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Safeway Pulls Plug On Coinstar

BELLEVUE, Wash. -- Due to the inability to reach mutually acceptable economic terms, the nine-year relationship between Safeway, Inc. and Coinstar, Inc. here has come to an end.

Safeway represented approximately 10 percent of Coinstar's revenue in fiscal 2002, according to Coinstar, which operates electronic coin-counting machines. Coinstar plans to start removing 1,083 machines from Safeway stores across the country and expects to be done by the end of the year. The company will still have more than 10,000 machines installed in supermarkets including Kroger and Albertsons.

"It was a very unfortunate, a very regrettable outcome for us," Coinstar President Rich Stillman told Reuters, noting that the two companies had failed to agree on a new contract for purely economic reasons.
Customers using Coinstar machines to count their change pay 8.9 percent for the service. The retailer gets 11.2 percent of that take. "We are proud we don't have special deals for some retailers," Stillman said. "There are no plans to change that business model."

In the wake of the news, shares of Coinstar plunged and as a result, the company cut its earnings outlook for the full year. Financial analysts called the news devastating for Coinstar, not only from a financial standpoint but also as it pertains to the value of the company's network for other supermarket customers, which may be prompted to demand a higher payout.
Safeway, a Coinstar customer for nine years, represented about 10.1 percent, or about $18 million, of Coinstar's total revenue in fiscal 2002. Coinstar said Safeway contributed to 10 percent of sales in 2002, while Kroger contributed to 24 percent of sales last year.
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