The revolutionary shift from film to digital that has jolted the traditional on-site photo finisher has been no less kind to the biggest finisher of them all, Qualex.
The numbers are telling. The most recent figures from PMA report that the entire industry processed 15% fewer rolls for the 12-months ending February, 2004, than were processed last year. Qualex is not immune. The recent Kodak annual report states that Qualex sales in the U.S. were down 19%.
Brad Kruchten, president of Qualex, said, "We're not surprised at the direction, only the rate of decline." No doubt, many would agree with that assessment of what is happening to the industry.
Faced with this decline and the future prospects, Qualex has been consolidating its wholesale lab operation rather substantially. It was about 3-4 years ago that PTN interviewed Qualex executives at their headquarters and reported that their empire consisted of 53 wholesale labs. Within the past year, the number has dropped to 39 locations. According to Kruchten, the Elgin, IL facility was shut down last month to bring the current number to 22. The future? "We expect to close more this year. We will react to conditions."
While the overnight business at Qualex may be suffering, the on-site business of the retail chains that Qualex serves are holding their own, according to Kruchten, with revenue growing slightly to as much as 5%.
How come Qualex is losing overnight rolls as their on-site customers are doing better? Kruchten noted that as total rolls decline, retail locations are more likely to process on their own with in-store equipment in which they've made big dollar investments. "It's good financial management," he said. He sees the shift primarily among the drug chains where on-site equipment is under-utilized—compared to mass merchants, like Wal-Mart.
Qualex is serving about 13,000 locations through its on-site program, a number that has remained somewhat constant as Fuji has invaded the Walgreens relationship but other major customers, CVS, for one, continues to expand. Qualex continues to provide Walgreens with overnight.
Kruchten said that despite the shutdown of locations, Qualex is still offering overnight turnaround on d&p work to its 32,000 retail sites. The exception is for processing E-6, Kodachrome and black & white since only the Fairlawn, NJ lab handles these products.
One highlight of the roll business is the success Qualex is having with its Perfect Touch service, a high-end offering from its I.Lab digital processing system for which consumers are paying a $2-3 premium over regular Qualex processing. Kruchten said, "Perfect Touch has been a tremendous success for us." He noted that it now represents over 30% of d&p and is "closing on 40%."
On the plus side, Qualex, like the rest of the industry, is positioning itself for digital. Kruchten added that every one of its facilities is equipped with the digital I.Lab and has a capacity to turn out 15.9 million prints a day. "We are ready as the volume moves."
He sees the trend toward more people wanting to upload online and have prints shipped either to a store for pickup, such as CVS, or mailed to their home. Currently, Qualex is providing such print services through Ofoto, AOL, KPCO and others. At Ofoto, Kruchten said that turn around time has been improved and that orders received by 10 p.m. are completed and sent out by 8 a.m. the next morning.
He noted that while 4R continues to dominate, there is a greater proportion of 5x and 8x prints being made. He attributes this to consumers having already previewed their prints.
Fujicolor is Qualex's only national competitor for wholesale lab services. John Bond, VP Operations & Administration for Fujicolor, acknowledged that Fuji had reduced its number of labs from 25 to 23 but refused to answer other questions that were posed. Fuji serves Wal-Mart's overnight needs.