Outerwall Targets New Vertical

The Motley Fool is on the road in Seattle! Recently, we visited Coinstar -- now officially renamed Outerwall  (NASDAQ: OUTR  ) -- to speak with CFO-turned-CEO Scott Di Valerio about the 22-year-old company's well-known coin-cashing machines, as well as its more recent acquisition of Redbox, and future initiatives to expand into other aspects of the automated retail market.

Coinstar's future endeavors aren't limited to coffee. In this video segment Scott discusses the company's initial successes with food kiosks in office buildings, and how they differ from its traditional coin and movie kiosks. The full version of the interview can be watched here.

A full transcript follows the video.

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Eric Bleeker: We're looking at new ventures. [Fool analyst] Austin [Smith] didn't get to talk much about some of your other food and beverage ones, but it's the largest vertical in terms of total addressable market. Could you talk about some more bets that you're making there? I know, specifically the office building ones, offering more prepared food... ?

Scott Di Valerio: Yeah, Crisp Market is our prepared food in the breakfast and lunch daypart. It's really focused, out of the gate, in the office space, so offices that have roughly 1,000 employees or so, that don't have a cafeteria or one that people that are frequenting a lot.

A lot of times people want to be able to get their food quickly and go back to their office and have a high-quality place to be able to do that, and that's what Crisp Market addresses. We have a couple of them in the Chicagoland area now that we're testing out and making sure the kiosk is doing what it needs to do, and understanding the customer's demand points and all that.

We're pretty excited about that business. We've tested it out over about a year and a half, and think that it's a good business to be in.

That office channel is a new one for us, and we're also figuring out how to work that sales model as well, because you don't have -- like in the grocery channel or the convenience channel or the drug channel -- where you sign one contract and get hundreds and hundreds of spaces, or thousands of spaces.

In the office space it's a little more condensed, so at the same time we're working the business, we're working on the sales side also and understanding how we do that in a more captive market.

Eric: Got you. As far as inventory management, there are obviously... if you watch a bad DVD you're not going to get sick the next day.

Di Valerio: Yeah.

Eric: Food; how has that been from a business model perspective, and being able to get the right amount of sales and manage that so that you're not having to throw too much of your inventory away?

Di Valerio: Right. That's a key. That's, again, something when you have a couple kiosks in a market you're testing out and figuring out what the right rotations are, what the demand is, what the highest demanded products are in the kiosks so that you have it stocked at the right levels.

That's certainly something that we're testing out. We have a very good food supplier. We tested and surveyed, I think, seven different companies and selected one for right now. We have a couple others as we begin to go more regional, if we decide to move the business at a faster pace.

That's one of the things that we're working, and what we put in the model, is having the correct inventory control, and how many times do you have to visit the kiosk to fulfill the kiosk because it's going to be on a different pattern than a Redbox machine or a coin machine, or even a Rubi machine from that perspective.

That's all the stuff that we're testing out right now. We feel confident in the overall business model, and I'm sure we'll learn a lot; as we put three, four, five, 10, 15 of these kiosks into different offices we'll learn a lot more.


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