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Sunrise, sunset?

A little more than a year ago, the industry was getting wowed by the Advanced Photo System (APS), billed as an "easy-to-take photo format" that promised to put the fun back into taking pictures. At least that was the message at last year's photo trade shows, when five major manufacturers (Eastman Kodak, Fuji, Canon, Minolta and Nikon) banded together to launch one of the most significant developments in the consumer photo market.

This year, there was a new entrant at the Photo Marketing Association convention, the industry's largest trade show. Much of the emphasis seemed to be focused on digital cameras and equipment, despite expectations that this year's show would once again be pushing the APS format. The result: Many retailers were left confused.

Have people given up on APS or is there more to it? "We've only sold one camera and maybe developed 10 rolls of APS film. I was thinking of spending $48,000 upgrading to APS processing equipment, but with all this talk of digital, I'm wondering now if I should wait," says Elvin Ogg of Alfstrom Camera & Photo, Sault St. Marie, Mich., who attended this year's PMA show.

Ogg and others were part of the standing-room-only crowd gathered at the show to hear Rod King, Fuji's vice president of consumer marketing, talk about APS. "APS is doing well, but it could and should be doing better," King said to the PMA audience. "A year ago we were described as a sunset industry at the end of its cycle. We have gone from a sunset to sunrise, thanks in part to APS."

King went on to say that by "clearly communicating the benefits and features, manufacturers and retailers can work together to build bigger sales." He suggested that retailers focus their merchandising efforts on gift giving -- the time when most cameras are purchased.

Throughout the APS launch last spring, manufacturers said that December, the largest gift-giving time, would be the most accurate barometer of the potential APS could pack. According to PMA, the new format accounted for 10% to 15% of camera dollar sales and about 3% of film roll volume during that period. While camera sales may be on the upswing in 1997, the photofinishing side of the business is just beginning to feel the effects. "To date, we have not seen APS dramatically affect the one-hour processing business." says Chip Pecora, director of on-site processing sales for Qualex, Durham, N.C. "We're advising our retailers to refrain from doing APS on-site. At this point, it doesn't make sense economically because the volume just isn't there yet. Consumer acceptance will happen, it's just a matter of time."

Adds Tony Sorice, group marketing manager of APS for Fuji Photo, Elmsford, N.Y., "As would be expected, soon after the holidays we saw an increase in photofinishing. We're still seeing the numbers slowly increasing each month."

According to Sorice, Fuji, like other suppliers, initially thought some classes of trade would jump on APS from the get-go, with other channels such as grocery waiting until the second half of the year. "We were wrong. Everybody wanted it right from the start," he says. "We shipped three times as many cameras as we had planned for the entire year. But if anyone thought this system would dominate right from the start, that's not going to happen. There are a lot of 35mm products on the market, and it will take a while before this becomes the dominant format."

Sorice does say that while most manufacturers, including Fuji, consider the holiday season a success, sales came in later than anticipated. "Normally we see movement in holiday sales beginning in October, but the real growth didn't start happening for us until December, when there was a big push in activity," he says. Sorice believes that's a good base for 1997. "That's a pretty good first-year number, considering there was not a lot of promotion and the high level of confusion on the part of the consumer." For 1997, Sorice says, industry estimates are that APS camera sales will rise another five percentage points to represent 20% of all camera sales, and film sales will probably end up around 7%.

Paul Gordon, marketing director for Konica, Englewood Cliffs, N.J., says APS' performance this year will determine the future of the format. "With space being such a critical issue for retailers, many have proven to be fairly resistant to adequately merchandising APS," he says. "We believe it has the potential to not only perform better, but from continued efforts by retailers to educate consumers on the format's benefits and advantages, it has the potential to bring new users into the category."

Says Jerry Lansky, a columnist for Photo Trade News magazine, "Last year's energy and excitement has definitely fizzled. This has been replaced with a sense of order and sanity that is allowing retailers to more rationally consider their APS options. The prevailing sense is that APS, though stubbing its toe at the starting gate, is probably here to stay, though many are glad they didn't rush in last year to get at the head of the line with equipment orders."

It became clear at the PMA show that despite the slow start, consumer acceptance of APS is finally taking hold. The question is whether APS will get a fair chance to succeed or whether it will be upstaged by the latest technology buzzword -- digital.

Even George Fisher, chairman and CEO of Eastman Kodak, Rochester, N.Y., has expressed disappointment in the APS launch. "APS did not take off the way we expected. The launch started out great but the camera shortage diluted that. But I do believe APS is the beginning of a whole new era. Digital will come right along beside it," Fisher said in a recent speech.

Digital is on everyone's mind, says Sorice, who feels it should be seen as a complement to APS, not a threat. "Digital appeals to the higher-end user and has great commercial uses, whereas APS appeals to a broader audience," he says. "It's not for the mainstream consumer, the pricing isn't there nor is the quality. You're not going to get a better picture right now than with silver halide. Down the road things may change, but we're a long way from that today."

In fact, many camera shops have begun reporting good sales with APS, as well as more consumer interest in digital. "APS was a terrific traffic builder for us during the Christmas season," says Wayne Freedman of Wolf Camera and Video in Atlanta. "A lot of people have brought their film back to us for developing." He adds that thanks to heavy promotion, digital cameras sold even better in his store. "Digital was spectacular and exploded off our shelves," says Freedman.

Other retailers are less enthusiastic about APS. "We carry, APS but we don't push it because we can't do the processing yet," says Tom Actipes of Infinity Camera and Video, Glenview, Ill.

In the supermarket channel, retailers such as Price Chopper were among the first to publicly embrace the APS technology. "We're willing to invest in APS because we believe in its long-term influence on the entire photo category," says Bob Hunt, director of general merchandise for the Schenectady, N.Y.-based chain. "There is a definite opportunity to sell these cameras during gift-giving times, and we plan on taking advantage of that."

Consumers may have been confused when the technology debuted as to its strengths, but that seems to be turning around. For one thing, they see the advantages of the format's three photo size settings. What has surprised manufacturers is the interest in higher-priced, feature-oriented units. "We've seen a disproportionate number of high-end models sold in the mass channel, which we hadn't expected to be the case," says John Dell, U.S. marketing manager, food channel, consumer imaging division, Eastman Kodak. "What it tells us is that camera buffs are giving it a go, while the occasional picture taker is adopting a wait-and-see approach."

According to Sorice, "It's difficult to sell a $50 camera in a grocery store when many of your customers are clipping coupons to save money on their bill. We've had a lot of requests from supermarketers asking for POS signage to help them alert customers that they have the APS format, so we've come up with floor and counter displays. We've had chains that have done very well with the cameras, such as Wakefern, Albertson's, Pathmark and Stop & Shop. They all ran several ads promoting the product and letting customers know it was in their stores. They didn't sell thousands of product, but they did sell more than I originally thought they would. We've even gotten reorders from many of these accounts."

Part of the problem is that many customers mistake the self-contained film cartridges for 35mm. Sorice says Fuji has begun promoting APS as 24mm to give customers a clearer picture. "We have the 110 and the 35mm, it only makes sense to emphasize the smaller film format," he says. "We see this as a way to grow the business and get the consumer interested and make the format a little less intimidating."

Both Minolta and Eastman Kodak are said to be planning new products and promotional campaigns in an attempt to move beyond the mainstream and reach a more targeted audience. Focusing on active consumers, Minolta recently launched the Xtreem line of APS sports cameras and accessories. One of the models even floats. The line is expected to retail for $100 per camera.

Manufacturers and retailers are quick to point out that camera sales, although important, are just one part of the merchandising plan. Many believe that APS still has the potential to offer renewed interest in what was a rather mature category, by boosting film consumption, photofinishing and reprint sales, as well as sales of higher-margin accessories such as frames and albums.

According to Kodak, this is already happening. Dell says the company is estimating that film sales will experience a 4% growth rate this year vs. 1996. "With APS, the profit generated from photofinishing is up to 40% greater than with 35mm. Currently, the reprint rate is 5% or twice the normal print rate for 35mm," he says. "The film burn rate is currently 40% greater than 35mm, new camera to new camera. That says people who are buying Advantix APS cameras, compared to 35mm, are using up to 40% more film and are taking more pictures."

In his experience, there have been varying levels of success within channels. "By far, the most effective sell-through is in retail locations that have a high perceived destination identification with the consumer," Dell says. "These are often locations where there is on-site processing and/or a service counter with a significant photo product presence, a dedicated merchandiser on either the counter or floor immediately adjacent to it and where store training has taken place." Training, he points out, is one of the most critical components because people need the system explained and demonstrated to them. According to Dell, in-store promotions and demos have been effective in boosting consumer sell-through.

Also important to sell-through, adds Dell, is the presence of a permanent secondary floor merchandiser placed adjacent to or near the traditional photo department. "The least successful sell-through attempts are retailers that use a standard service counter to sell photo products. If the retailer doesn't traditionally sell photo there, the consumer doesn't know to look there."

To grab its share of the business, Walgreens began running four-color FSIs as early as last fall promoting next-day photofinishing for APS film, as well as Fuji Endeavor 10 cameras, frames, single-use 35mm cameras and reprint specials, including a free second set of prints. Says a store manager at a Connecticut Walgreens, "By running an ad featuring both APS and 35mm, we felt we were letting customers know they can come to us for all their photo needs, from cameras to photofinishing."

The word on the Street

While there's no denying the APS camera launch was shaky at best, what does the future hold for this bridge technology? "Camera supply was clearly a problem in the early part of 1996. Many of the Japanese manufacturers were focused on supplying their home market and couldn't gear up fast enough to provide sufficient product for the U.S. and Western Europe," says Jonathan Rosenzweig, photo industry specialist for Salomon Bros. in New York. Vendors compounded the problem by holding back on advertising and promotion, he says. "They feared that stimulating the demand without supply would only cause customers to delay new camera purchases."

Rosenzweig says things started to change mid-year. "By November, retailers had gained more than enough access to APS cameras," he says. "Only Kodak, which started off with a 95% share of all APS products, saw its share dip to 72% by November, which was more in line with its overall, historical range."

While retailers typically reported satisfaction with the cameras by year-end, according to Rosenzweig, the same didn't hold true with film and processing. "A survey we conducted after the New Year shows nearly half of the 50 camera shops surveyed reporting APS film sales were below expectations, with a little more than half saying APS processing fell short of their goals."

Despite these problems, Rosenzweig feels the underlying demand for APS technology is accelerating. "As the population of cameras expands over time, so will film and processing revenues," he says. "Many of these same retailers today have told us that photofinishing activity is already starting to pick up."

Rosenzweig says there were between 4 million and 5 million APS cameras sold worldwide in 1996, 20% to 25% below the original forecasts. Kodak alone supplied just under 2 million of those cameras. "We estimate that Kodak lost well over $100 million on APS in 1996," he says. "Despite a widely held belief that the company is not doing enough to promote the new technology, Kodak's advertising expenditures rose over 20% in 1996. Although many had originally expected Kodak to break even in its APS product line this year, that no longer seems likely. We don't expect Kodak to turn a profit in the new technology until 1998."

He also expects film sales to dramatically increase. "Currently APS represents 1% to 2% of film sales. We anticipate that number expanding to about 6% to 7% by the end of 1997," says Rosenzweig. "In Japan, more than 10% of film sales could come from the Advanced Photo System this year."

However, emerging-market sales of all types of film could be hindered by difficulties in China during the remainder of 1997. Starting this year, the Chinese government began requiring importers to pay tariffs as high as 60% for film. Investment firms, such as Salomon Bros., are predicting that unless the film can be manufactured overseas, film suppliers will likely be forced to adjust prices and absorb some of the added cost.

What about digital technology? "Although technophiles, commercial users and other early adapters have embraced the products," says Rosenzweig, issues such as quality, convenience and simplicity of low-end cameras are "still not sufficient to attract mass-market consumers."

According to information published in Japan Photo Electro News, Japan, which is typically "a leading indicator for the rest of the photographic world, is expecting to experience a six-fold increase in digital camera sales during fiscal 1997," says Rosenzweig. PMA projects sales of digital cameras will explode from 300,000 in 1996 to 2.8 million by the year 2000.
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Copyright 1997 Gale, Cengage Learning. All rights reserved.

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Title Annotation:GM/HBC Magazine; includes related article on digital cameras and Advanced Photo System; consumer photo products
Author:Radice, Carol
Publication:Progressive Grocer
Date:Jun 1, 1997
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