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Red Box: One Dollar at a Time – Coinstar (ticker: CSTR) is Making it Happen

About 6 months ago, I started noticing these DVD dispensing machines at our local grocery store. I didn’t think much of it at the time. I asked my wife  (who does about 95% of our grocery shopping) what that was. She said, “Oh, that is so great! It’s a DVD rental machine.

Red Box, Video Rental Automat, found in a Wal-...

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You get to rent DVD’s for a buck!” One dollar DVD rental? I was intrigued. So, I went over and looked at the machine. It was called “Red Box”. I thumbed through the titles that it had and was very surprised. They had a lot of new releases.

In fact, they were being offered at the same time as I was seeing them available through my cable “On-Demand” – but for a WHOLE lot less! What a concept, I thought. Offering DVD’s at a very reasonable rate, in an area that is frequented by at least half of the population with regularity (if your wife is like mine – she likes to hit the grocery store for SOMETHING almost every day…).

What’s my point? Well, the folks responsible for this very clever retailing experience is the same company who has placed the loose change counters into your friendly neighborhood markets – CoinStar (ticker: CSTR). As convenient as those are, I hardly ever use them. Maybe once a year when my change drawer fills up – that’s usually worth about $200.00 (see, those penny’s DO add up!). But this – this is brilliant! It gets even better. You don’t have to take the DVD back to the same Red Box that you got it from. Nope, any Red Box will do. At last count, there were over 20,000 locations and they just signed a deal to set up 25,000 more! Since they started this business, they’re bottom line has skyrocketed! I suspect it will continue… for a while. Trouble is, it’s not a hard business model to copy. So, for now, CSTR looks ready to head higher. But watch out. There is quite likely going to be the “new guy” on the block trying to get in on this very clever and lucrative idea.

It’s a short to medium term play. I like the idea. Too bad that the barriers to entry are too low. Enjoy the ride while it lasts….

As always, all the best!

Jeff McAllister
OptionsANIMAL Instructor

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