Ca$hing in on found money: Coinstar machines may help grocery shoppers turn loose change into dollars, but can retailers count on them to help bring in revenue?

More than $10.5 billion in loose change is sitting unused in households across the country, according to research by Bellevue, Wash.-based Coinstar, Inc. The company's president, Rich Stillman, thinks consumers should bring it to one of the company's 10,000 supermarket-based coin-counting machines and turn it into cash. And he thinks grocery retailers should want consumers to do so, too, based on the benefits Coinstar centers can provide retailers.

One of these benefits, Stillman says, is in-store spending of money retrieved by consumers at a Coinstar center. When consumers feed their coins into the machine, they receive a voucher that can be used to redeem cash or spend toward supermarket purchases. "We know, from quantitative research, that there is additional spend resulting from these vouchers. In nearly half the transactions, people spend some or all that money inside the store, resulting in even more financial benefit for the supermarket," says Stillman. "In some cases [shoppers] are making impulse purchases, and in other cases they're upgrading or adding incremental items in the market basket that are actually higher margin items for the retailer."

Revenue sharing is another benefit. "We share 11.2% of our revenue with the retailer," Stillman says. Consumers are charged a service fee of 8.9% of their total transaction. But why would consumers want to go to a Coinstar center and pay a service fee when they could go to their bank and change in their money, possibly for free? He says there are some banks in the country that still accept loose change, but most of them have abandoned the practice because of the mess.

"It's a huge headache to have to deal with the amount of coin we take in," he adds. "These days most banks don't want change." Stillman adds that Coinstar centers are a more convenient place for consumers to turn in loose change because they visit grocery stores more often than banks.

Revenue share is present with coin transactions and the company's new wireless transactions, which are showing up on Coinstar machines across the country. The company is in the process of upgrading its machines to accept additional technology that will allow them to offer services such as adding pre-paid wireless minutes or adding cash to a pre-paid MasterCard.

"For every dollar we receive to top up a wireless account, a portion of that is going to end up in the retailer's pocket," says Stillman. Coinstar plans to roll out these services more aggressively during the next 12 to 36 months, with a vision of having the vast majority of its network converted two to three years from now, he adds.

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In January, the company began offering electronic payroll services from Houston-based FSV Payment Systems Ltd. With this service, employers can offer payroll debit cards to employees, who can then perform services at Coinstar machines including viewing electronic wage statements, making payroll debit card balance inquiries and obtaining payroll cash vouchers. Stillman says he hopes retailers will use the service for their own employees.

In March, the company acquired Chicago-based CellCards of Illinois, one of the nation's largest distributors of prepaid products including wireless, long distance and MasterCard cards. It also offers bill payment capabilities for utilities and other services. The acquisition adds drugstore locations to Coinstar's network and broadens its pre-paid services.

A HEADACHE-FREE SERVICE

Coinstar machines don't require much retailer attention, according to Stillman. "The supermarket is able to offer a valuable consumer service inside its store in a virtually turnkey, headache-free manner," he says. "The only thing we need from the store is a phone line and an electrical outlet." Once a retailer agrees to install a Coinstar machine, Coinstar employees meet with store managers and together they find a location for the machine. Coinstar also provides in-store training for store managers and customer service managers.

If the machine jams, store managers can open it and call Coinstar's customer service desk from a phone located inside the machine. When a store manager picks up the phone, he or she is automatically connected to Coinstar's customer service center. "We can help that store manager de-jam the machine in a matter of minutes and let that consumer complete his or her transaction." says Stillman.

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There's very little store involvement with Coinstar centers, Stillman says, because the company operates its machine network at more than 95% up time across a 24-hour day. During prime hours it's higher than that, he says. Every 24 hours, computers inside each machine collect operational and transaction data. All data from the entire network, including the company's machines in the U.K., is then uploaded to the company's headquarters.

That information is used to track shrink, says Stillman. Coinstar employees analyze variances between what Coinstar counted and what ultimately gets counted when the machines' deposits are processed. Coinstar has to reconcile the differences, says Stillman. For example, if a store employee is found to have stolen coins from the machine, the next step Coinstar would take would be to install a motion-activated camera in the machine.

The company also protects against fraud through its broad patents around the features built into vouchers, Stillman says. Vouchers are encrypted with a bar code, which is read by scanning equipment at point of sale. The value amount of the voucher is then decrypted, and employees match what the scanner equipment says the voucher is worth to the face amount of the voucher. Vouchers also have features such as special scalloping and inks to further prevent duplication.

Stillman says supermarkets that choose to run coin counting services on their own without Coinstar's patented voucher paper and networking run the risk of fraud. "Without these two things, people who are operating coin counting services on their own leave themselves open to any number of different types of scams that bad guys run to defraud the supermarket retailer."

RELATED ARTICLE: COINS THAT COUNT BRINGS CHARITY IN STORE

For retailers looking to make a difference, Coinstar's Coins that Count program allows shoppers who turn in coins to donate the money to charity. Coinstar has a partnership with four national non-profit partners: the American Red Cross, the U.S. Fund for UNICEF, the Leukemia & Lymphoma Society and the World Wildlife Fund.

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Retailers can also choose their own set of charities. "In many cases, part of what [retailers] want to be is a citizen to their local market," says Coinstar President Rich Stillman. "They'll have their own set of charities or a specific charity they have chosen to support in their market area, and we can make donations to that non-profit partner available on just that set of machines in that area."

When consumers perform a non-profit transaction on a Coinstar machine there is no fee, and the voucher they receive is a tax-deductible receipt for their donation. Donors can write on a tear-off portion of the voucher and send a message to the charity. "Given that we have machines within two miles of half the population, the potential for fund-raising is enormous," says Stillman. "If just half those people grabbed a dollar's worth of change and donated it to one of our nonprofit partners, it would amount to tens of millions of dollars."