MinuteKey locks down self-service keys at key-copy kiosks

If you have ever gotten a key cut that doesn’t work in the lock that it’s supposed to, you’re not alone.

Customers complain all the time about how long it takes to get keys made at retail stores and getting them to work, said Randy Fagundo, president and chief executive of Minute Key Inc., a key-copy kiosk company in Boulder.

Minute Key Inc. is on a mission to change that – one key at a time.

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MinuteKey, as it’s called, has 3,080 instant key-copy kiosks in Walmart, Lowe’s and other retailers across the county. The high-tech duplication system is “very reliable, very accurate and automated,” Fagundo said. The machines take about 60 seconds to cut a key once a customer makes a payment to the automated system.

With an estimated 600 million office, home and padlock keys made every year, the company is on the fast track for growth. An estimated $1 billion is spent on key duplication annually. MinuteKey cut its 20 millionth key in 2014.

“Everybody’s got keys in their pockets. It’s one of the few things we all have,” Fagundo said. “Even if we capture 20 percent of that market, it would be a big business.”

The company had 2014 revenue of $23.3 million and about 150 employees around the country, including about 35 in Boulder.

In the next three years, MinuteKey officials want to add about 6,000 new locations in drug stores, grocery stores and other retailers, Fagundo said.

With such rapid growth come serious capital-investment needs.

Venture capital firms Serent Capital and Matrix Partners, both with offices in San Francisco and around the globe, and Main Street Capital Corp. (NYSE: MAIN) and Community Trust Bank, both in Texas, have invested a total of more than $80 million so far in the company.

Fortunately, the automated key-cutting business is “quite profitable,” and both Serent and Matrix have ample reserves to support it, said Kevin Frick, a Serent Capital co-founder. While Frick declined to discuss the cost per machine, he said each key-cutting kiosk has a planned payback period of three years, based on previous performance.

As the automated self-service industry continues to grow, MinuteKey is expected to grow with it, Frick said. He compares current automation in kiosk machines such as MinuteKey with the automated teller machines used by banks.

“The dynamic is changing,” Frick said. “People are looking for convenience in a specific experience, and they find that in kiosks.”

MinuteKey has been ahead of its competition by a couple of years – one of the reasons it has done so well, Frick said.

“Randy and the team … has built a great consumer experience and a value proposition,” Frick said. “We continue to build around that. It’s very successful.”

MinuteKey seems to fit into the future of vending/kiosk machines generally, with its focus on technology, said Jo Bradshaw, a spokeswoman at the National Automatic Merchandising Association. Automation is growing, as is the use of preloaded money cards, Bradshaw said.

In the future, MinuteKey also may be able to take advantage of the “micromarket” areas in office buildings that started taking off in 2011, Bradshaw said. “Micromarkets” are general concierge areas offering sophisticated vending options that dispense food and drinks in the manner of a convenience store without the attendant, Bradshaw said. For example, a machine might dispense bottles of milk and other more traditional grab-and-go items, she said.

Fagundo and Frick both have ideas for where the industry is headed, although they declined to talk about possible new concepts for competitive reasons. Coin counting and electronics recycling machines continue to hold their own in the market, while Redbox and other movie services are expected to shrink, to be replaced by streaming Internet video, both men said in separate interviews.

“We don’t want to give away our secrets, but there are other things we do every day that can be automated,” Fagundo said

In the meantime, MinuteKey follows a revenue-share model in putting its machines in new locations, Fagundo said. Pilot machines are placed at key retail locations during try-out periods. If the retailers like the amount of revenue the machine offers, MinuteKey pays a percent of its revenue generation to continue to use the space, he said. Retailers pay for the electricity, he said.

Fagundo is no newcomer to the vending/kiosk machine industry. He previously was president of Coinstar Entertainment Services, which placed about 27,000 skill-crane machines, bulk vending machines and kiddie rides in retail chains across the country at one point. Coinstar Inc. became Outer Wall Inc. (Nasdaq: OUTR), which continues to operate a network of coin-cashing machines as well as movie- and game-rental kiosks nationwide from its Bellevue, Wash., headquarters.

Fagundo met MinuteKey company founders and brothers Ari and Dani Freeman in California in 2010. He convinced them to allow him to grow the company from Boulder, where he lived, rather than move to Los Angeles.

Employees in Boulder handle administration and warehouse work; other employees around the country fix the machines and restock them with blank keys. The machines are “really smart” and they’re networked – sending messages to a central hub when they need to be fixed or restocked, Fagundo said.

MinuteKey was No. 302 on the 2015 Inc. 5000’s list of fastest-growing private companies, one of 132 companies in Colorado to make the list this year. It was No. 11 in 2014. Its three-year growth curve is 1,520 percent, according to Inc. magazine.