SNEAK PREVIEW 2001

ALLENE SYMONS

WILLOWBROOK, Ill. -- As the above photos illustrate, this Dominick's food-drug combo here has set the stage for the digital photo future.

With its fast-processing services, merchandising of high-speed films and self-serve kiosk capable of handling any imaging source or type of output (an existing print, negative, slide, CD, disk or smart media like a digital flash card), the food chain is following the natural evolution that comes with the transition to new technologies in photo and film.

Next week, Feb. 11 to 14, chains such as Dominick's that are committed to growing their photo-film business can get a sneak preview of what's in store this year from the photo industry at the International Photo Imaging Convention in Orlando, Fla. The convention is sponsored by the Photo Marketing Association, Jackson, Mich.

Many attending this year's imaging event will find that digital technology is redefining photo merchandising -- but traditional photography still accounts for the lion's share. "Film is not going away anytime soon. Not for a long, long time," observed New York-based securities analyst Gibboney Huske, an equity researcher who follows the photo category for Credit Suisse First Boston.

That's good news for most supermarket chains, where traditional photo products and services are clearly the mainstay. With film (predominantly 35 mm) on the shelf for the foreseeable future, the photo industry is aiming to improve consumer satisfaction and increase picture taking. One way is to trade up customers to faster 35 mm film, like 400 and 800 speeds. These provide better outcomes in most cases than 100 and 200 speeds, and better prints tend to generate more snapshots and increase revenue-producing picture utilization.

Adding to consumer fast-film choices in 2001 will be Fujifilm's new Nexia 800 -- the first 800 film in the Advanced Photo System category. This product will be introduced at the trade show.

Like 35 mm, APS film is also here to stay and is growing in popularity, thanks in part to APS single-use cameras. Atlanta-based Garry Briddon, general manager and vice president, U.S. trade relations and business development for Eastman Kodak, noted that the industry expects the APS segment to reach about 15% of rolls processed in 2000 when final figures are in.

Apart from a sluggish economy, the industry expects film sales to slow now that the category is losing share to digital alternatives. But the recent flattening of film sales is also related to a shift to single-use cameras. According to ACNielsen, Schaumberg, Ill., for the 52 weeks ending Dec. 30, 2000, film sales were flat in the food channel, while single-use camera sales rose almost 13%, which is less than the previous year's increase of 20% but is still double-digit growth. When it comes to single-use cameras, "a growing number of households and individuals use this as a primary camera," said Matt Knickerbocker, vice president of marketing, imaging consumer markets, for Fujifilm, Elmsford, N.Y.

New variants on single-use cameras will be among the new products offered at the upcoming PMA trade show, including a pair of new single-use lines which are smaller than ever, very colorful and targeted to teens. One is Kodak's Advantage Access single-use cameras, available in orange, blue and violet, and the other is Fujifilm's new, smaller QuickSnap Colors line in blue green and purple. Fujifilm will also reintroduce its smaller Superslim QuickSnap, which will be renamed Nexia Superslim QuickSnap.

A food-drug combo photo center attracts photo customers thanks to its centerpiece, a one-hour lab with staff who usually provides help with other services besides photo. The supermarket channel may lag behind mass and drug in one-hour and overnight photoprocessing share, but food is enjoying growth in both segments. Between 1998 and 1999 (the latest figures available), supermarket dollar volume in one-hour or minilab processing rose from $219 million to $270 million. For the same period, overnight processing in the food channel rose from $528 million to $566 million, according to the PMA.

The next building block in a photo center -- and an increasingly important source of incremental sales -- is the self-serve kiosk. Eastman Kodak has the dominant share of the kiosk business so far with its Picture Maker, but other players include Fujifilm (Aladdin), and San Marcos, Texas-based Pixel Magic Imaging (Photo Ditto).

Such kiosks are increasingly found in the food channel -- in chains like Albertson's (industry insiders say Albertson's is testing other photo service technologies, too), as well as in some Dominicks and Publix locations.

Industry watchers like Huske of Credit Suisse expect more players to jump into this high-potential segment. "If a retailer already has space allocated for a kiosk in a store then they can build more revenue," said Huske. The presence of trained staff in a photo center helps optimize kiosk sales, noted Laura Oles, vice president of marketing for Pixel Magic Imaging. Oles points out that it can make the difference between a $10 and a $60 sale when the customer is encouraged to consider several print sizes and styles.

Even with a photo center, it might not be possible to staff 24-7, of course. Enter Kodak's Picture Center, a high-tech alternative to the traditional drop box. Introduced at last year's PMA show, and likely to get even more attention at the 2001 show, this self-serve countertop unit has touch-screen features designed to market photo services by helping the customer select among the increasing number of photo options.

"I think we have to move in the direction of digital processing. It's a fact of life," the photo category manager of an upscale regional food chain told SN. He pointed out that there are two digital paths for supermarkets: the kiosk and the digitally capable minilab (such as Fuji's Frontier series). These advanced minilabs make prints from 35 mm film, APS or digital media -- and most digital camera users want at least some images rendered as high-quality prints. This food chain, which has been operating digitally capable minilabs for about a year, is also pleased with its business in photos on disk and CD.

The past couple of years have been kind to the photo category, which was stimulated by a strong economy and the launch of many exciting new photo options. What about the impact of a softening economy on the photo category? Huske noted that since many consumers were introduced to fun and easy photo options like digital cameras and Internet photos, single-use cameras and kiosks during the boom market, then these new consumer habits could help keep the category fairly healthy.