Self-Serve Kiosks: The Payoff Is Huge

By Will Ashworth | February 03, 2010 AAA

Have you ever gone grocery shopping and used a self-serve checkout kiosk? They are slowly making their way into our daily lives and the financial gain felt from these machines will be substantial. Estimates suggest $5.8 billion will be spent on self-serve solutions by the year 2013 and the revenue generated by the retailers who have bought the technology is pegged at $1.3 trillion. Yes, that's a T, not a B.

The faster customers are able to pay for their purchases, the happier they'll be since waiting times in lines are minimized. It's not just about saving on labor costs, as cynics might point out. Plenty of companies are jumping on the bandwagon and there are several ways you can benefit as an investor.

IN PICTURES:
Biggest Stock Scams

Zoom Systems
This is a San Francisco-based maker of self-serve kiosks that has partnered with firms like Rosetta Stone (NYSE:RST) and Apple (Nasdaq:AAPL) who use Zoom's machines to market their products in airports, malls and other high-traffic public places. Unfortunately, Zoom Systems is a private company. However, some of its partners include Motorola Ventures, the venture capital division of Motorola (NYSE:MOT), and Goldman Sachs (NYSE:GS).

While Motorola's had some large losses in recent years, its fourth quarter generated $794 million in free cash flow, up from $574 million in the third quarter. It's a back door investment but a potentially lucrative one.

Language instruction software-maker Rosetta Stone went public in April 2009. The 40% rise in its stock price on the first day of trading - from $18 to $25 - is likely to be most of the appreciation it will see for the next three years. Most IPOs gain just five additional percentage points from its aftermarket return over a three-year holding period. Well, we're not at the three-year mark but the stock price is currently trading below its IPO price. Pick up some stock when the price falls to $18.

The Golden Arches
McDonald's
(NYSE:MCD) originally conducted an 18-restaurant test in Europe using 50 self-serve kiosks made by Wincor Nixdorf, a German company and world leader in point-of-sale technology. Customers punch in their order, pay using a credit or debit card, receive a number and then pick it up at the counter when ready. Up to 25% of customers prefer this to ordering from a real person. Because of the test's success, McDonald's is rolling out the touch pads to 2,000 of its European stores.

There are two ways you can play this: 1) Buy McDonald's stock assuming it will lower costs while speeding up the ordering process, generating increased sales and profits; and 2) invest in the WisdomTree International Technology Sector ETF (NYSE:DBT), which owns Wincor Nixdorf among its 58 stock holdings. Sixteen analysts have a "Buy" or "Accumulate" rating on the company. (What's in an analyst report and what should you do with this information? Find out here Analyst Recommendations: Do Sell Ratings Exist?)

Video Rental Showdown
Redbox is the leader in self-serve DVD rentals. Owned by Reno-based Coinstar (Nasdaq:CSTR) since last February, it recently began testing video game rentals in two of its markets. For $2 a night, you can take home a game to play. The tests have been a huge success. Expect Redbox to offer this nationwide very soon. Given this news, I wonder if its stock should be trading near a 52-week low. It's something to consider.

As for Blockbuster (NYSE:BBI), Redbox's biggest competitor in self-serve kiosks, it would be worth looking first at NCR (NYSE:NCR) who still generates free cash despite having its best days being behind it.

The Bottom Line
As we continue to prefer and move towards automated service, keep an eye on the self-serve world. Things are going to get interesting. (For more related reading, refer to 12 Ways To Shop Smarter.)

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