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Vending machines dispensing iPods, cameras, DVDs

Vending machines, purveyors of pretzels, soda and other munchie mainstays, are starting to satisfy

Vending machines, purveyors of pretzels, soda and other munchie mainstays, are starting to satisfy cravings for iPods, digital cameras and DVD movies.

Travelers, hotel guests and visitors to fast-food restaurants now can use vending machines to buy electronic gadgets and other items that cost as much as $500.

Companies that are offering these services are hoping that U.S. consumers, increasingly conditioned by the Web to buy big-ticket items without a person present, won't hesitate to pay vending machines for items that cost 500 times as much as a bag of chips. It is also a gamble that the U.S. market is ready for a form of automated retailing that is commonplace in Japan and other countries, where consumers can readily purchase everything from fresh bags of rice to cell-phone accessories via vending machines.

In one significant bet, Zoom Systems, a San Francisco start-up, plans to add more than 100 locations by the end of the year to its existing system of 165 high-end vending machines that sell expensive Bose headphones, iPods and wireless laptop cards. The machines are in airports, hotels and grocery stores. Zoom says it plans to be in a total of about 3,000 locations within the next two years, including office campuses and universities around the country.

Vending machines are starting to dispense other unlikely products as well. The RedBox subsidiary of McDonald's Corp., for instance, plans to have kiosks that rent DVDs in more than 1,000 locations, most of them McDonald's restaurants, by the end of the year. Each RedBox machine contains about 500 DVDs, including 35 to 40 of the latest movies. Reebok International Ltd. has experimented with selling sneakers via kiosks. Staples Inc. has tested selling office products such as pens and printer cartridges through vending machines on university campuses and airports. (The company has since halted the tests. A spokeswoman for Staples said she was unable to find out the reason why they were stopped.)

John Barsanti, a director of private equity firm Torridon Companies and a consultant to brands that are evaluating whether to sell high-end merchandise through vending machines, says that the retail phenomenon is still "embryonic" in the U.S., but that many companies are seriously considering it. Barsanti points to other self-service phenomena that took years to catch on. "An ATM is a vending machine that gives money," he says. "It took awhile to take off and today hardly anyone goes into a bank anymore."

RedBox is using its kiosks to encourage visits to McDonald's restaurants and other stores. After the machines dispense a DVD, consumers pay $1 for every night they have the movie checked out. Since customers have to return the movie back to the machine, the service almost ensures a repeat visit.

McDonald's began testing the service last June in Denver and has expanded to cities including Minneapolis, Houston, St. Louis and Salt Lake City. "The tests are going extremely well," a RedBox spokeswoman says.

Some of the new vending machines can encourage impulse buys. Bradley Permenter, a transportation manager based in San Mateo, Calif., was recently traipsing through the international terminal of San Francisco International Airport when one of Zoom's vending machines stopped him in his tracks. Permenter paid about $180, after rebates, for an iPod mini that he gave to his daughter. (Prices for items from the Zoom machines are comparable with those at traditional retail stores.)

"It was a convenience more than anything," Permenter says. "The machine was very user friendly."

Airports appear to be especially fertile territory for high-end vending machines, with their legions of business travelers lurking around terminals waiting to catch flights. Retailers of high-end goods, such as audio products maker Bose Corp., also have traditional retail stores in many airports.

So-called Zoom Shops in airports sell mostly consumer electronics, with digital music players like the iPod accounting for about 42 percent of sales. Headphones and pre-paid cell phones make up 19 percent and 11 percent, respectively, of sales. Zoom also has vending machines in Sheraton, Wyndham and Crown Plaza hotels that sell items such as medicines, toothbrushes and razors. Zoom machines placed in grocery stores sell mostly printer cartridges, portable CD players and satellite radios.

Gower Smith, chief executive of Zoom Systems, says the company's machines are highly efficient, squeezing out annual sales of between $1,500 and $6,000 per square foot, compared with about $500 to $750 per square foot of traditional retail environments. That means Zoom machines now generate between $60,000 and $240,000 in annual sales per location.

Though automated, Zoom's vending machines are much larger and more sophisticated than the typical soda-and-candy-bar version. Zoom Shops measure about 40 square feet with large glass windows and brightly lit interiors that show off the gadgets inside. Users order products through a touch screen that also displays detailed information about products, much like a Web site.

The Zoom Shops send a robotic arm to retrieve items and gently deposit them in a bin. Optical sensors verify that customers have removed items from the machine before charging their credit cards. There are downsides: The machines don't take returns. So consumers who change their mind about items have to mail them back to Zoom.