Small E.S.I. to Try Electronic Selling Venture : Costa Mesa Company to Make Coupon Dispensers

After nearly 10 years of trying to strike it rich with its computerized lottery equipment, a small Costa Mesa company has switched its betting to electronic retailing in hopes of scoring a big win.

E.S.I. Industries Corp., which claims annual revenues of $25 million from its lottery equipment sales to Mexico and Guam, announced Wednesday that it has agreed to manufacture computerized coupon dispensers for a New York company that hopes to bring its electronic wizardry into the supermarket.

E.S.I. executives placed the value of the contract with Consumer Communications Corp. at a potential $50 million if sales reach their initial projections.

However, analysts say electronic retailing, once forecast to become a major segment of the retailing industry, has turned out to be a disappointment for a variety of factors.

One of the foremost reasons behind the sluggish sales of computerized selling machines has been customer resistance and fear of the gadgetry. Another, analysts say, has been the less than perfect performance of the machines.

“It’s an idea that looked like it would take off, but when people tried it they found the results weren’t what they had hoped for,” said Thomas Rauh, an analyst with Touche Ross management consultants in San Francisco.

According to Rauh, computerized couponing, the business that E.S.I. hopes to enter, has been among the biggest disappointments in the fledgling electronic retailing industry because it has met some resistance from manufacturers of supermarket items.

Rauh said the manufacturers believe that the machines, which allow shoppers to get free cents-off coupons while in the supermarket by merely punching a few buttons on a machine, put the coupons in the hands of the “wrong” shoppers.

Rauh said product manufacturers print coupons to lure customers from competing brands and believe that the electronic machines appeal to customers who would otherwise purchase their products.

“Normally coupon redemption runs at 2% of those published,” Rauh said. “But with the electronic machines, it runs 40% to 50%.

E.S.I. executives said the machines they expect to build for Consumer Communications will allow customers to insert a magnetic card into a machine to receive cents-off coupons for their supermarket shopping. The same machines could also be programmed to work as check approval machines.

Although there will be no charge for the cards, shoppers will be asked to supply demographic information to help product manufacturers better understand their customers.