The hunt for profits shouldn't end at the checkout, and Coinstar is taking the lead in an expedition to flush out and then help retailers bag the opportunities hidden in what is probably the least-exploited piece of store real estate -- the space between the checkouts and the front door.

Coinstar's ambition is simple: It wants to own the front end as its category captain, helping retailers to optimize the space as a better-organized, more efficient staging area for serving shoppers.

The timing could hardly be better, given what's happening in other parts of the store, particularly the center. Consumers are still taking plenty of food shopping trips; the problem for supermarket operators is that shoppers are taking them at a greater variety of retail formats than ever before, replenishing substantial chunks of the staples that supermarkets once monopolized. Consumers are flocking to warehouse clubs for paper products, dollar stores for nonfood items, and drug chain units for HBC products, in a flurry of channel blurring that's leading to shrinking margins and smaller basket rings for many grocers.

The 'fourth wall'

Scrambling to react, supermarkets are trying a variety of strategies in the hope of winning back their share of consumers' wallets. Among these antiblurring resources are store-in-store concepts offering everything from hot coffee to fast food, reductions in product selection and labor expenditures, and the wielding of price optimization applications to drive demand.

The biggest area of concentration, however, has been the perimeter, as grocers have seized on the concept that increasingly healthy-minded consumers are going to be drawn to, and pay more for, higher-quality perishables. A prime example of this retail trend is Safeway's focus on its own perishables department, attempting to boost its reputation as a fresh food purveyor with programs such as its Rancher's Reserve brand of meat. The exercise has become a linchpin of that chain's rebranding effort.

But while many operators, including the biggest chains in the business and many of grocery's entrepreneurial smaller retailers, are investing a lot of energy and cold, hard cash into trying to better manage their merchandising on the rear three walls that form the typical perimeter presentation, who's really trying to make something out of the orphaned front of the store?

"No one has applied this kind of discipline to the front of the store," says Rich Stillman, president of Bellevue, Wash.-based Coinstar. "This area between the cash drawer and the front door—which we refer to as the 'fourth wall'—is forgotten space that represents an untapped opportunity for retailers."

If anybody should be looking to unlock this potential, it ought to be Stillman. Seeing this void at the front of the store, he developed a strategy to help retailers create more value at the front end, thereby transforming the company around it. "We began to diversify our operations to create more value for our customers and shareholders," says George White, regional public relations manager for Coinstar. "This guided our acquisitions, sales, and marketing efforts. In the first quarter of 2004 we acquired technology and expertise to move beyond kiosk distribution into the checkout lanes."

In February 2004 Coinstar brought in Steve Verleye, general manager of e-payments, to drive the electronic payment business.

In addition, over the past few years Coinstar has been acquiring or partnering with companies that focus on pieces of the business at the front end, from Boulder, Colo.-based American Coin Merchandising, manufacturer of vending machines that include skill cranes and gumball dispensers, to Kennewick, Wash.-based Mundo Communications Network and Des Plaines, Ill.-based CellCards of Illinois, for their prepaid products and services.

Profit potential

This is certainly not virgin territory for Coinstar. Founded in 1991, the company built its brand up into a fixture at the front of thousands of supermarkets nationwide, by being a pioneer of self-service coin counting, which provides consumers with a convenient and innovative means of converting loose change into cash, and renders a tidy cut to the retailers that give its equipment space at the front.

Now, Stillman and Coinstar are looking to move far beyond coin counting, to create a new retail management program that integrates and maximizes the profit potential of the many products and services that are typically scattered, with lack of sophisticated planning, in front ends across the country.

Coinstar has spent considerable time and energy on the project, developing proprietary insights into how best to exploit the money-making potential of the front end, based on retailer interviews, store audits, consumer studies, and profiles of individual categories. The studies were performed by Euro RSCG Meridian, a Westport Conn.-based consulting firm, which assisted Coinstar. From that foundation of field research, the company has dissected the real estate's elements, to identify the key leaders and set priorities for retail success.

"At the front of many stores today is a haphazard arrangement of products and services," explains Stillman. "In addition to the traditional products at the checkout lanes -- such as candy, magazines, and beverages -- the front of the store usually has a mix of items, including ATMs, rug-cleaning services, recycling services, and seasonal products. But there isn't any discipline applied to the front end [mix] in the way it's applied to other areas of the store through strategies like category management. If this discipline is applied to the front of the store and it brings back customers, even a small percentage increase [in traffic] could make a significant difference to the retailer."

Coinstar's front end optimization program is a stark departure from the traditional practices of most supermarket operators when it comes to the front end.

The company has developed a robust system for analyzing retailers' strengths and weaknesses in the front of the store, and making suggestions for additional products and services that can extend the real estate's value beyond its conventional role as an afterthought for both operators and shoppers. In essence, Coinstar will tailor a category management plan that uses as its building blocks the products and services that create unique opportunities for stores as destinations, and to spur more impulse spending opportunities, as well.

"Of particular note are two key areas," says Stillman. "First, the new front end focus is emphasizing products/services that extend retailer value beyond conventional items and create unique destination opportunities. Second, it includes products/services that enhance the shopping experience and create post-register profit upside."

Reaching out

There could be plenty of upside. "Two of our lines of business -- coin-counting and entertainment services -- generate five to eight times the industry average for profitability per square foot along the fourth wall," points out Stillman. "In coin counting, Coinstar has vending machines in 18 of the 20 largest supermarkets in the country. In the entertainment category, last year we vended over 18 million plush toys. Our third business, e-payments, is a high-growth area. We're looking to take the knowledge and experience we've gained in these areas, to help retailers make the front end a strategic place in the store to drive more traffic, increase revenue, and build loyalty."

Following the FMI show, Coinstar's staff will start reaching out to its retail partners to offer the services to analyze their individual needs and make recommendations that will maximize profits and customer traffic, as well as assisting in their individual needs for the front of the store.
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