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Stores are taking the Alice’s Restaurant approach to retailing, using web-enabled kiosks to present a broader assortment of goods.
Call it the Alice’s Restaurant strategy of retailing: Satisfy store customers’ every buying whim by offering an in-store web kiosk through which customers can get anything they want. Retailers get incremental revenue and increased customer loyalty by making a wide assortment of products available from a kiosk, proponents of store-based web-enabled kiosks argue. With an average kiosk-based purchase at $32, a single kiosk that generates 10 orders a week would produce more than $16,000 in sales a year. Not bad for a contributor that requires no training, salary or benefits.
Several retailers have begun implementing in-store kiosks-often in conjunction with a complementary web-based product-ordering system. But few have a success story to tell yet-and researchers who are just starting to zero in on this market caution that each retailer faces the challenge of how to make a kiosk program work in its own environment to increase sales.
Until now, the most successful kiosks in retail locations have been those that promote product complementary to what the retailer already sells. Recreational Equipment Inc., Virgin Megastores and Borders Books & Music have experienced success with kiosks offering specific products related directly to the store assortment (see Internet Retailer, June 2002, May 2002 and April 2001).
But as general merchandise retailers, and particularly supermarkets, face growing threats from retailers, such as Wal-Mart Stores Inc. or Costco Wholesale Corp., who want to dominate all categories of retailing, they are more willing to test new ways to compete. And kiosks are one of those ways.
Penn Traffic Co.’s P&C Foods supermarket chain, for instance, is testing Nexpansion’s Endless Aisle web-based kiosks in six stores in the face of pressure from large rival retailers. “We’re seeing more and more competition, and especially from Wal-Mart,” a P&C spokesman says. He adds that P&C’s market is also flooded with major regional retailers like The Kroger Co. and Wegmans Food Markets Inc.
As a result, P&C is hoping to see if the kiosks will give customers no reason to seek products elsewhere. “It extends the products we can offer,” the spokesman says. “The benefit is to offer customers items that they were previously unable to get in any supermarket.”
P&C Foods, however, says its kiosk program is too new to show whether the kiosks are achieving the company’s objective of increasing sales and loyalty. Further, several convenience store chains which have been testing similar systems say the efforts are too new to have resulted in measurable sales boosts. And that leaves many observers and analysts wondering if installing kiosks is really worth the expense and trouble.
Indeed, some industry experts express doubts about how the fledgling kiosk strategy will fare with consumers. “Kiosks will help retailers promote products that are not housed in stores, reduce inventory based on demand, as well as give convincing product demonstrations,” research firm Frost & Sullivan says in a new report on kiosks. But reaching that point may be difficult under current market conditions, Frost & Sullivan analyst Mukul Krishna says.
He warns that kiosks intended to expand the number of available products don’t fill a pressing need in the marketplace. “Stores are so near to each other and so many people have Internet access, that I doubt kiosks will produce that much more revenue,” he says. “Stores that deploy these will have to think hard about what people will wait for and what they’ll be willing to pay shipping for.”
Lisa Kent couldn’t disagree more. As CEO of Nexpansion, which provides its Endless Aisle brand kiosks and complementary web-based product extension program to P&C, Lowes Foods and Clemens Family Markets, she hails kiosks as a way to increase revenue and keep happy customers coming back for more. “Every dime received through Endless Aisle is a dime the retailer otherwise wouldn’t have had,” she says.
Kent figures that a good kiosk program can net a 200-store supermarket chain as much as $11 million in the first year of implementation. Here’s how she figures that $11 million: Based on actual average kiosk purchases of $32 through Nexpansion machines, she estimates a 200-store retailer that provides reasonable marketing support-such as mentioning the kiosks in weekly printed fliers-can expect to reap first-year sales of $2 million to $6 million; at the low end, 10 orders a week.
If the program is marketed successfully enough to elicit a 10% increase in loyalty among its base of kiosk customers, the retailer should realize another $5 million in additional store sales. She also figures that kiosks enable retailers to save up to $500,000 a year in operating costs related to handling special orders for products not normally offered in-store.
It’s not clear, however, that retailers, already forced to allocate advertising funds and floor space to promoting thousands of in-store grocery products, will allocate the necessary marketing support to kiosk programs. Nexpansion recommends that retailers promote their kiosks through multiple in-store marketing techniques, including signage, brochures placed at checkout stations and customer service desks, and notes on product shelves that inform shoppers that unfound items can be ordered at the kiosk.
Other products competing for marketing and merchandising attention have limited P&C Foods’ promotion of the Endless Aisle kiosk, the spokesman says. P&C’s only promotion has been to place signs on the machines themselves and locate the devices prominently toward the front of stores near customer service desks and produce departments, he says. That may explain why traffic so far has not been significant. “Endless Aisle is important, but we have to offer values in every in-store category every week and communicate that to customers,” the spokesman says.
Despite limited experience so far, retailers have shown a willingness to try out kiosks. And that will translate to significant growth in retailer spending on kiosks over the next five years, both Frost & Sullivan and researchers Summit Research Associates Inc. report. However, while they agree that growth is imminent, they diverge on how big the market is. Frost & Sullivan projects that in 2008, retailers will spend more than $300 million on kiosks worldwide, up nearly 50% from about $220 million in 2001. Summit Research Associates, which specializes in kiosk research, projects only to 2005 and says spending on retail-based kiosks will reach $177 million that year, up 70% from $104 million this year.