RT-Kiosks
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McDonald's tests DVD-rental kiosks in 6 U.S. markets
By Frank Green
UNION-TRIBUNE STAFF WRITER
October 19, 2005
ANDY CROSS / The Denver Post
McDonald's and its Redbox subsidiary have opened about 800 DVD-rental kiosks in six markets, like this one in Denver, where the company says it has made a dent in the market.
Things to pick up at McDonald's on the way home: burgers, fries . . . DVDs?
The ubiquitous fast-food chain is rolling out hundreds of so-called Redbox DVD-rental machines at its restaurants across the United States, offering hot titles such as "Robots" and "The Longest Yard" for $1 a day.
While the devices are not yet operating in San Diego County, a spokesman for McDonald's subsidiary Redbox said yesterday that the company's "overall goal" is to install the automated kiosks at most of the chain's 13,000 or so outlets.
"That's if the machines are successful," Redbox spokeswoman Laura Dihel said. "So far, things are going very well."
DVD-rental machines could mean a new twist in an industry dominated by brick-and-mortar chains such as Blockbuster, which rents DVDs for $3.99 for two days on a new release.
About 800 Redbox machines are operating at McDonald's stores in six markets, including Denver, Salt Lake City, St. Louis, Baltimore-Washington, Houston and Minneapolis, with a small number also in Las Vegas and in supermarkets in Hartford, Conn.
McDonald's estimates that it has captured 10 percent of the DVD-rental market in Denver since it began test-marketing Redbox machines there last year.
Redbox
Parent company: McDonald's
Headquarters: Oak Brook, Ill.
Test locations: Denver; expanded to McDonald's locations in Salt Lake City, St. Louis, Baltimore-Washington, D.C., Houston, Minneapolis and Las Vegas and supermarkets in Hartford, Conn.
Cost: $1 per night plus tax, up to $25 if DVD isn't returned.
Machine capacity: Up to 500 DVDs comprised of 35 to 40 new releases updated each Tuesday.
The Redbox kiosks stock up to 500 DVD copies of 35 or 40 popular titles, and can be activated by credit or debit cards, the company said. Late returns are calculated at an additional $1 a day, with a 25-day, $25 maximum at which time the DVD becomes the customer's property.
Analysts said McDonald's likely is making little, if any, profit on the machines, considering the bargain-basement rental price. Instead, the company's strategy is to draw foot traffic into the stores with the DVD-rental machines, then make customers come back within 24 hours to return the discs.
Presumably, many Redbox customers also will pick up food and kindred snacks on both trips.
"It's a brilliant move," said Stuart Morris, president of QSR Consulting Group in Coronado. "Any incremental visit to McDonald's is one less transaction to Burger King, Carl's Jr. or Jack in the Box."
McDonald's "will make the money on the food" by increasing average check amounts while stepping up the number of customer visits, Morris said.
Redbox spokesman Greg Waring declined to divulge sales figures at McDonald's restaurants that host the rental kiosks except to say that there is a profit to be made on the company's rental fee.
There is a "very high correlation" between renters and diners in Redbox test markets, Waring said. "People tend to rent DVDs around dinner time."
The increased frequency of customer visits to McDonald's stores offering DVD rentals is likely to spur similar competing strategies from other chains – fast-food and non-fast-food alike, analysts said.
Never mind that DVD rentals ordered through chain stores and online through such companies as Netflix still account for up to 97.5 percent of the $10 billion DVD-rental industry, according to trade figures.
Movie Gallery, the No. 2 rental chain after Blockbuster, reportedly is rolling out DVD vending machines in drugstores, supermarkets and other high-traffic retail areas across the country where a brick-and-mortar presence would not be profitable.
San Diego-based Jack in the Box said yesterday it had no plans to introduce DVD kiosks at its restaurants. Blockbuster likewise said it would not use the machines in the United States because they don't generate sufficient revenue.
"They're convenient, but the selection isn't very good," said Blockbuster spokesman Randy Hargrove, noting that the company has used rental kiosks in Spain and Israel.
Analysts said movie-rental vending machines do not have a strong track record in the United States, although they have been popular for years in Europe.
VHS kiosks were introduced in the United States in the late-1980s, but flopped," said Sean Bersell, a spokesman for the Video Software Dealers Association.
"DVDs are smaller, more portable," Bersell said. "Americans have gone back to take a second look." |
