A College Pal Leaps Beyond Its Early Image : Technology: Kinko’s Service Corp. is expanding beyond its traditional copying business with new information services, the latest of which is video conferencing.
For years, Kinko’s Service Corp. has been known as the photocopy place. Legions of college students have been weaned on the nationwide chain’s 24-hour service, the salvation of many a last-minute term paper.
But by the late 1980s, to keep up with new office equipment technology, Kinko’s decided it had to join the information age. So the Ventura company installed Apple Macintosh computers for customers to use in its stores, alongside its longtime staples--copying documents, self-service copying and passport photo services. Over the next several years, it added fax machines, IBM personal computers, large-format document copying, posters and color copiers.
And in April, Kinko’s jumped on the information superhighway. About 100 of its 725 stores now offer video conferencing rooms, with the ability to link video and voice signals over phone lines with other locations. The next step Kinko’s foresees is giving customers the ability to communicate with stores electronically, so they may order copies via their home or office computer in Los Angeles, for instance, to be distributed in New York.
Kinko’s hopes to move away from the image that’s stuck with it since it was founded 24 years ago: that of a photocopy store catering primarily to college students. While Kinko’s still serves the college market, more than anything it wants to be known as the “branch office” for entrepreneurs, telecommuters, traveling business people and local representatives of corporations based elsewhere. It also wants to lure more consumers who will use Kinko’s for personal tasks, such as creating custom party invitations, enlarging photos and mounting them and mailing and delivery.
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With the new services, however, Kinko’s runs a couple of risks. Its strategy requires investing heavily in sometimes expensive technology--just one color copier, for example, costs about $50,000--and continuing to invest as technology improves. The trick is to avoid relying on technologies that have become commonplace, like fax machines, but at the same time to avoid rushing ahead with something that consumers might not be ready for.
“All technology takes a burn-in period,” said Kinko’s President Dan Frederickson. Kinko’s expects to invest $20 million in its video conferencing venture and, he said, “The gamble is whether the timing is right or not.”
At the same time, Frederickson knows well that Kinko’s has another problem: Many potential customers just don’t seem to know about all the new services. “As long as we hear customers say, ‘I didn’t know you could do that,’ we’ve got a problem.”
Frederickson plans to install video conferencing centers in more--though not necessarily all--Kinko’s outlets. The service is set up in a conference room equipped with a large-screen television monitor with a camera on top and a device that resembles an oversized TV remote control. A video conference doesn’t come cheap--$150 per site, per hour--but Frederickson calls it a bargain compared with the cost of air fare, hotel rooms and other travel expenses. Besides business people, he sees the service appealing to families for video “reunions” and other special occasions, and the company is offering a half-price holiday promotion.
Kinko’s joint venture partner on the video conferencing project is U.S. Sprint, which provides the phone lines and a toll-free number to set up a conference. Randy Doyle, Kinko’s product manager, said he’s now looking into adding PCs to the system so participants in a conference can share and manipulate data and graphics during the meetings.
So far, local Kinko’s stores that have the equipment installed have found it slow going. The manager at the Kinko’s store in Ventura reported averaging six or seven video conferences a week; managers at the Encino and North Hills shops say they see only one or two a week.
“The biggest problem is, people just don’t know about it,” said Kinko’s Encino manager Robert Crawford.
Kinko’s is the first in its industry to offer video conferencing, and Bob Hall, executive editor of Quick Printing magazine in Port St. Lucie, Fla., questions whether many customers will want the technology. “Somebody would have to show me where they’re going to make money at that.”
Don Lowe, president of a Kinko’s rival, Sir Speedy, a chain of 880 quick-printing and copy centers, based in Laguna Hills, said that investing in technology is “a requirement today.” Sir Speedy already offers electronic links to many of its customers, a service that is increasingly in demand because it’s convenient and saves customers time, he said.
Lowe, however, said he decided to pass on video teleconferencing. He felt the technology was not yet sophisticated enough, and “by the time it is perfect, AT&T; will have those units in every office in the country and most hotels will have it.”
Lowe and others suggest that Kinko’s might do better to expand into offset printing--which rivals such as PIP Printing and Sir Speedy offer--because of growing corporate demand for quick-turnaround print jobs.
“Ten thousand envelopes and letters can be significant bread-and-butter” business, Hall said.
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The entire quick-printing industry, as it’s called, includes 35,000 printing and photocopying stores nationwide, ranging from those of large franchised chains like Agoura Hills-based PIP, to small mom-and-pop shops. But in the past five years the industry has matured to the point where it’s now consolidating; in 1993, PIP closed or chose not to renew franchises on 103 shops, according to Quick Printing magazine. But generally the large chains like Kinko’s are better positioned to survive the ongoing industry shakeout and invest in the new services that customers want, Hall said.
Kinko’s already enjoys some clear advantages because of its size, said Hall, including the ability to cut favorable deals with equipment suppliers like Xerox and Canon.
It also helps that about 100 stores are owned solely by Kinko’s reclusive founder and chairman, Paul Orfalea, and the rest are co-owned in partnerships by Orfalea and other investors. Orfalea, who declined to be interviewed, also owns Kinko’s Financial Services, an internal financing unit. This common ownership gives the company a strength of management, Hall believes, that franchised networks have difficulty achieving.
In addition to the new services, Kinko’s has an aggressive growth plan calling for another 150 stores to open in 1995. It’s also pushing into foreign markets like Japan, where it is opening its third Kinko’s in a joint venture with the huge Japanese concern Sumitomo. Several stores are being planned for Canada. It has one store in Holland and hopes to add more in Europe.
Company executives won’t disclose revenues or profits. But a Dun & Bradstreet report put 1992 sales of the 81 Kinko’s stores then owned solely by Orfalea at $80.9 million. The report said that 95% of sales came from photocopying and duplicating services, unlike rivals such as PIP and Sir Speedy, where offset printing services also make up a large share of sales.
Lloyd Greif, president of Greif & Co., a Los Angeles investment banking firm, estimated that Kinko’s sales average about $700,000 per store and that total revenues for all the Kinko’s stores is about $500 million.
He said Kinko’s are probably “nicely profitable” and acts quickly to shut down money-losing stores. Kinko’s management is “held in high esteem in the industry. They’re tight operators. They’re also more of a competitive threat to a lot of other players in the industry.”
Greif said Kinko’s is entering a more demanding marketplace with its branch office concept and its effort to grab more business customers. It’s a tough call, Frederickson admitted, to balance the several hundred thousand dollars needed to open a new store against the expense of keeping existing stores stocked in new equipment.
Add to that the training Kinko’s 17,000 employees must undergo to learn to use the machines and to be more helpful in counseling business clients. “I think this technology is going to change really fast, and there are costs associated with that,” Frederickson said.
Despite the investments needed, Frederickson said that selling stock to the public isn’t in the company’s current plans--as has been rumored--although he won’t rule it out for the future.
That’s the kind of decision that might have seemed inconceivable in 1970, when Orfalea, now 47, started selling school supplies to UC Santa Barbara students.
The first Kinko’s shop in Isla Vista, named after the wiry texture of Orfalea’s hair, was so small that the copy machine was wheeled out on the sidewalk to make room inside for customers. The business took off, however, and Orfalea added more stores. In 1988, he moved the corporate headquarters to Ventura.
Even then, a big part of Kinko’s business was still copying portions of textbooks for college students and professors. But a 1989 lawsuit by a group of textbook publishers--which Kinko’s lost--put it out of that line of work. Frederickson said that losing the case was more coincidental to Kinko’s decision to change its focus away from students and that the company was already well along in implementing its broader strategy.
Over the years, Kinko’s has made Orfalea a wealthy man. In addition to his Kinko’s holdings, he owns stakes in about two dozen small retail and apartment buildings throughout the state and a $1.4-million Santa Barbara home.
Though Orfalea avoids the spotlight, Frederickson said the Kinko’s founder is still very much involved with store operations, new products and strategy. But Orfalea shuns industry gatherings, Hall said, and after several past attempts to elicit his cooperation has only this year agreed to Quick Printing magazine’s naming him its “man of the year.”
Orfalea’s shyness has reflected itself in Kinko’s low profile. But if Kinko’s is to succeed in the information highway age, Hall said, that will have to change.
“They’re going to have to get the word out,” he said. “It’s great to have all these capabilities, but they don’t do any good unless your customers want them.”
