Quick Photo Processing
Polaroid Corp. seems to be the biggest loser from the remarkable growth of minilabs. Sales of instant cameras, a market that the company invented and still dominates, have slumped during the past several years. One big reason seems to be the growing ease of obtaining high-quality prints from conventional film in a few minutes instead of a few days.
Sales of instant cameras have dropped to 2.75 million in 1987 from 4 million in 1983, while sales of instant film have eased to 15% of the film market from 16% four years ago, according to the Photo Marketing Assn. in Jackson, Mich. Roy Disney’s Shamrock Holdings investment company announced on July 20 that it had bought an 8% stake in Polaroid and wanted to buy the rest of the company for $2.3 billion. That offer is pending.
Minilabs have benefited greatly from swelling sales of 35-millimeter cameras--which produce top-quality photos that look even better with the tweaking of a skilled film developer--and the fading popularity of disc, instamatic and instant cameras. According to the Photo Marketing Assn., the market share of 35-mm. cameras has leaped to 42% last year from 25% in 1983. During the past four years, 35-mm. film has increased its share of all film sales to 55% from 38%.
Special accessories are sold that allow minilabs to process disc and instamatic film, but minilab business comes overwhelmingly from 35-mm. camera owners, who tend to take fancier photos and seek more advice from film developers, experts say.
The rise of 35-mm. film has improved not only the volume of business done by minilabs but also their profitability. That is because labor is expensive and it takes just as much time for a worker to load a 15-exposure disc of film as it does to load a 24- or 36-exposure roll of 35-mm. film.
Minilabs typically charge by the number of exposures.
The cost of developing a roll of film typically includes 50 to 60 cents for paper, chemicals and other materials and $1 to $1.50 worth of labor, said Robert E. Reed, advertising manager for Gretag, a Seattle-based minilab distributor. The balance of the $9 or $10 cost for a 24-exposure roll covers the interest on the loan that bought the minilab, plus rent, utilities, advertising and profit.
The number of minilabs nationwide seems to be growing, but some experts think they are becoming concentrated in fewer hands. Those buying or starting stores increasingly tend to own one or two other minilab centers already, said Daniel B. Bish, vice president of sales and marketing at CameraAmerica, an 86-store franchise chain based in Overland Park, Kan.
“People who are selling are selling to people who are already in the business and looking to expand,” said Mark D. Winski, president of Results Inc., an Indianapolis-based broker for minilab stores.
A growing number of single-store owners, discouraged by the industry’s ruthless competition and meager 7% to 10% profit margins, are calling CameraAmerica and offering to sell their businesses, Bish said. “We’re getting five or 10 calls a week from guys looking for a parachute.”
But the need for close supervision of technicians may limit the number of minilabs any one person can acquire before quality begins to suffer, Winski said. “This is really not the business for absentee owners. However, successful owners can manage more than one location.”
One-hour photo processors seldom have to deliver film as fast as their name might indicate. Only 15% of their customers pick up their prints in an hour, according to the International Minilab Assn., a Greensboro, N.C.-based industry group. Most (80%) choose to pick up their processed film later the same day, said Executive Director Roger T. McManus Jr.
Many minilabs now prefer to emphasize quality and personal service over speed. Roger E. Steitman, owner of Fromex Photo Lab Systems in Torrance, says he deliberately avoids any mention of time in the name of his 8-year-old store.
But the “one-hour photo processing” industry cannot escape its origins as a quick way to get film developed, McManus said. “We’ve married the term, and so we have to live with it.”
Residents of Southern California in particular and the state as a whole have taken to minilabs more quickly than Americans in other regions. “California has, hands down, the highest (percentage) of minilabs in the whole United States. It seems like there’s one on every corner,” Gretag’s Reed said.
More one-hour photo centers keep popping up. Noritsu America, the Buena Park-based distributor for the market-leading Japanese manufacturer of minilabs, says it sold “over 100” new minilabs last year in Southern California, although many of these machines replaced existing worn-out or outmoded models.
Yet the makeup of Southern California’s population continues to strike entrepreneurs as ideal for supporting yet more minilabs. “They do best where the demographics are good, where we have a lot of middle- to upper-middle class, college-educated people,” said David A. Mason, executive vice president of Moto Photo. The Dayton, Ohio-based chain, which owns 60 stores and has franchised 220 more nationwide, is expanding aggressively in Southern California, he said.
Developing film at a minilab tends to cost at least 25% more than at an overnight discounter, so regions with many young, prosperous residents tend to support more minilabs, McManus said. “I heard you had a yuppie or two out there (in Southern California) and people who have disposable income.”
Japanese manufacturers pioneered and now dominate the minilab market. Noritsu Koki Co., based in Yakayama, Japan, began selling minilabs there in 1976. The company experimented with English-language instruction manuals and marketing in Australia before selling its first minilab in the United States in October, 1978. Sales took off by 1980, and while other Japanese and European manufacturers have piled into the business, Noritsu remains the market leader and claims to make about 40% of the 1,400 to 1,600 minilabs sold in the United States each year.
Where was Kodak? The Rochester, N.Y.-based film giant, a leading producer of giant photo processing machinery for wholesalers, began buying minilabs from Noritsu in 1986 and selling them under the Kodak name. Last September, Kodak began production in Rochester of its own minilab machine, which costs $43,900 and can develop 20 rolls of film an hour.
That compares to Noritsu’s $45,500 sticker price for a machine that develops 40 rolls an hour. Kodak is coming on strong in the minilab industry, and its model is exceptionally simple to use, said Steven E. Baune, Kodak’s general manager for the U.S. marketing of photofinishing systems. But for years, he admits, “we more or less sat on the sidelines and worked with our wholesale customers.”
The yen’s rise during the past 3 1/2 years has not pushed up the price of minilabs or reduced sales of Japanese-made minilabs yet, manufacturers say. The fall of the U.S. dollar against the Japanese currency has meant that the minilabs’ mostly Japanese producers receive fewer yen for each sale unless they raise prices. But the main effect seems to have been to stabilize prices and prevent them from falling further as the technology improves, initial research and development costs are paid off and cheaper materials are found.
Profits have also suffered as producers struggle to maintain market share, said Joseph H. Leach, Noritsu America’s senior vice president of sales and marketing. “We’ve taken it on both sides,” Leach said. “The manufacturer in Japan has taken some of the loss, and the distributors on this side (of the Pacific) have taken some of the loss.”
FILM PROCESSING MARKET IN 1987** Camera Stores: 7% Kiosk/Other: 2% Minilabs: 29% Drug Stores: 23% Discount Stores: 17% Supermarkets: 13% Mail order: 9%
