Quick Stats

Quick Stats

    You are here

    NONFOODS: Photo: Still developing

    With the $33 billion photo market changing from film to digital, grocers are eager to find where they can fit into the new picture.

    By Glenn Snyder

    Three years ago, grocers were bleeding from the decline in film and processing revenue caused by the upstart known as digital photography. Today they still are, but prospects for recovery are better now because most grocers have learned from personal experience the consumer benefits of digital photography. The key is to figure out how to go from an obvious consumer need to an in-store enterprise with ROI that will capture the attention of top management, said retail and wholesale grocers convening at a roundtable on the rocky present and potentially bright future of digital photo processing.

    The retailers participated in the third of a series of workshops devoted to photo, which took place last June at the GM Marketing Conference of the General Merchandise Distributors Council in Orlando, Fla.

    "Snyder's Roundtable at GMDC" was organized and moderated by Glenn Snyder, president of Snyder Consulting and a former senior editor for Progressive Grocer. The workshop was sponsored by leading technology manufacturer Hewlett-Packard, based in Palo Alto, Calif., which has recently entered the retail image-printing field. Rick Voight, North America retail photo sales manager for the company, was on the scene and contributed to the discussion when a supplier's perspective was called for.

    The panelists were David Lowe, director, GM/HBC, C&S Wholesale Grocers, Avenel, N.J.; Dave Schulze, business unit director, HEB, San Antonio; Jack Serota, v.p., GM/HBC, Price Chopper, Schenectady, N.Y.; Bill Mansfield, v.p., GM/HBC, Pueblo International, San Juan, P.R.; and Mike Osornio, category manager, United Supermarkets, Lubbock, Texas.

    Following are edited portions of the lively discussion:

    Glenn Snyder: Understanding and appreciating the wonders of digital photography as consumers, what do you think the outlook is for digital printing operations in supermarkets?

    Dave Schulze: The transition is very slow. We still have quite a few one-hour minilabs, but we can see that the digital part is growing. Unfortunately, we don't think that digital's gains would replace what we've lost from the declining sales of film and processing.

    Jack Serota: We see much of the same thing. Digital printing at store level -- as much as we hear about it -- is slow to take off. Meanwhile rolls of film coming in for development are drying up. We'd like to have a good solutions center, but I know personally that not everyone prints everything they shoot with their digital camera. The media cards have become so cheap that customers can just store their pictures on the flash card. Convincing them to print is going to be a challenge.

    David Lowe: I think drug stores have done a really good job in capturing the business through price or service.

    Bill Mansfield: I think that the digital printing business somewhat mirrors the video business of about six years ago. If you remember, most supermarkets with video rental had begun to exit the business because it wasn't profitable anymore. Well, the first thing they knew, some regular customers were shopping elsewhere. And overall business dropped accordingly.

    My point is that when customers come into your stores to buy from a department that has what they want, they buy other things, perhaps even their week's worth of shopping. And if you shut that door because the department had been deemed unprofitable, they're likely to take their business elsewhere.

    Lowe: From the distributor side, we've experienced the decline in film. I don't know, though, that any of my retailers can do much about getting into digital printing, because it's so cheap at the drug store -- that, and the expense of the machines make it kind of difficult. And it doesn't help that a lot of people have home printers.

    Snyder: How cheap are the prints in drug stores?

    Lowe: Nine cents at Rite Aid. Drug stores have always been good at making a commitment to film processing. They took that business away from us, and we just watched it fly away. They have leveraged their film-processing business to digital printing.

    Osornio: We have experienced sharp declines in film and processing, and even with one-time-use cameras. Our goal, moving forward, is to get into the digital kiosk business. And right now we're looking at several different companies.

    Snyder: Rick, perhaps this is a good time to put your two cents in.

    Rick Voight: Obviously, everything you guys have been talking about is the problem right now: Major transition going on: Analog business has tanked and digital has not picked up the print count yet. Obviously, more images are being captured. So the question is, how do we convert those images into prints? The $33 billion industry is going through transition.

    The wholesale business had been a fabulous thing for retailers for an awfully long time. The consumer dropped off a roll of film in the drop box. No ordering or stocking labor. A driver came in, picked up the bag of exposed film, brought back prints, and the consumer paid for it -- before you had to pay for it. So it was ROII -- Return on Investment in Inventory -- on an infinite scale. The net of it: high profit with little effort or expense, and no product investment.

    Snyder: Well, good things don't last forever. It won't be long before drop boxes will be dropped out of sight completely.

    Voight: The problem is the trend line. Photos declined dramatically. But digital prints are growing. And as the number of images captured is exploding, the total number of images to be printed will increase. If HP didn't believe in this upward print volume, we wouldn't be making the investment into this business the way that we are.

    Lowe: Coming back to pricing, in our area of Middletown, N.J., the Targets and Costcos print at 19 cents. And they're packed with photo customers.

    Snyder: What about promotion for digital prints? For example, a free 8x10 enlargement with a purchase of a number of 4x6 prints.

    Schulze: The best promotional experience lies in tying in, for free, some related items, like a CD or second set of prints. Enlargements promote pretty well.

    I think we've got to realize that, with the investment the drug stores and mass guys put into equipment over the last several years, they're going to football 4x6 prints to the point that it's a price-point item. So we've got to find other merchandise to sell, other promotional opportunities. The average customer doesn't know what she wants until you make the offer. What I think, first, is that we really have to teach customers what digital is all about.

    Osornio: I don't think that price is what they're looking for; it's convenience and service by an associate educated in the technology. Everybody footballs 4x6s, but I've seen consumer research that says that price is the last factor in why a consumer goes to print pictures in a particular store.

    Serota: Price can draw customers in the first time. But if you don't have a knowledgeable associate in the store who can help get them in and out quickly, low-ball pricing won't help. Customers don't like standing there in front of the machine and fumbling around, trying to figure out which way the media card goes in, unsure of what they want to print, what they want to crop. I always say that where customers feel comfortable is where they're going to return.

    Osornio: Savvy and helpful associates can pay for themselves by trading up customers to enlargements, a CD, or whatever.

    Snyder: Isn't it hard to find on-the-ball associates?

    Schulze: It's a big opportunity for the industry to have qualified people at the photo counter. Today's digital associate really needs to be someone who has a sales personality, in addition to being really comfortable with technology.

    Osornio: I think that drug stores do a very good job with photo service. To be productive, associates have to cover more than just the photo area. But if they see a customer out in the photo library and looking around, the employee has been trained to stop stocking confections or whatever and help out at the photo desk, where, by the way, he really knows what he's doing.

    Snyder: Are drug store people doing anything that supermarket people couldn't do?

    Lowe: Well, in the first place, top management has to devote time, space, energy, and training to the category.

    I had mentioned that Rite Aid, with nine cents a print, was the cheapest where I live. But my wife goes to Costco, where it's 19 cents. Why? Because they have someone behind the counter and it's faster. Service, fast -- that's the whole deal.

    Snyder: Can you turn a profit at 19 cents?

    Lowe: Nineteen cents is a tough way to make money.

    Schulze: Kiosks with 19 cents per print would not be a good proposition. But the customer is willing to pay for faster service. Nineteen cents for one hour or the next day is probably tough.

    Serota: I'm not sure that we're looking at the whole picture, to be honest with you. I think we're looking at the customer wanting to come in and make prints. If you look at the charts for the next six or eight years, 50 percent of the people are still going to print at home.

    Who has become a solution center for that customer that's going to print at home? You know there are 4x6 printers you can buy for under 100 bucks now. Who is focused on the ink, on the paper, and on the printer, to give that customer the solution when they want to do it at home? Maybe the office supply stores offer all the products, but I don't consider them a solutions center, because they don't have all the products together. I think the one-hour lab is the opportunity for that, our greatest opportunity right now.

    Snyder: Suppose that you put in a kiosk, maybe two kiosks, and let's assume that you figure they'll break even in terms of profit. Would management be satisfied with that?

    Serota: The first year.

    Snyder: The first year you'll settle for break-even. Second year, if it doesn't make it, then you would haul them out?

    Serota: No, not exactly. You would have to get its ROI. I mean that if I can invest money in a bank and get 4 percent, am I am going to invest in a kiosk and break even? It's tough to go to upper management and say, "I want to spend money on something that I'm not even going to make 4 percent on, lucky to break even on."

    Snyder: You would feel that you'd have a problem with kiosks after a year of less-than-break-even, despite its possible benefit to shoppers?

    Serota: I do have to be practical. You know that technology changes so fast that the piece of photo equipment you're thinking about buying can become obsolete by the time you're ready to go for it. I've seen it happen. Take the analog minilabs -- a lot of them weren't upgradeable. You had a long-term agreement and were stuck holding the bag.

    Snyder: Some big regional chains went whole hog on big photo lab equipment, and they had to get rid of it. I wonder, though, if they hadn't already gotten their investment back -- and then some.

    Voight: Well, some regionals had enjoyed fabulous revenues from photo centers for many years. But I would like to bring up a couple of things that surfaced in discussing capital investment and what you need to provide a good return to your company. Let's say that (a) when you're investing capital, you need a positive ROI in x amount of time to be able to justify the expense. But (b) what is your allocation of space that you have to cover for opportunity costs of that space?

    Now if, in fact, some of the capital costs could be overcome, does that allow you the ability to be able to get into the business? That is, if somebody else is able to help with that cost?

    Snyder: Are you speaking of leasing?

    Voight: Yes, we have a program for that, and also for reducing your up-front costs of equipment.

    Schulze: For me, Rick, when you're adding some new equipment, especially in a store that never had a real photo department, success is going to depend on the marketing support behind it. Simply dropping in a kiosk will not be successful; for one thing, customers will not expect to find it there. There's an even bigger technology barrier: Most customers won't even recognize the equipment and won't understand how it works.

    Now if you are going to have somebody there doing a demo, that's one thing, but if that's not the case, and you expect customers to walk up and figure it out, that won't work.

    Snyder: We can thank the drug stores for getting into digital printing early and teaching so many customers what to do. It helps to know, I think, that late-starting supermarkets are not starting from scratch in customer digital-printing education.

    Serota: I still think most people that shop in the grocery store are technologically challenged. That may change over the next 20 years. But right now there is still a challenge in getting people to do things themselves without having to ask questions.

    Snyder: How do you answer an argument that says that perhaps we're chasing away good potential customers when they have to go elsewhere to fill their photo-printing needs? We talked about this earlier, but I didn't get it straight.

    Schulze: There are service-competitive issues you have to look at if you're going to offer service. It's part of doing business. But it's not a major concern unless you offer something and then want to take it away. If you do want to take away something, then you have to decide who your competition is and then consider a long-term strategy.

    Snyder: How do you feel about this? That in some cases keeping something that's marginally profitable could be a good defensive move?

    Lowe: I agree with you. I think a lot more customers are turning to digital printing. And now digital cameras are getting so cheap. Maybe if the digital kiosk could have had a revenue-share program to start with, perhaps we wouldn't have been so slow to jump on board because it's hard to justify the labor.

    Snyder: You have to answer to top management, and if they're too busy worrying about other things they feel are more important, you have a problem.

    Mansfield: I think what they're looking for is light at the end of the tunnel. Right now the tunnel is pretty dark, and they need something that says, "If you do this, this and this, that light would show up as not, repeat not, a freight train."

    Snyder: And yet I've been in stores where they still devote an awful amount of space to film. A major chain in my area leads off a GM gondola with film in eight linear floor feet and enough pegged product to choke a horse. Batteries, an excellent high-profit line that actually sells, follows film in the lineup.

    Mansfield: I am curious as to why HP decided to do this at the dark-tunnel stage. Obviously, you believe there is light.

    Voight: We do believe that there's a great big light at the end of the tunnel. We invested $1.4 billion in something that's called scaleable print technology, and placed it into our Express kiosk: new print heads, new inks, and new paper. Our PhotoSmart Express includes five-second prints, Internet-connectivity, 3,300-sheet capacity, and burning CDs inside the same kiosk.

    And -- very importantly from a labor-model perspective -- it does not require store intervention. If something goes wrong, it phones home and we can fix it remotely, or automatically dispatch service to come out and take care of things.

    Mansfield: Maybe you should take that to FMI or NACDS and let the various chairmen of the board see that light.

    Snyder: It's clear that top management must be involved in deciding on in-store digital photofinishing. Not only because it requires a certain amount of capital investment, but also because it involves space and personnel. Top management is mostly interested in major things that will or might make a difference. And digital picture printing fits that description.

    By Glenn Snyder
    • About Glenn Snyder

    Related Content

    Related Content