Mini-labs strengthen drug chains' photo business

Drug Store News, Feb 20, 1989

Mini-labs strengthen drug chains' photo business

Drug chains are leading a wave of experimentation among mass marketers with mini-labs. Following the lead of Eckerd, which today has 126 labs in Florida and Texas stores, chains such as Longs, Genovese, SupeRx of Phoenix, Pay Less NW and Standard Drug are testing installations in select stores.

King Soopers, Denver's combo juggernaut, opened its first mini-lab in January. Mini-labs will be in Jewel-Osco's first Florida stores, the first of which will open in Largo in March. Such experimentation by combos follows the lead of Meijer's Thrifty Acres, which has operated them in its Midwestern super stores for some years now.

The current push by mass retailers is expected to increase the presence of mini-labs. For example, Kodak estimates that mass merchants will account for 17.3 percent of mini-lab film exposure volume in 1990, and 27.3 percent in 1995.

Overall growth is expected to slow from the explosive pace of the past eight years, but will likely reach double digits, the Photo Marketing Association forecast in a recent study. About 15,800 lab installations were forecast for the end of 1988, 18,000 by the end of this year, and 20,100 by year-end 1990.

Drug chain merchandisers report early successes, with mini-labs exceeding their performance targets. Executives view the mini-labs as a viable way to reinforce the image of drug stores as outlets for photographic products and processing. As consumers shoot more film, strengthening this premise becomes even more important.

There is also new technological promise from the makers of mini-labs, such as Noritsu, Fuji, Copal, Kodak and Print Technology. New units are more automated, more efficient and easier to use.

Yet chain drug executives responsible for photofinishing see key challenges ahead - not the least of which is ample staffing and training to assure that skilled people are available to operate the mini-labs.

"We knew we wanted to be in the business as long as it was profitable for us. It adds a new dimension to the drug store," Tommy Thomas, SupeRx Drug's vp-marketing, told Drug Store News. SupeRx launched its first lab in Phoenix a year ago, and now has two.

SupeRx found when it changed from a two-tier to three-tier pricing structure - offering a choice of same-day processing, one-hour and next-day service - that volume rose significantly. Same-day was the most popular, Thomas said.

"The pricing isn't the issue. It's the quality, store hours of operation, and the way you service the people," he added.

His toughest challenge has been training. SupeRx brought in a lab expert to run the program. He programs the lab computers, oversees training and maintains contact with the supplier.

Success in the initial store has given birth to rollout plans for three to five new sites a year in affluent neighborhoods, and near business parks and resorts.

King Sooper's first lab went in Jan. 8. "We saw this as an opportunity to capture more of the [photofinishing] market, and extend our one-stop shopping concept," said Pat Greaser, director of general merchandise. Greaser uses the lab strictly for one-hour processing with other needs handled by wholesale processing.

He's assessing the labor pool along with this effort because "you have to have a training program to absorb turnover. We offer benefit packages better than the independent [mini-lab] operators," Greaser noted.

Genovese also feels a major concern will be retaining enough qualified people - two-and-a-half full-time equivalents per store - to operate the mini-lab 84 hours a week, Don Gross, vp-marketing, told Drug Store News.

The New York chain of 89 stores has so far installed three mini-labs, one of which is in a photo retail store at its photo processing plant. Another is in a mall store, with the lab by the front window for extra visibility. The mini-lab could become an anchor for a consolidated photo department which makes a stronger statement, Gross said.

Industry observers expect that smaller and easier-to-use labs being introduced, along with the "washless" technology, which makes leasehold improvements less necessary and labs more mobile, will fuel brisk growth.

Costs and space needs are coming down. On average, a 45-square-foot lab that processes 40 rolls an hour cost $100,000 seven years ago; today that lab is 22 square feet and costs $50,000.

"A lot of merchants have realized they want to be associated with the business; doing out-lab work isn't enough," says Joe Welsh, Fuji's product manager, photo finishing equipment, consumer products division.

Table : Drug stores are the second-leading outlet for film purchases

(Where consumers said they bought film in the 12 months ended Dec. 1987; percentage of total response(*))

Discount store      66.4%
Drug store          56.7
Supermarket         41.4
Camera store        16.1
Department store     14
Giant combo store   13.7
Convenience store   13.6
Mail order           8.9
Other               27.9

(*) Numbers total more than 100 due to multiple responses