KROGER PUTS DVD KIOSKS IN DALLAS

DAN ALAIMO

CINCINNATI - Kroger Co. here is installing DVD rental kiosks this month in 84 of its Dallas-area stores, a company spokesman confirmed.

The machines are from TNR Entertainment Corp., Houston, also known as The New Release, which now has 215 such kiosks in seven chain banners, including two of Kroger's.

"We are excited to partner with TNR to provide this convenient service to our customers," said Kroger spokesman Gary Huddleston in a statement. He would not comment further.

TNR projects that it will have 5,000 DVD kiosks installed by the end of 2008, with the vast majority in supermarkets, said John Osborne, TNR's founder and president. "Our primary strategic focus is on the grocery store market, although we believe there are other possibilities out there and we continue to test them," he told SN.

TNR's first account was H.E. Butt Grocery Co., San Antonio, where it now operates kiosks in over 100 stores, a TNR spokesman said. Other major deployments are Kroger in Texas; Kroger's Colorado chain King Sooper's, where the chain uses kiosks to replace video rental departments; and Publix Super Markets, Lakeland, Fla., he said.

Pilot operations include the Pick'n Save stores of Roundy's, Milwaukee, and the Houston-area Randalls division of Safeway, Pleasanton, Calif., Osborne said. TNR kiosks are in all five Bloom stores of Food Lion, Salisbury, N.C.

"We think that the combination of the built-in traffic that goes to supermarkets, in addition to the frequency of the traffic, blends real well with the rental model," Osborne said.

"Also, there has been an established behavior of renting movies in grocery stores because a lot of them used to have rental departments. There's not a big disconnect in the behavior of consumers," he said.

TNR has brought in two former MGM executives with significant experience in dealing with supermarkets to help guide its expansion: Richard Cohen, chief executive officer, and Jeffrey Karbowiak, chief operating officer and chief financial officer. Cohen also worked at Disney when that company first expanded its supermarket program.

Additionally, the company is rolling out a new-generation kiosk that holds 1,200 DVD units of about 200 titles in a 6-square-foot space, Osborne said. These are going into all new installations and will replace all older units by the end of the year, he said. The company is experimenting with the sell-through in machines of both new and previously viewed DVDs, he added.

With the low-cost overhead of DVD vending kiosks, and as consumers gravitate to other technologies to get their movies, supermarkets may outlast other retailers in the video rental business, Osborne said. "From a physical distribution standpoint, I think they certainly are going to be the most prevalent last player standing," he said.

"The economics are going to be most sustainable long term both for the grocery store and for the rental business. The economics of a traditional brick-and-mortar type of [rental] business aren't sustainable, nor are they sustainable in a lot of other types of markets," he said.

In most locations, TNR charges about $1 a day for rentals. There are no late fees. Fees for additional days are added to the tab as they accumulate, and there is a $35 charge for an unreturned DVD to cover product cost and handling. TNR is experimenting with other pricing structures, Osborne noted, such as tiered pricing with new movies renting at $1.49 and other titles priced lower. However, "the vast majority of our machines are at a dollar a day and will stay at a dollar a day." This is similar to other DVD rental vending competitors.

On the profitability of $1 rentals, he said, "if you manage the cost structure efficiently, and if you have scale - that is, hundreds of machines - the economics at a dollar a day are extremely viable."

Some retailers are concerned about the checkered history of video vending - in the days of VHS, it was tried and failed a number of times - but Osborne expressed confidence that the current kiosk model has evolved to the point where it will be "around for a long time."

Citing ATMs, automated checkouts in stores, and kiosks at airports, he said, "People are getting more and more comfortable with using kiosks to do things, and movies are no exception."

Osborne sees a strong, increasing interest among supermarket chains in DVD kiosks. "When I first introduced the concept a few years ago, I got these bewildered looks because nobody had seen it before. Now that it is becoming more ubiquitous, more grocery stores want it." By DAN ALAIMO

CINCINNATI - Kroger Co. here is installing DVD rental kiosks this month in 84 of its Dallas-area stores, a company spokesman confirmed.

The machines are from TNR Entertainment Corp., Houston, also known as The New Release, which now has 215 such kiosks in seven chain banners, including two of Kroger's.

"We are excited to partner with TNR to provide this convenient service to our customers," said Kroger spokesman Gary Huddleston in a statement. He would not comment further.

TNR projects that it will have 5,000 DVD kiosks installed by the end of 2008, with the vast majority in supermarkets, said John Osborne, TNR's founder and president. "Our primary strategic focus is on the grocery store market, although we believe there are other possibilities out there and we continue to test them," he told SN.

TNR's first account was H.E. Butt Grocery Co., San Antonio, where it now operates kiosks in over 100 stores, a TNR spokesman said. Other major deployments are Kroger in Texas; Kroger's Colorado chain King Sooper's, where the chain uses kiosks to replace video rental departments; and Publix Super Markets, Lakeland, Fla., he said.

Pilot operations include the Pick'n Save stores of Roundy's, Milwaukee, and the Houston-area Randalls division of Safeway, Pleasanton, Calif., Osborne said. TNR kiosks are in all five Bloom stores of Food Lion, Salisbury, N.C.

"We think that the combination of the built-in traffic that goes to supermarkets, in addition to the frequency of the traffic, blends real well with the rental model," Osborne said.

"Also, there has been an established behavior of renting movies in grocery stores because a lot of them used to have rental departments. There's not a big disconnect in the behavior of consumers," he said.

TNR has brought in two former MGM executives with significant experience in dealing with supermarkets to help guide its expansion: Richard Cohen, chief executive officer, and Jeffrey Karbowiak, chief operating officer and chief financial officer. Cohen also worked at Disney when that company first expanded its supermarket program.

Additionally, the company is rolling out a new-generation kiosk that holds 1,200 DVD units of about 200 titles in a 6-square-foot space, Osborne said. These are going into all new installations and will replace all older units by the end of the year, he said. The company is experimenting with the sell-through in machines of both new and previously viewed DVDs, he added.

With the low-cost overhead of DVD vending kiosks, and as consumers gravitate to other technologies to get their movies, supermarkets may outlast other retailers in the video rental business, Osborne said. "From a physical distribution standpoint, I think they certainly are going to be the most prevalent last player standing," he said.

"The economics are going to be most sustainable long term both for the grocery store and for the rental business. The economics of a traditional brick-and-mortar type of [rental] business aren't sustainable, nor are they sustainable in a lot of other types of markets," he said.

In most locations, TNR charges about $1 a day for rentals. There are no late fees. Fees for additional days are added to the tab as they accumulate, and there is a $35 charge for an unreturned DVD to cover product cost and handling. TNR is experimenting with other pricing structures, Osborne noted, such as tiered pricing with new movies renting at $1.49 and other titles priced lower. However, "the vast majority of our machines are at a dollar a day and will stay at a dollar a day." This is similar to other DVD rental vending competitors.

On the profitability of $1 rentals, he said, "if you manage the cost structure efficiently, and if you have scale - that is, hundreds of machines - the economics at a dollar a day are extremely viable."

Some retailers are concerned about the checkered history of video vending - in the days of VHS, it was tried and failed a number of times - but Osborne expressed confidence that the current kiosk model has evolved to the point where it will be "around for a long time."

Citing ATMs, automated checkouts in stores, and kiosks at airports, he said, "People are getting more and more comfortable with using kiosks to do things, and movies are no exception."

Osborne sees a strong, increasing interest among supermarket chains in DVD kiosks. "When I first introduced the concept a few years ago, I got these bewildered looks because nobody had seen it before. Now that it is becoming more ubiquitous, more grocery stores want it."

Top 10 SUPERMARKET DVD SELL-THROUGH TITLES As of April 9, 2006

RANK: Title (# of Weeks Out),last

1) 1; The Chronicles of Narnia (1); Buena Vista $29.99

2) N; Fun with Dick and Jane Sony $28.95

3) 3; King Kong (2); Universal $29.98

4) 4; Chicken Little (3); Buena Vista $29.99

5) 2; Brokeback Mountain (1); Universal $29.98

6) N; The Greatest Game Ever Played Buena Vista $29.99

7) 6; Harry Potter and the Goblet of Fire (4); Warner $28.98

8) N; Pooh's Grand Adventure; Buena Vista $29.99

9) 5; Walk the Line (6); Fox $29.99

10) Lady and the Tramp: 50th Anniversary Ed. (6); Buena Vista $29.99

N=New N/A=Not in Top 10 last week

This chart, tailored for the supermarket video market, is based on information taken from more than 1,000 supermarket rental locations serviced by Ingram Entertainment, La Vergne, Tenn.