Moto Photo, Inc. Business Information, Profile, and History

Company Perspectives:

Moto Photo shall be the premier franchiser and specialty retailer of high-quality imaging products and services dedicated to enhancing our customers' enjoyment of their imaging experiences better than any other provider.

Moto Photo is committed to achieving superior results for all of its stakeholders within a culture that promotes trust, win/win relationships, problem solving and participative decision, remembering that work should be fun.

We want people who deal with Moto to literally say "Wow! I've never had such a great experience." This means 100 percent customer satisfaction, successful franchisees, fulfilled associates, and high profitability for our shareholders. We will WOW our stakeholders.

History of Moto Photo, Inc.

Moto Photo, Inc. is North America's largest franchiser of one-hour photo processing and portrait studio centers. The company has more than 450 locations in the United States, Canada, and Norway. Moto offers one-hour photofinishing along with other services such as enlargements and digital imaging. Stores also sell film, frames, albums, and personalized gift items.

Michael Adler, chairman of the company and son of company founder Richard Adler, owns more than 20 percent of Moto and serves as chairman of the board. In 1999, Entrepreneur Magazine ranked Moto Photo as the number one franchiser in the photo business category in its 20th annual Franchise 500.

Click Camera in 1946

Moto Photo, Inc. was founded by advertising executive Robert Adler. Adler owned a successful advertising agency, but his real passion was photography. For years he had visited camera shops regularly and learned all he could about cameras and film processing. He enjoyed working with people and considered opening a camera shop, but was really more interested in developing film than in selling cameras--and there was little market for a film-processing business back then. People just wanted to take pictures and did not care about how their film was processed. In spite of this, Adler eventually concluded that he could combine his people skills with his technical knowledge and make a go of a retail camera shop.

In 1946, he sold his advertising agency and opened Click Camera, in Springfield, Ohio. He and his wife, Rosa, came up with the company's first slogan: "Even your camera says Click!"

After World War II, film was in great demand but in short supply. Retailers could obtain film only through authorized Kodak dealers. Adler's customers wanted film, but had trouble finding it. Adler hoped to become a Kodak dealer himself, but was unable to achieve this goal. Never one to give up easily, he and his family spent their weekends driving to every Kodak dealer within a 50-mile radius. They bought every roll of film they could find. Each Monday morning, they hung up a sign in their store's window that said, "All the Kodak Film You Want." Customers flocked to Click's to buy film.

Adler entered into an agreement with an outside film-processing vendor to develop his customers' film. But the vendor's service was slow and the quality of the pictures was poor. This was unacceptable to Adler. He realized that the key to good quality pictures was to develop the film himself.

Adler opened a small processing lab in the basement of his store. His customers were thrilled with the pictures Adler developed. Word of his beautiful pictures spread quickly, and he began accepting orders from other retailers to develop their customers' film. Adler decided to redirect his company so it focused more on film processing and less on camera sales.

Development of Tru Foto: Mid-1950s-60s

Adler added a film processing division to Click Camera called Tru Foto. Tru Foto was enormously successful and the company's future looked promising. Adler suffered a devastating heart attack in 1959, however, and was temporarily unable to work. Realizing that the company would falter without his father, Michael Adler dedicated himself to the business. Michael was the Adlers' only child and a busy law student at Ohio State University when his father became ill. He studied law during the week and commuted to Springfield on the weekends to help his father keep the business afloat. When Michael graduated, he committed himself to his family's business full-time.

The younger Adler concurred with the elder: the company's future was in photo processing. Robert sold the Click Camera portion of the business and concentrated on expanding Tru Foto. Tru Foto became a wholesale film processor and developed film for retailers across the United States. The Adlers developed 50 to 60 rolls of black-and-white film per day. In time, the company built a small photo processing plant and began developing 600 to 800 rolls of film per day. Tru Foto expanded the plant and began processing color film.

In 1968 Tru Foto built a new, larger processing plant in Akron, Ohio. During the same year, it formed a new subsidiary, Foto Fair International. Foto Fair offered drive-up and walk-in photo processing. Its outlets were located in shopping malls and parking lots.

Success in the 1970s

By the 1970s, the Adlers owned more than 1,000 Tru Foto retail outlets in the United States and four large processing labs in the Midwest and Northeast. The company became one of the top ten largest photo finishers in the photo industry.

Michael Adler, however, missed dealing with the public as he did in the Click Camera days. He also realized his market was changing. His retailers wanted "faster, cheaper service at lower prices." They had no problem sacrificing quality to cut costs. This disturbed Adler, whose father had spent much of his life perfecting his film-processing techniques. Michael considered developing film for the public once again.

One-Hour Processing in 1981

In the early 1980s, Tru Foto's upper management contemplated how to best position the company in the future. They realized that one-hour film processing could be the wave of the future. If it could perfect its one-hour film processing, the company could once again deal directly with the customer and avoid transactions with demanding and unscrupulous retailers. Michael Adler and Tru Foto executives Bill Dyer and Dave Mason "spent long nights developing ways for Tru Foto to enter the one-hour processing market." They wanted to offer "fast, high-quality, secure onsite processing delivered through well-trained associates." They opened five test stores in large malls in different regions of the country. The test stores did well and Tru Foto established an ambitious goal: to be the leader in the industry.

Moto Photo in 1983

Tru Foto's one-hour processing service was in great demand. The company considered simultaneously opening a chain of stores across the nation, but concluded that this was too expensive. It opted to open many franchises instead. In 1983, Tru Foto acquired Moto Photo, a small public franchiser based in Oklahoma City. Tru Foto changed its name to Moto Photo, Inc. and moved its headquarters to Dayton, Ohio. It launched an initial public offering that raised more than $2 million. The company used the proceeds to pay off debt and fund its expansion. Two years later, Moto raised an additional $3.25 million with a second offering.

Moto opened many new stores and acquired additional stores from other companies. In 1986, it acquired five one-hour photo processing stores in Atlanta, Georgia, from Vibracolor One-Hour Photo, Inc. During the same year it acquired seven stores from PRC Acquisitions Corporation and 11 other stores through "various transactions." Moto also expanded internationally. The company opened stores in Canada and Norway. Moto was on its way to reaching its goal of becoming the leading photo processor in the country.

Success did not come easily for the company, however. Word of its services spread and many new competitors emerged to try to capitalize on the one-hour processing wave. The competition for market share was fierce. A total of 13 new one-hour photo-processing companies entered the market. Moto entered into "a ten-year war" for market share. The company emerged from the battle victorious. At the end of the decade, Moto was the largest and only franchiser in the industry.

In 1998 Moto placed 15th on the list of best-managed franchises in Success magazine's annual Franchise Gold 100. The following year, Entrepreneur Magazine ranked Moto as the number one franchise in the photo business category in its 20th annual Franchise 500.

A new store design was introduced in 1999 to appeal primarily to women, who the company believed developed most family photos.

Digital Technology in 2000

At the turn of the century, Moto sought to participate in the Internet economy. It signed a letter of intent to merge with PhotoChannel Networks, Inc., a Canadian company that owned PhotoChannel.com, an online photo print service for both digital and conventional film. The transaction involved a stock swap valued at approximately $14 million. In addition to stock, PhotoChannel would have given Moto an additional $25 million for the partnership. Adler believed the merger would have been particularly beneficial for Moto. It would have given Moto money to add digital technology that would allow it to print images at its store more quickly. Some of the money it received would have been used as an incentive for franchisees to add digital labs to their stores.

As of early 2002, however, the letter of intent for the merger had expired. According to Market News Publishing, the companies had decided not to merge "due to adverse financial market conditions prevailing in the last quarter of the year 2000 and the inability to finalize satisfactory terms."

Adler was optimistic that the merger would take place sometime in the future, however. "Although we are disappointed that we are not able to complete the merger at this time as originally contemplated, we are cautiously optimistic that the talented PhotoChannel team will successfully raise the capital and meet all preconditions for the merger to move forward," he said in Market News Publishing. The two companies did agree to test PhotoChannel digital imaging in a few of its stores. This allowed Moto to process and print orders received over the PhotoChannel network.

A Possible Takeover in 2001

In early 2001, Moto faced a possible takeover from Fuji Photo Film USA, Inc. Fuji held a preferred stake in Moto as well as a $1.9 million note that Moto needed to repay. Moto's sales dipped and it fell behind on its payments, which, under the terms of the agreement, gave Fuji the option to seize control of Moto. Early in 2001, industry experts predicted that Fuji would take over Moto. As of early 2002, however, this had not happened. Moto terminated its agreement to use Fuji as its primary supplier of paper, chemicals, film, and other products and signed a deal instead with Eastman Kodak Company. Kodak agreed to provide Moto with the supplies it had been buying from Fuji.

Hope for the Future

Moto's sales slipped in 2000, and the company posted a net loss of $3.2 million on sales of $36.2 million as opposed to a 1999 net income of $1.7 million on sales of $36.8 million. The company also posted a loss of more than $242,000 on sales of more than $8 million for the third quarter of 2001. CEO Larry Destro responded to the 2001 third-quarter loss in a company press release: "Sales were generally soft for the period in the photo graphic industry, exacerbated by a weakening consumer economy and the September 11 tragedy, which forced many consumers to delay or cancel vacation plans."

To cut expenses, Moto announced plans to begin franchising its 38 company-owned stores and to close unprofitable stores. "This will allow the company to concentrate its attention on building the franchise brand, enhancing shareholder value, increasing liquidity and will lead to reduced costs over time," said Destro.

The company also implemented MotoWizard, a highly sophisticated state-of-the art program that helped find the best location for new stores. "This new model helps eliminate under-performing sites and decreases site selection risks," Destro explained.

Chairman Michael Adler reported in the company's 2000 annual report that he believed Moto had come to a fork in the road, and that it was time for management to change. He announced plans to retire at the end of 2001.

Principal Competitors: Ritz Camera Centers; Wal-Mart Stores, Inc.

Chronology

• Key Dates:
• 1946: Robert Adler opens Click Camera.
• 1961: Michael Adler becomes president of the company.
• 1968: The company builds new Tru Foto plant.
• 1981: Tru Foto enters one-hour photo processing market.
• 1983: Tru Foto acquires Moto Photo, then spins off its purchase through an initial public offering.
• 1998: Moto Photo places 15th in Success magazine's annual Franchise Gold 100.
• 1999: Moto Photo is rated number one franchise by Entrepreneur Magazine.
• 2000: The company signs letter of intent to merge with PhotoChannel Network, Inc.
• 2001: The company faces possible takeover by Fuji Film; Moto signs an agreement with Kodak; Michael Adler announces plans to retire.