Picture this: The digital train is leaving the station and only a few supermarket chains are on board.
That about sums up the digital photo imaging market, according to a number of industry experts polled by SN.
Other channels — primarily drug and mass — have grabbed the digital ring and run with it, attracting many customers that used to rely on supermarkets for their photo needs, they said. In the process, these stores get the opportunity to sell the increasing amounts of food products they offer, while solidifying their image as a one-stop shop.
Can supermarkets catch up? Most say yes. With their locations, demographics, shopping frequency and increasing Internet presence, it would be tough to rule grocery stores out of any category that makes sense for them to commit to.
However, in digital photo, time is growing short. Drug stores and Wal-Mart have entrenched themselves in the category; online ordering of all kinds is gaining ground; and home printing remains strong, with a new offering from Kodak promising lower costs and higher quality for do-it-yourselfers.
“Supermarkets should be a logical destination, but they really haven't kept pace with what is going on in other channels in regard to the whole digital imaging opportunity,” said Don Stuart, managing director, Cannondale Associates, Wilton, Conn.
“Supermarkets have the footsteps, they've got the 60-plus visits a year. Consumers are there for routine or stock-up trips, so it fits in perfectly.” Other channels have done a better job of using digital photo as a way to attract customers, and now, with the Kodak product news, home printing will be harder to compete against, Stuart said.
Some grocery chains do well and will continue to do well with digital photo, “but the majority is lagging, and I think the majority will continue to lag,” Stuart said.
This is confirmed by numbers from the Photo Marketing Association International, Jackson, Mich. While supermarkets' share of the film print market was 12.6% in October 2000, dropping to 9.3% in October 2006, their share of digital prints was only 2.7% in October 2006. Supermarkets' share of the total print market — which includes the now much-smaller prints from film segment — was 6.5% in October 2006.
‘ON THE SIDELINES’
“They seem to be on the sidelines for now,” said Dimitrios Delis, PMA's director of marketing and research. “Not many of them have decided to install a lot of equipment in their stores. Their share hasn't increased in the past year, and they definitely don't have the share that they used to have when film was around.”
Elsewhere, printing images from digital cameras is growing rapidly, according to the most recent “PMA Monthly Printing and Camera Trends Report.” Total digital print volume rose 49% for the year ending November 2006. For that period, prints made at stores (excluding kiosks) rose 60%; prints made at self-service kiosks went up 41%; prints ordered online increased 122%; and prints made with a home printer grew 28%. Home printing is the biggest part of the market, representing 40.8% of all prints made for the same period, followed by orders at mini-labs at 24.1%, instant prints from kiosks at 14.1%, ordered online and received by mail at 11.4%, and ordered online and picked up from a retail store at 8.1%.
The problem with entering the market now with equipment that produces only 4-by-6-inch prints is that consumers are starting to demand a wider variety of digital image products, such as photo books and calendars, and with limited equipment choices, these can be too labor-intensive for supermarkets, Delis said. This means their next opportunity to enter this market competitively will be when there are more systems on the market that automate these work flows. “Everybody,” meaning the large image-processing manufacturers, “is working on this right now,” he said.
“There's always potential, but it doesn't appear that this is a market segment that the supermarket channel has kept pace with,” said Gary Pageau, PMA's group executive, content development and strategic initiatives. “They've actually lost share in the digital world,” he said.
“Ownership of digital imaging has been largely co-opted by the pharmacies who made the infrastructure investment and spent time educating the public that theirs was the place to go,” said Robert Passikoff, founder and president, Brand Keys, New York. “But having said that, there's nothing to stop supermarkets from playing catch-up. People are looking for convenience, and on a per-capita basis, they are inside a supermarket more often than they are inside a drug store. So the opportunity is there, but clearly they are behind.”
“The supermarkets that have been aggressive in going after digital photo, like Kroger, are getting their share of the business,” said Neil Stern, senior partner, McMillan-Doolittle, Chicago. There's a lot of competition, and it is easier and more affordable to print at home, “but there are still a lot of images being stored online and on home computers that haven't been printed,” he said.
THIRD CHOICE
InfoTrends, Weymouth, Mass., reported in its “2006 Retail and Photo Kiosk Survey” that when it asked customers who order online what type of retail store they'd prefer to pick up their prints in, supermarkets were third behind mass merchants and drug stores, said Alan Bullock, associate director, Internet Imaging Trends Service.
“Grocery stores are not top-of-mind among consumers as a digital printing destination, and retailers who enter the marketplace now would have to market the service aggressively to attract new business. There will be new business — retail printing is on the rise — it's just that consumers are accustomed to going elsewhere and would have to be retrained,” Bullock said.
“Customers are creatures of habit. Once they get used to a certain retail outlet providing a product or service that meets their need, they will return again and again,” said Al Jones, senior vice president, procurement and merchandising, Imperial Distributing, Auburn, Mass.
“It seems to me that supermarkets have clearly been beaten to the punch by the drug stores. For example, CVS has digital kiosks — sometimes three or four — in every store. They advertise digital processing prominently every week. There is no doubt that they are fully behind the technology,” Jones said.
MAKING INROADS
Not all supermarkets are behind the digital eight ball. “While we continue to offer in-store processing via photo labs at the majority of our supermarket locations, we have recently installed self-service photo kiosks in many of our stores, allowing for instant, one-hour and two-day fulfillment,” said Dan Donovan, spokesman, Giant Eagle, Pittsburgh. “We are also in the development stages for a website dedicated to digital imaging for one-hour and two-day processing.”
Bashas', Chandler, Ariz., is now installing Hewlett-Packard digital kiosks in 58 stores, replacing film end-caps, said Cathy Kennedy, nonfood buyer. “We will be launching with a huge campaign to announce the digital kiosks in our stores.” Online ordering is also coming to Bashas', she said. “We will eventually have that capability, either from our website or [HP's] Snapfish to order the prints and pick them up at Bashas' stores.
“Digital is the future and, with our partner, I know that we will be able to stay up with digital technology. This will be an important way to continue to grow sales in this category,” Kennedy said.
It's a similar story at Wal-Mart Stores, Bentonville, Ark. “While we still sell film at Wal-Mart, digital is where this business is definitely growing, and we're increasingly looking at areas of this technology where we can bring customers more value in digital product selections, provide faster, convenient processing at a lower cost, and easy access online,” said spokeswoman Melissa O'Brien.
The chain plans to offer “some exciting new products” in photo this spring, she said. “We'll continue to bring along new ideas to help the customer create personalized gifts and cards with their pictures, too,” O'Brien added.
Additional reporting: Wendy Toth
The Home Front
Earlier this month, Kodak, Rochester, N.Y., made news that might further energize the home printing market. The company will offer a line of printers priced from $150 to $300 — somewhat higher than others on the market, but with inkjet cartridges that will retail at $15 for color and $10 for black — drastically lower than competitors' products. The new line will initially be offered exclusively at Best Buy stores.
Kodak expects the cost per print to be around 10 cents and hopes to capture 10% of the inkjet print market by the end of the decade. Observers said the quality will be better and there will be fewer wasted prints, encouraging consumers to make more. Also, competitors will likely answer the challenge.
“Kodak is getting ready to take everybody out of the business, and take it all into the home,” said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas.
Referring to the cartridges and the overall cost of the system, Don Stuart, managing director, Cannondale Associates, Wilton, Conn., comments, “I wouldn't say it's inexpensive. It's cheap.” That's another reason “the easy money is off the table” in the digital photo market, he said.
Although this could impede the growth of store-related processing, supermarkets might find an opportunity in selling the printing supplies, he noted. “That's a much easier game to get into, and more consistent with what they do. It's just carrying inventory,” Stuart said.
“It's a little different [business] model, in the sense that they are charging less for the ink and a little more for the hardware,” said Gary Pageau, group executive, content development and strategic initiatives, Photo Marketing Association International, Jackson, Mich. “They are counting on people buying the long-term, and doing the return-on-investment calculation in their minds. Will it be successful? Time will tell.”
One thing is certain: “Home printing is not going away,” Pageau said.
Professional printing services, whether in-store or online, will continue to be the first choice of many consumers, said Robert Passikoff, founder and president, Brand Keys, New York. “Until the task becomes too expensive or too inconvenient, the majority of the people are still going to have someone else do it for them,” he said.
“There have been many challenges to growing the photo development business, including in-home photo printing,” said Dan Donovan, spokesman, Giant Eagle, Pittsburgh. “However, many customers still prefer having high-quality commercial film developed on professional paper. The task becomes making this errand as convenient and customer-friendly as possible via the in-store kiosk and our future online presence.”
— D.A.
