Maximizing the “Fourth Wall”

Those vending machines and gift card racks at the front of many stores can be a source of revenue disproportionate to the space they consume. That’s particularly true of convenience stores, where space is at a premium.

U-Pak-It, a chain of 40 convenience stores in Louisiana, found that it was able to squeeze extra revenue and profits from a number of front-of-the-store items that keep customers coming back.

Key to this accomplishment was U-Pak-It’s partnership with Coinstar, a Bellevue, Wash.-based provider of product lines that build out what the company calls “retailers’ fourth wall.” Coinstar offers kiosks that can count coins, as well as activate or reload debit and phone cards; vending machines for DVD rentals; money transfer systems; gumball machines and kiddy rides; and self-serve coffee kiosks, among others. It also offers services aimed at maximizing the revenues these products generate.

“The array of products helps build revenue and generate better profit,” says Brad Lemoine, marketing director for Monroe, La.-based U-Pak-It. The company currently offers phone cards, DVDs and gift cards through Coinstar, and profits have increased since the company began featuring these services.

Coinstar offers retailers the opportunity to sell pre-paid debit cards, such as the Green Dot MasterCard. These enable consumers who don’t have credit cards to obtain debit cards for shopping (including online purchases) for an initial fee of $5.95 to $9.95.

The target market for these products is the estimated 80 million individuals in the United States without a traditional bank account. Kids are another market, as parents can provide the cards as a way to learn about credit. “It provides great flexibility for consumers,” says Mike Skinner, general manager of e-payment services with Coinstar.

Retailers also benefit, earning a commission on each debit card purchased (the amount varies by product, as well as the size of the retailer).

Coinstar also offers a range of gift cards from companies such as Borders and T.G.I. Friday’s. As Louisiana is known as the “sportsman’s paradise,” gift cards for Bass Pro Shops are particularly popular with U-Pak-It customers. Retailers can choose from a range of countertop and floor displays, depending on the space they have available.

Equally important, the retailer does not have to invest in the inventory. Coinstar manages the relationship with the retailers behind the gift cards, and bills the convenience store only once the cards are sold to the end consumer. It also takes responsibility for the displays and merchandising. This lets retailers get involved in the program quickly, inexpensively and easily.

“There is no risk of loss since there is no investment until the sale has been made,” Lemoine says.

Uses existing POS system
Coinstar also offers pre-paid long distance and wireless products from carriers like Alltel, T-Mobile, Verizon and Virgin. Once customers purchase minutes from a retailer, they tend to return often to replenish their cards, Lemoine says.

Coinstar products can be integrated within a retailer’s existing POS system. That means no additional equipment is needed to process the transactions and activate the products, which is key for retailers with multiple checkout lanes.

DVD Express is another option geared to the convenience store market. Like Redbox (another unit of Coinstar), DVD Express is a vending machine from which consumers can rent movies for as little as $1 per night.

A customer can take a movie from the machine, read the description on the back of the box and even return it to the machine (as long as it’s within several minutes) without incurring a charge. “Customers look at four or five movies, and then decide,” Lemoine says, “so, it’s like they’re in a bricks-and-mortar [video] store.”

DVD Express is running in three U-Pak-It locations, and the stores pick up additional revenue from the sale of items like popcorn and soda with the rental and coffee and doughnuts on the return trip the next morning. Those locations are among the chain’s four top-performing stores, Lemoine says.

Even better, Coinstar takes responsibility for replenishing the movies, and the vending machines receive new releases on the same day as national video rental stores.

Platform-agnostic technology
Retailers can offer Coinstar’s products on a range of POS systems, computers, kiosks and terminals, without having to add equipment. “We’ve had the opportunity to build technology that’s platform-agnostic,” Skinner says. “We’re relatively turnkey.”

Coinstar’s merchandising services group handles many of the installation details, including employee training, product set-up, display, marketing and re-stocking. Moreover, the company offers a range of reporting options so that the retailer can quickly and easily tell just how different product offerings are faring.

While vendor support is critical, to really make this category work, the retailer’s executive team needs to get behind it. “It can be easy for the management team to lose sight of this category,” Skinner says. “The retailer has to be committed.”

For U-Pak-It, the results have been “better margins and sales and exploding profit,” Lemoine says. That’s due, in part, to the fact that several Coinstar products have turned U-Pak-It locations into destination points, where consumers can fill up with gas, get a DVD and gift card, and pick up some milk – all in one stop.

The upshot? “We’ve seen a 30 percent profit increase” with Coinstar, Lemoine says, and U-Pak-It is considering the addition of bill payment services and a private-label gift card.