Get Ready for Rubi

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 has been refining its entry into the coffee business for several years. In this video segment, Scott says that the company anticipates big success once its Rubi kiosks are fully deployed and meeting the same high standards as the Coinstar and Redbox machines. The full version of the interview can be watched here.

A full transcript follows the video.

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Eric Bleeker: Let's talk about one of the big bets you're making this year. Correct me if I'm wrong here, but when I read the analyst calls it looks like you're actually going to roll out a lot more Rubi machines this year than net Redbox machines and Coinstar machines.

Obviously a big bet here; you guys are very confident. It's interesting, the Verizon  (NYSE: VZ  ) partnership, it's in many ways them using your brand, and you guys have their expertise for getting content. With Rubi, it's you guys using Seattle's Best as the brand portion, and using your expertise with the automated retailing.

What was the thought process that, "This is the vertical we want to attack, and this is how we're getting started more in food and beverage?"

Scott Di Valerio: We've been looking at this coffee business and working at it for a few years. One of the things that has been true since we started is the cups of coffee per day that are needed have always been very good.

A lot of times when you start businesses you have to teach customers, or have them discover and then use the machine, and go through. Sometimes it takes some time to build up that demand and that returning demand.

With the coffee business when we put the machines out, from day one they've been very successful. A great cup of coffee at $1.00 or $1.50 for 12 or 16 ounces, or it's $1.50 or $2.00 for a latte type drink, and espresso type drink; that's a great value and a great taste. What happened is, people really like being able to do that and having that kind of value.

Why we think Rubi will be a big success is because it has always performed from a cups-per-day perspective. What we're focused on is getting the kiosks operating at a high level of uptime, like we have with our Redbox and coin machines, so that it's delivering a consistent cup of coffee at the right time points, and those types of things, as we move forward.

We feel very good about that, and that's what we're focused on. The business model works; it's getting the kiosks to be at the right uptimes. Once we do that -- we'll have about 2000 in at the end of this year -- we'll go on to multiple thousands as we roll into '14 and '15.

Eric: Just for some context for people out there, you talk about the business model being great. You went into some detail with Austin about the Redbox machines and Coinstar. What kind of volume are we talking about?

I think you had mentioned 12 cups a day, and you're happy with that level, per machine. Is that about what we're looking at? What kind of level, as you're rolling this out?

Di Valerio: I believe from our analysts, that's what they were saying they've been getting. I think in some places we have quite a bit higher than that, and think it can actually get higher as people understand it's a great cup of coffee at a great value, so that model will move up.

What we're seeing is, again, machines cost less than the Coinstar machines, which is good. We're expecting EBITDA margins that are in the Redbox range of EBITDA margins, and an IRR that's in the 40-60% range, which is where the Redbox and coin machines are today.

Eric: Great. I think some people would look at that and think about Starbucks  (NASDAQ: SBUX  ) rolling through; you don't need that kind of model for it to work.

Di Valerio: Yeah.

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