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Adding Up the Cost and Pounds of the McDonalds Rental Deal

12 Jun, 2005 By: Kurt Indvik

McDonald's is expanding its DVD rental kiosk program in several more markets, beginning this week with Minneapolis-St. Paul, and if you're a rentailer you have to shudder as the prospect of these Redbox machines dotting the American landscape like the ubiquitous golden arches. You can read about it in a front page article by senior editor Holly J. Wagner in this week's Home Media Retailing.

Obviously the test McDonalds began in the Denver area was successful enough to justify moving on to the twin cities, with Houston and one other market (indications are either Salt Lake City or St. Louis) coming online by July 1.

Of course the jury is still out as to whether we'll ever see a massive rollout of this program, but if ever a company is able to execute on a large-scale strategy, McDonald's is it. Despite the fattening of America's youth, and the high profile, stomach-churning documentary Super Size Me (Hart Sharp Video), McDonalds has been able to enjoy comp sales growth for the past 24 months straight by executing on a broader selection of (relatively) healthy foods and marketing that's blunted its image as the nation's leading purveyor of all things deep fried and fatty. Even Ronald is reportedly getting a makeover with ads being readied that show him playing a variety of sports in a new slimmer-looking jumpsuit.

But I wonder just how much of an impact these kiosks will really have. The deal is $1 per night, per DVD, on your credit card. Keep it for three nights, pay $3, etc., up to 25 days, at which point you've bought the DVD. So…like every video rental customer, you begin to calculate just how much trouble will it be, in the next 24 to 48 hours for you to get that video back to McDonalds; albeit it can be any McDonalds in town, doesn't have to be the one where you rented the DVD. Are you planning on coming back to McDonalds anyway? No? Your fat gram-counting brain is telling you (for the sake of your midriff and that of your children's) that this could be a dangerous habit. Of course, it's just the kind of habit McDonald's is hoping you'll drift into. Let's say on average you visit a McDonald's every three days. You have now spent $3 on that movie and that's now much closer to a typical rental transaction. Does it make sense to rent another? Maybe, if the Redbox kiosk, which can hold a maximum of 550 units, has a title you or your family wants. But certainly, with limited facings, you can't expect to come close to having the kind of selection at a typical video store.

Add the cost of the rental, the food you buy as an add-on to your return visit (yes, you will get something), the gas, the limited selection, and I can see the value begin to diminish in comparison to one's current video rental practice, whatever that may be.

At the end of the day, if the McDonalds program does expand significantly, it will, of course, have some negative impact on local rentailers. Especially on family and children's rental titles. But consumers are smart enough to add in the full cost of any transaction, and my bet is the impact will not be as significant as one might think. The McDonald's $1 deal appears to come with some extra not so hidden…pounds.

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