It was only two months ago when I wrote a page one story here with the headline, "…Qualex Readjusts To Digital Explosion." Little did I know that this was just the pre-shock to what has turned out to become a major eruption in Kodak's wholesale film processing operations.
- By the end of August, eight Qualex labs will be shut down; a ninth will be closed in January.
- Turnaround service, next day since before 1990, will become 2-day on August 1st.
- Qualex route drivers will eliminate a Saturday pickup and drop to a 6-day service.
Any one of these actions could, by itself, be page one news. Put them all together and one can see the severe pressure being brought to bear on Kodak from two fronts: the need to cut corporate expenses-a program that has been ongoing for the past few years; the impact of digital picture taking that cut Qualex sales in the U.S. by 19% in 2003 vs. 2002-noted in its annual report-and continues to erode.
According to a spokesperson, the consolidation and service reduction will result in lab productivity increases in several ways: "we can more evenly spread out the work;" "we have longer periods to process;" "better job of matching capacity to meet demand;" "more volume in fewer labs."
In total, 961 people will be cut from the Kodak payroll as a result of the shutdowns. Among them is the crew from the Fairlawn, N.J. Qualex lab, serving the dense New York market, which only recently held a 50th anniversary celebration. (For a list of the Qualex labs closed and the labs remaining open, see below)
The move to 6-day pickup and 2-day turnaround will have some impact on Kodak's mass/food/drug customers. No doubt contracts for these accounts provide for 7-day and overnight and will have to be renegotiated. On one hand the customer may well be looking for a reduction in price for these reductions in services; on the other hand, Qualex, in its charge to reduce costs and increase income, will battle to minimize the givebacks. Some interesting meetings to come, no doubt.
Walgreens, with 4,442 stores, is one of the big Qualex accounts-though they were a lot bigger customer before Fuji installed Frontier digital labs in over 1,500 Walgreen stores previously handled under the Qualex on site picture (OSP) program. I understand that Qualex provides whatever outlab services are needed by the Walgreen Frontier stores.
Mike Polzin, a Walgreen spokesperson, said the change in Qualex service would have minimum effect on Walgreen stores. He said that except for the Qualex Perfect Touch service requested by some customers, already a 2-day, and a few ancillary products, all processing is handled on-site. He didn't foresee any changes in Walgreen marketing or pricing as a result of the reduced Qualex service.
Eckerd is another big Qualex stop with about 2,700 stores. However, by the time you read this, the deal for CVS to purchase about 1,260 of these stores and Jean Coutu Group, Montreal, the rest, should have been closed. When I asked Eckerd for comment on the Qualex changes they deferred because of the impending transaction.
CVS, the jewel in Kodak's crown, has about 4,200 stores. Spokesperson Todd Andrews, stated, "We expect minimal impact from the [Qualex] change."
RiteAid, another major Qualex overnight customer, did not answer my request for comment.
One service that is being eliminated by Qualex as they kick into the 2-day turnaround is that of arranging expensive air express shipments both ways to certain mass/food/drug accounts in outlying areas. This was provided to stores that could not be serviced overnight by courier van alone because of their distance and the only way to fulfill the Qualex overnight guarantee was to ship by air. The 2-day relieves that.
Another Qualex air express program, Flight Ready, is being retained. This program was designed for photo specialty dealers that cannot meet the minimum dollar threshold for route pickup but still want to send work to Qualex. Airborne Express handles the shipment both ways with the dealer paying one way, Qualex the other.
The 2-day turnaround, 6-day pickup could be a boon for the mass folks being serviced by Qualex that have their own equipment on-site. Retail customers who were willing to wait for overnight and save a few bucks might not be willing to wait two days, or more, and opt for the on-site service. If they do wait, they may be looking for an even lower price than before.
Even Brad Kruchten, Qualex president, acknowledged in my June article that massers with equipment are more likely to drive rolls to their own machines rather than back to Qualex-compounding Qualex's problems. Since the equipment investment has been made, store management would be inclined to process on-site.
What is not such a well-kept secret is the fact that as incoming rolls have declined, lab managers in mass stores have been dipping into the Qualex overnite drop box and processing the rolls themselves on site. Yes, Qualex still gets the revenue from the click charge (which includes paper, chemistry, maintenance, etc.) but not the processing revenue and the opportunity to more efficiently utilize their wholesale lab structure.