I was just thinking after I dropped my redbox movie off this morning of how did this idea come about. To think this company probably got laughed out of many board rooms when they walked in and said this idea will put the great blockbuster video out of business.
Redbox’s popularity isn’t from having the most kiosks deployed, but from consumer buzz — as evidenced by last month’s Self-Service World survey of the Top 10 Hottest Deployments. Redbox topped out at No. 1, as voted by readers of this magazine.
But having the most kiosks deployed doesn’t hurt.
With around 4,000 DVD-rental kiosk locations, redbox is the leader in the automated DVD-rental market, which also includes DVDPlay and The New Release (operators of the MovieCube kiosk). Redbox believes it will reach 6,000 locations by the end of 2007, tripling the number of locations the company had at the beginning of the year.
“Redbox is firing on all cylinders,” said Rufus Connell, research director for information technology at Frost & Sullivan. “They have good hardware and software, good marketing and good partnerships for their deployment locations.”
The redbox business model is simple: Each kiosk carries about 500 DVDs, all of them recently released flicks. Redbox says the selection process is part art and part science. Large and medium box office films automatically make the cut, while a purchasing team selects lesser-known titles based on customers’ perceived interest.
Customers select their movies using a touchscreen and swipe a credit or debit card for payment. Each movie costs $1 per night to rent; if the movie isn’t returned, charges cease after 25 days and the customer owns the movie.
“The $1 rental is its biggest appeal, although the average customer ends up keeping it for longer than one night,” said Gregg Kaplan, CEO of redbox. Kaplan said the average rental time is a little more than two nights, but only a small percentage of people keep DVDs past the 25-day mark.
To return a movie, a customer inserts the DVD back into the kiosk, hopefully right-side up. (The DVD cartridge reads, “There is no special reward for putting the DVD back in the case the right way, but you’ll be a better person for it!”) Rented DVDs can be returned to any redbox kiosk nationwide, a trait that is unique to redbox, Kaplan said.
The model seems to be working. Redbox went from 93,000 rentals in 2003 to 21 million rentals in 2006. The company recently surpassed 50 million rentals.
Redbox takes advantage of its history with McDonald’s Corp., which gives it access to its pick of McDonald’s locations.
Redboxes are found in McDonald’s restaurants and in numerous grocery store chains, including Giant Food stores, Albertson’s and Wegman’s.
Of burgers and boxes
Redbox is the brainchild of McDonald’s Corp. and was launched in 2001 as a concept of McDonald’s new business development department. Kaplan has been there since the beginning.
“At the time, McDonald’s was looking for long-term growth opportunities and ways to grow their core competencies,” Kaplan said. “They were also looking for a worldwide project outside of the food sector.”
Kaplan said McDonald’s was poised to produce a new service outside of food for several reasons. First, he said the company is world-class at replicating a system of delivering products to customers, as represented by the growth of its franchises over the years.
Second, the chain is excellent at picking real estate and it knows where to place restaurants to draw the most traffic.
“The McDonald’s locations we’re in typically have ample parking, are located in busy areas and the restaurant draws customers with great-tasting meals and snacks,” said Greg Waring, vice president of marketing for redbox.
Finally, Kaplan said McDonald’s specializes in operating its service under a brand name, proven by cultural recognition of the Golden Arches, and now the redbox name.
The concept for redbox was based on self-service robotic vending machines that dispense high-end products such as cell phones and iPods. When designing the concept, Kaplan’s business-development team also followed several macro trends they saw in the customer-service industry.
For instance, the team noted that automated self-service was becoming more prominent, mainly because of the convenience factor. It also noticed that people liked to use kiosks because they could be in control of their transactions.
“We also saw that consumers like to use machines in high-traffic locations that operate under one brand,” Kaplan said.
“The result was a redbox brand that is generic enough that it can be used not only at McDonald’s for DVD rental but could eventually become representative of financial kiosks or for ticketing kiosks at travel centers,” he said.
Redbox broke away from McDonald’s in 2006. Kaplan said McDonald’s was convinced the DVD-rental industry would be bigger than what McDonald’s restaurants wanted to handle and that it might be a distraction to its core business.
But McDonald’s didn’t completely set redbox adrift. McDonald’s Ventures LLC, a wholly owned subsidiary of McDonald’s Corp., still owns about 47 percent of redbox Automated Retail LLC.
Another 47 percent of redbox is owned by Coinstar Inc., makers of the green self-service coin-counting kiosks found in many grocery stores. The remaining percentage is owned by investors of a tech company redbox acquired.
“Redbox’s association with Coinstar has given it credibility,” said Francie Mendelsohn, president of Summit Research Associates, a self-service industry research firm. “The partnership gave it entrÃ© with supermarkets around the country.” Giant Food Stores is one of those supermarkets. The chain operates 186 stores in the mid-Atlantic states and is known for self-service initiatives such as self-checkout and self-service floral and seafood departments. Giant began deploying redbox kiosks in March 2006.
“The customer response to the redbox kiosks has been very positive,” said Jamie Miller, public affairs manager for Giant Food Stores. “At this point, over 80 percent of our stores have deployed a redbox.”
To date, grocery stores and McDonald’s restaurants have proven to be the most effective locations for redbox, but that was not without careful planning. The first market test for redbox took place in Denver in 2002 with 10 kiosks. Now, Kaplan said, redbox has as many as 12 market tests going on at any one time, all studying the kiosks’ effectiveness.
“It’s gone beyond intuition. There is a great deal of analysis and measuring to find the optimal place to put these kiosks,” Kaplan said.