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Supermarket NONFOODS Business: In photo, it's freedom and flexibility

The photo kiosk is on its way to becoming big business. Little wonder the kiosks are getting bigger, too.

The days of dropping the film at a lab and coming back a few days later to receive neat rectangular pictures in an envelope are fading faster than sunlight in winter. A new generation of digital equipment is putting control of the pictures in the hands of customers.

Behind the hands-on convenience of customer-driven selections for photo size, cropping, editing, and image delivery are powerful new processors that can take film and digital pictures and crank out images in whatever format is required—prints, CD-ROM, or specialized pictures.

Customers will control the front end of the process, but the in-house processing equipment is the real new wave driving changes in how they take their images from camera to scrapbook.

"We look at the kiosk portion as the piece where the customer interacts with their pictures on some kind of touchscreen," says John Ward, chief marketing officer for San Diego-based Phogenix, a two-year-old joint venture between Kodak and Hewlett-Packard. "The picture maker systems have focused on the reprint business. We think digital fulfillment is going to be a much bigger part of the business. Printing kiosks are limited. You wind up with a queuing issue because only one person can work on it at a time. It may be easier to add an interface screen to a more productive printer and keep it at a price point the customers expect."

Convenience has been a key for the current photo kiosks, but the cost of enlargements and reprints has made processing full rolls of film prohibitive in that format. The new equipment, including Phogenix's DFX system and Gretag's Digital Photo Station, offers a wider array of possibilities for customers by allowing individual digital images to be reviewed and enlarged at the time of ordering.

"We've had a simple strategy—to drive printing at the retail location," says Mark DeSimone, s.v.p., sales and service for the Americas for Gretag, Holyoke, Mass. "It comes down to the same principles as in the past—cost, quality, and convenience. We asked what we could do to make it convenient.

"We've spent an awful lot of time with retailers, asking them what their customers want," DeSimone adds. "We can design a kiosk that can do everything under the sun, but it may not fit anywhere."

"The current value proposition is a strong one," Ward adds. "People are looking for the same economies. To do 24 prints that are 4-by-6 at a kiosk would be at a price point that would extinguish the behavior. By networking back to the system, the customer can order enlargements at the same time they place their order."

Gretag's Digital Photo Station is seen as an interface between the digital world and devices such as flatbed scanners and on-site and off-site production centers. Retailers can have an on-site kiosk that allows customers to order pictures to their own specifications. The pictures can come from digital cameras, CD-ROMs, or even the Internet.

Digital photo solutions are driving the growth in the photography industry. The emergence of digital cameras and computer-based CD burners has made photography more instantly portable, and the new processing systems are designed to take advantage of those changes.

Digital camera sales have jumped sharply, growing from 5.4 million units in 2000 to 6.5 million units in 2001, with Sony, Olympus, Hewlett-Packard, and Kodak dominating the U.S. market. The quality of cameras being purchased is higher, too, with the point-and-shoot style giving way to those with viewing screens on the back.

While digital is not about to replace film as the dominant photographic method, film camera sales have slipped in North America, Japan, and Europe, according to the InfoTrends Research Group. Since customers have an understanding of film processing—drop it off and pick it up later—the do-it-yourself nature of digital processing may take some explaining.

"We've seen mostly in-house processing being put in. That wasn't true six months ago," DeSimone says. "As retailers are enabling digital labs on-site, you also see more retailers getting the message out to their customers. It brings part of the business of digital back to the customers and gives the retailer the ability to upsell services."

Gretag's system interfaces with those of a wide variety of minilab manufacturers and has both remote and in-house processing capabilities. It also allows for off-site interface into the system by the customer.

"A retailer can sell a software package to the customer that allows them to manipulate the images at home, then download them to the retailer for processing," says DeSimone. "It takes the person back to the retailer to pick up the pictures."

The Phogenix system is its own minilab. The aim is a simple one, Ward says. "Our goal is to be disruptive in the industry with the first digital inkjet minilab.

"What it means to the consumers and retailers is a breakthrough in the photo processing business," he adds. "By utilizing the H-P inkjet system and combining it with Kodak's digital imaging at a much lower price point than has been available in the past, we can address a change in the marketplace with the advent of digital. Many more retailers can participate and avail themselves of the new technology."

One key is in how pictures are delivered back to the customer. Customers can receive standard prints, enlargements, digitized pictures on CD-ROM, and other specialized printing options through the fulfillment center. They will also be able to bring in memory cards from a digital camera and get a printed negative sheet to keep with the CD and identify the pictures for future use.

With Internet software, the day is coming when customers will take digital pictures on vacation anywhere in the world, upload the images to a processing center near home, and pick up pictures and a CD-ROM on the way back from the airport. Suppliers and retailers are getting ready for the day when digital photography is the most popular form of image delivery.

"We're very excited at the rate this is being adopted. Once it's widely available, the growth is going to be explosive," Ward says. "It's a fundamentally better way to get pictures. That's where we think the opportunity is. If customers got exactly what they got with film, this would be a less exciting opportunity."
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