Tim Pethick talks on Innovation
Tim Pethick is interviewed here, by Smart Company. Tim started Nudie Juice but is now the Australian MD for ?What If!, you can read more about Tim here.
In the interview Tim talks about innovation, and if you haven’t done so by the time the market turns, watch out! This is pretty relevant for DVD rentals as the market has matured and is starting to slowly contract. It’s the Video Ezys of this world that are going to feel the heat as their business fixed costs remain unchanged since the hey day of 5+ years ago. We’ll see them downsize, but that reduces their stock holding and to a degree, their ability to service their membership (this is a problem APPLEBOX doesn’t have).
It’s good to see Red Room DVD pursing a different model, but they are using automation (via vending machines) which I think is a false economy. e24 look to be another vending machine outfit who are trying to get a foot in (and I am sure there are others).
But there are 1300 stores out there (with the majority owned by large franchises) who haven’t changed their model in 20 years. As Tim says when the market wobbles “we will get the next wave of start-ups who will eat the lunch of the incumbents”.
I hope so! APPLEBOX along with Red Room DVD are part of that next wave …
In any case, I had never heard of ?What If!, but it looks like they partner/consult to promote innovation where they can. Which is great! We need this sort of support in Australia.
March 28th, 2008 at 8:05 pm
Hi Simon,
I have been following developments in the DVD rental market with great interest, so new ventures such as APPLEBOX have attracted my attention. I have the following comments and questions:
It appears that APPLEBOX is the Australian version of DVDstation in the US (www.dvdstation.com). The only difference is that instead of using iMacs for movie browsing and selection, DVDstation uses touchscreens. It also supports web reservations like APPLEBOX.
You have commented on the fully automated DVD store concept such as Red Room DVD and suggested that using vending machines is a “false economy”. What are your reasons for thinking so?
The vending machine concept has the advantage of automating inventory management, meaning that the store assistant can focus on “real” customer service, rather than also having to deal with physically processing rentals and returns. Of course, the store assistant still has to load new movies each week but the process is still much more efficient with the vending machine automatically allocating and placing the DVDs in its internal storage compartments.
Wage costs are also much higher under the APPLEBOX concept because the store must be staffed for around 80 hours per week, whereas an automated store only requires staffing for customer service during peak times, which amounts to no more than 50 hours per week.
Also, I wonder if tech savvy customers that are quite comfortable selecting movies from a Mac or Touchscreen would also prefer to pick-up and return them from/to a vending machine rather that having the transaction processed through a shop assistant?
I would be interested in your thoughts.
March 31st, 2008 at 5:40 pm
Hi Mustafa,
Yep, we are similar to DVD station (with their store concept rather than standalone machines), and our own local version, Redroom DVD. But we eschew vending machines for good old manual pick and serve. Inventory management is still handled by software, but our people have perfectly functioning arms that don’t need replacement by robotics.
My take on vending machines is that they work best in a tightly focused application, that being as standalone units located within existing retail areas (eg a supermarket). Their footprint is virtually neglible and even with limited stock and throughput they should do okay. BUT, they’ll never crack the figures that an 8000 stong dedicated store can achieve. Ok, why not bunch a number of these machines together and open a small footprint store? This is the idea Sydney outfit Redroom DVD have executed on.
Grabbing a link from local group Instant DVD (http://www.instantdvd.com.au/dvd-faq.php#titles), they say their standalone machines hold 300 DVDs. My guess is one of their machines cost $30-40K AU. They’d need *16* of those to match APPLEBOX’s current library. Unfair you say! In a dedicated space with networked terminals and high capacity units, you can hold 5000 discs. Ok, how much will that cost? My guess is you’ll hit 200k pretty quickly. APPLEBOX will cost 4 off-the-shelf iMacs and some custom cabinetry .. that’s probably 15k all up.
Ok, but machines perhaps saves 30 hours a week shop wages (forgetting for a moment that those 30 hours could be put into other productive work). You’ll have to do the math, but by Australian award wages (and on the setup figures above), that will take well over 5 years before the benefit is felt. Add maintenance, repairs, downtime and not to mention the physical bulk of the machines which will dictate store layout and style. Small footprint starts to be not so small. And then how to scale to add another 2,000 DVDs and greater throughput? With APPLEBOX another iMac or two, and another cabinet. The future of APPLEBOX lies definitely in the long tail as we become a DVD archive with each store holding 10,000+ DVDs.
So with vending machines I see setup & maintenance costs as being greater than wage savings = false economy.
And as a business, I’d be nervous if I didn’t have full control of the core components of my operation. That means the distribution mechanics and the controlling software. To be reliant on third party vending machines and vendor software (yuck), especially in Australia where none of this stuff is manufactured .. is something I’m happy to avoid.
Re tech savvy .. in the local community I aim to appeal beyond those that are tech savvy. To battle the traditional local store, its a numbers game, and that means picking up ALL customers including the non-techies. Keeping an old-school feel with great staff is essential to our model.
Obviously this is my pitch on why I didn’t go for vending machines :-). And to all vending machine outfits - best of luck! There’s always more than one way to skin a cat.