well-funded chains, since computer equipment can depreciate quickly.

Regular Internet kiosks will cost tens of thousands of dollars less, but revenue streams from these machines will be less substantial and may be more erratic without the fees generated by financial transactions.

Regardless, the possible applications of both types of kiosk are limited only by a retailer's imagination and marketing savvy. Also, with more and more large companies, such as BP, Phillips 66, 7-Eleven and now Alimentation Couche-Tard either experimenting with kiosks or making them a concrete part of future plans, Internet access may become an expected convenience similar to ATMs within a few years.

"As the next wave of major players adds kiosks," said Kasper, "it may become a strategic requirement for other operators to have this type of functionality."