Back in June, I discussed several new kiosk concepts by Redbox parent company Coinstar (CSTR) that would help the company diversify away from its movie rental business. Two launches this past week have the company on track for an exciting future and could have shareholders rewarded nicely. Along with its movie rental business, Coinstar shareholders will now see revenue from "Event Tickets" and "Seattle's Best" kiosks.
Coinstar is rolling out Seattle's Best coffee kiosks through a partnership with Starbucks (SBUX), the owner of the coffee brand. Just as customers line up to rent movies from a kiosk, they will now be able to wait in line to have a machine pour them a 12 ounce or 16 ounce cup of coffee. The prices are starting at $1 (12oz) and $1.50 (16oz) respectively. Nicknamed "Rubi", the machine will also offer premium coffee drinks for additional amounts.
The initial deal for kiosks is set at 5,000 units around the country. Coinstar believes it is possible to expand to 15,000 nationwide, if the initial launch is a success. Machines will be found at drug stores and big box retailers, with an emphasis on stores that do not already have a coffee store inside. Safeway (SWY), the number two grocery chain, has already signed up for more than 50 kiosks. Safeway is betting on the kiosks, even though its units have Starbucks locations inside.
The biggest worry of the machines is going to be taste. Obviously the machines have been tested, and customers liked the Seattle's Best taste from the machines. Coinstar's primary business of renting movies seems "safer" because the disc in the kiosk is the same disc found in the store and online. Coffee tastes different depending on the company making it and other variables.
The new kiosks will compete with existing coffee shops, including: Starbucks, Tim Hortons (THI), Caribou Coffee (CBOU), and Peet's Coffee and Tea (PEET). However, with the machine focusing primarily on regular coffee, the kiosks could hurt stores like McDonald's (MCD) and Dunkin' Donuts (DNKN) too as customers avoid drive thru lines and pick up coffee outside the gas station or drug store.
Starbucks is on the weird end of the new coffee kiosks. The machines immediately jump out as a competitor to the overpriced coffee retail stores that are Starbucks. However, the machines are filled with Seattle's Best coffee, which is a Starbucks owned brand. Seattle's Best recently lost 500 in store locations with the closing of Borders bookstores. The move should be welcomed by Starbucks as it actually will help brand awareness of Seattle's Best.
Redbox Tickets is the latest innovation from Coinstar that will be coming soon to a city near you. Unlike Rubi coffee kiosks, Redbox Tickets is a new creation that can be integrated into existing Redbox kiosks, creating additional income at little cost to Coinstar. Philadelphia serves as the test city for Redbox Tickets, with over 650 kiosks in the area. Beginning in 2013, Redbox Tickets will expand to the Los Angeles market.
Event tickets are offered through Redbox kiosks at face value or below. This means that customers can go to any participating Redbox kiosk and buy tickets to a concert, sports event, or racing competition, instead of renting a movie, or while already using the machine to pick out a movie. Tickets are available to print at home, or pick up at the venue's box office.
A look at Redbox Tickets website shows the following events with tickets available in kiosks:
· Carrie Underwood, November 28th, Wells Fargo Center
· Philadelphia Movie Festival
· Pocono 400
· Lehigh University
· Villanova University
The new service will add new partnerships with venues and universities as it advances. The kiosk is a great way for venues to sell unsold tickets as events get closer. Redbox has said they will cross promote the events throughout its network of kiosks. Customers are only charged a $1 fee for using the kiosk for tickets. If Redbox can roll this service out to its network of 38,500 kiosks eventually, Live Nation (LYV) should be scared. Live Nation, through its Ticketmaster subsidiary, has long been a target of unwanted high service fees from customers purchasing tickets. If people could go to a kiosk or use Redbox's website to buy tickets for a $1 fee rather than $20, customers could begin making the switch. This is of course years away as Rebox expands its tickets service through the nation and venues agree to terms with the kiosk company.
As discussed in June, Coinstar is also working on kiosks in the following fields:
· Gizmo - tablets, phones, and video game consoles for sale
· Star Studio - photo shoot kiosk
· Beauty - beauty products
· Prepared food on the go products
· Alula - sell back unused gift cards
· SoloHealth - health risk analysis
· EcoATM - kiosk to sell back and recycle old electronics
In 2011, Redbox kiosks made up 85% of Coinstar's revenue. With the physical movie rental business diminishing due to digital competition, Coinstar has recognized the need to diversify away. Shares of Coinstar are trading close to their fifty two week low ($39.35) with a recent share price of $46.80. The company's shares have traded as high as $71.82 in the last fifty two weeks. Analysts on Yahoo Finance are expecting the company to post earnings per share of $4.87 for the current fiscal year. This would give shares a price to earnings 9.6. Going forward, analysts expect earnings per share of $5.47 in fiscal 2013. This represents a forward price to earnings ratio of 8.6. With heavy short interest, shares could be also in for a short squeeze on any positive news or when earnings are released October 25th. The time to get into Coinstar shares is now, as the company is recognizing new ventures that should reward shareholders.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CSTR over the next 72 hours.