What a difference a year makes.
A year ago, when SN contacted a panel of top suppliers to identify the Top 10 chains with destination video-rental departments, Kroger was the clear choice for No. 1. But this year, the Top 3 were nearly a photo finish. Meanwhile, three names from last year are missing from this year's list and another chain, Hy-Vee, has moved up from eighth to sixth.
This all-star ranking is based on revenues and a subjective analysis of the retailers' marketing, merchandising and commitment to the video business. The suppliers who participated on the panel were promised anonymity so as not to jeopardize their relationships with retailers. All are executives who regularly spend time out in supermarkets across the country. SN compiled the comments of the suppliers and assembled the final list.
The Top 3 chains reflect very different approaches to supermarket video. Albertson's has smaller departments, but has program consistency and overall high total revenues. Giant Eagle has elaborate departments that rival video specialty stores. Kroger has a variety of approaches in its various divisions, with a strong commitment to live inventory departments. One Kroger division, King Soopers, Denver, would probably be near the top of this list if it were a stand-alone company.
The leaders were followed by three innovative regional operators. Schnuck, Wegmans and Hy-Vee, each with long-standing programs, continue to meet the challenge of specialty store competition. Safeway ranked seventh, but this primarily reflects the very successful video-rental program in its Seattle division and its newly acquired business in the Carr Gottstein stores in Alaska. Ingles, Price Chopper and Furr's were added to the list this year, while Randall's and Pathmark have slipped below the Top 10 in the panel's estimation. Smith's Food & Drug Centers, Salt Lake City, which was No. 9 last year, is now part of Kroger.
Chains not making the Top 10 list, but still getting high marks from the panel are Randall's Food Markets, Houston; Pathmark Stores, Carteret, N.J.; Bashas' Markets, Chandler, Ariz.; K-VA-T Food Stores, Abingdon, Va.; Dierbergs Markets, Chesterfield, Mo.; Hannaford Bros., Scarborough, Maine; Seaway Food Town, Maumee, Ohio; Shop 'n Save Warehouse Foods, Kirkwood, Mo.; and Jitney- Jungle Stores of America, Jackson, Miss. The panel also singled out Tops Markets, Buffalo, N.Y., for its exemplary sell-through program.
"From big cities to small cities, big markets to small markets, the fundamentals of the supermarket video business are darn, darn good," said one distribution executive. Chains with good video operations and experienced video buyers are sticking with it despite heightened competition. "They are wounded, but they are weathering the Blockbuster storm. When the wind changes, and I think the wind will change, then these retailers will be there. There can be a resurgence if they stick to their guns on the fundamentals of this business."
A common element among the chains in this year's ranking is a knowledgeable, experienced category manager or buyer who champions video rental and sell-through to upper management and store-level personnel, noted the panel. A characteristic of most chains that are exiting the video-rental business has been a revolving executive door in the video office, they added.
"There has to be commitment from senior management down," said another distribution executive. "Part of that commitment is putting a category manager in place who knows the business, or at least is capable of learning it. Someone who instinctively knows how to drive the category, to use all the resources from the studios, distributors and tie-in-partners. Someone who is operationally sound and ensures that the video-department personnel are executing at the store level."
Albertson's puts it right out there [hit sell-through titles] and their sell-through sales reflect it.
Ranked third last year, Albertson's, Boise, Idaho, was selected as No. 1 because of its continued expansion in the category, its improvement of in-store departments and its revenues. In 900 stores and growing, the chain now has the greatest number of rental departments. While most of these are smaller convenience-oriented sections, Albertson's is putting live inventory departments into its newer stores. The chain has also made a significant commitment to sell-through and has the opportunity to introduce its approach to video rental into the American, Buttrey and Seessel stores it has acquired.
Albertson's also is different from other retailers on the list in that it depends on three rackers -- Video Two, Sandy, Utah; B&M Video, New Braunfels, Texas; and H&M Video, Burien, Wash. -- to run its video program. These service companies are dedicated to Albertson's and have been doing business with the chain for many years.
"Albertson's is No. 1 because of its continuing commitment to the business," said a distribution executive. "They are putting in store-within-a-store departments and they are improving their departments all the time. They are extremely well run."
With a rapid expansion schedule, all the newer Albertson's video-rental departments are store-within-a-store sections and are based on a recent redesign, noted another distribution executive. "They are making improvements to the department layout and signage. They merchandise feature sell-through at the point of sale, at the cash registers, which is very important. So many supermarkets are pulling feature sell-through back into the rental department, or hiding it behind customer-service counters. Albertson's puts it right out there and their sell-through sales reflect it."
The commitment at store level is unmatched by any other chain. Their merchandising is equal to or greater than Hollywood Video.
2. Giant Eagle
Ranked No. 2 for the second year, but very close to the leader in the supplier panel's estimation is Giant Eagle, Pittsburgh. Although Giant Eagle has closed some of its older and smaller video departments, its large Iggle Video stores are as big as 5,000 square feet, usually located in the corner of a supermarket building. The consensus of the panel was that Giant Eagle would easily have ranked No. 1 if not for its size in comparison to Albertson's .
Giant Eagle's super-stores-within-stores rival video specialty chains like Hollywood and Blockbuster and set a high standard for what can be done to merchandise entertainment products in supermarkets. The retailer has started to open Iggle Video stores in the Cleveland area in the stores it acquired in its merger with Riser Foods, Bedford Heights, Ohio.
The big Iggle Video departments do 10 times the volume of an 800-square-foot Kroger department, said a distribution executive. "Giant Eagle has the most professional and aggressive supermarket video operation in the country." Top management at Giant Eagle is firmly committed to video and there's a substantial video infrastructure at headquarters. "There's a buyer, a merchandiser and assistants. There's an organization in place, people focusing on the business," the executive said. Another distribution executive noted, "The commitment at store level is unmatched by any other chain. Their merchandising is equal to or greater than Hollywood Video. They are exemplary."
"You would think you were walking into a video specialty store, that is how well they do it," another distributor said.
In terms of the quality of Giant Eagle's video program, apart from its smaller store count of 115 departments out of 201 stores, "I don't think you could put anyone ahead of Giant Eagle," said another supplier. "This is what Hollywood in a supermarket environment should be about."
"Giant Eagle is absolutely cutting edge," said a distributor. "They are into everything -- all formats and product lines like DVD, video games and audio books, and even accessory items like apparel that tie in with entertainment."
They have outstanding leadership in certain markets, like Denver, and with their acquisition of Smith's, they are the dominant Western market-share holder.
3. Kroger Co.
Ranked third, but a very close third, is last year's No. 1 supermarket video-rental operator, Kroger Co., Cincinnati. Kroger has increased its count of video-rental departments because of its acquisitions of chains like Smith's, with 120 departments; Quality Food Centers, Bellevue, Wash., with 31 departments; and Fred Meyer Inc., Portland, Ore., and Ralphs Grocery Co., Compton, Calif., where about a dozen leased-space sections operate.
However, the supplier panel noted that two divisions, Michigan and Cincinnati, have decided to eliminate rentals, and there also are about a dozen Blockbuster departments operating where Kroger used to have in-house programs. About 75 Kroger video departments have been closed in the last year. Generally, the panel perceived a lessened commitment to the category at Kroger than originated about two years ago when the company centralized many of its video-buying decisions.
"Kroger is losing its focus on video," said a distribution executive. "The company's move to central buying in Cincinnati has taken their eye off the video ball. Instead, their focus is on centralized nonfood buying. There's trouble there for video."
"I'd take Kroger down a notch because they have shut down the video program in some divisions, like Michigan and Cincinnati, and they are pulling departments around the country, three or four, here and there," said a distributor. "They have pulled back on games at a time when games are booming. They've got a weak DVD presentation. They are just slow to execute and are not stocking their stores properly."
Panel members stressed that some divisions, especially King Soopers, still are doing exceptionally well. But in other areas, the caliber of video executives is inferior to other chains on the Top 10 list and this has had a direct effect on Kroger's declining fortunes in video, the panel said.
One distribution executive praised King Sooper's video-category manager, John Kuhns, and director of general merchandise, Chuck Wagner, as being among the best in the business. "It runs up and down in that organization: there is spending and there is professionalism." As stores are being remodeled, live inventory video-rental departments are being installed, the executive noted.
Some panelists said they believed that Kroger should still be No. 1 because of the volume it does in video. "They have outstanding leadership in certain markets, like Denver, and with their acquisition of Smith's, they are the dominant Western market-share holder," said another distributor. Because of its racked, revenue-sharing arrangements, the distributor noted that Albertson's "doesn't own a single videotape. They've got numbers but no commitment."
They were one of the first to jump into DVD and they are concerned about the category.
As the first three chains on the list were ranked closely together in the panel's estimation, so were the retailers ranked four, five and six. Schnuck Markets, St. Louis, with 60 video departments in its 87 stores, was fourth for the second year in a row. It held onto the ranking because of its strong marketing, leadership with the DVD format, its several stand-alone video stores, and a marketing program that is successfully combating the market-share grab by video specialty chains.
"Schnuck's is feeling the pressure for copy depth from the major specialty chains, but they are meeting it head on," said a distributor. "They also have a dedicated catalog sell-through endcap in their departments and dedicated sell-through racks out in the main part of the store."
"They are good operators and they are aggressive," said a supplier. "They were one of the first to jump into DVD and they are concerned about the category." Schnuck rents DVD hardware as well as software chainwide, the distributor noted.
But a distribution executive said the Schnuck program needs updating. "When I walked into those stores seven or eight years ago, they blew me away. But now they just look old."
They are trying to understand what is happening, but they also have taken some aggressive steps, such as going to five-day rentals in some markets.
5. Wegmans Food Markets
Wegmans Food Markets, Rochester, N.Y., is reportedly struggling to compete with the specialists, but the panel said the retailer still runs one of the best supermarket rental programs in the country. The retailer is concerned about rental industry trends, but is far from giving up on it, the panelists said. It has closed a few video departments, and now has 52 sections in its 55 stores.
"They are trying to understand what is happening, but they also have taken some aggressive steps, such as going to five-day rentals in some markets," said a distributor. "They are also taking a look at their presentation and planning some changes there too." With a number of departments located in the rear of stores, Wegmans lost some points with panelists. "But their departments still look very good," said a distributor. "Wegmans got into video early and got into it right when there was no competition in those markets," a distribution executive said.
Hy-Vee is aggressive in video and they are doing guaranteed availability rental programs, and they are bringing in DVD.
Moving up from eighth to sixth on the basis of the continued strength and creativity of its video program, as well as its efforts to bolster rentals in the face of the speciality competition, is Hy-Vee, West Des Moines, Iowa. In part, Hy-Vee benefited from the declines in video rental at Safeway and Randall's, but panelists also noted that the chain may have been ranked too low last year.
With 160 departments in its total of 247 stores (including drug and convenience stores), Hy-Vee has a professionally run, longstanding video-rental program, the panelists agreed. It loses some merchandising points for using reduced image cards to display videos in some stores. But overall, "Hy-Vee has a strong product presentation and a commitment to the one-stop shopping concept, offering rental and sell-through in their stores," said a distributor. "Like others, they are feeling the pinch on copy depth from the video specialty chains, but they are meeting it head on."
"Hy-Vee is aggressive in video and they are doing guaranteed availability rental programs, and they are bringing in DVD," said a supplier. "They are the destination video department in each of the communities they serve," added a distributor.
The way the video bug permeates that whole organization, that's what makes it work.
At No. 7 for the second year was Safeway, Pleasanton, Calif., although the chain's strength in video mostly stems from its division based in Bellevue, Wash. With 125 departments, the division was acknowledged by the supplier panelists as one of the best run in the industry, despite lackluster department design. Safeway Seattle's success in video is a testament to the positioning of non-live grid racks in a prominent location at the front of the store.
However, the panelists pointed out that other Safeway divisions have gotten out of video rental, including the Denver division, which is currently taking rental departments out. Hit hard by specialty-store competition and facing an expensive Y2K upgrade for its video point-of-sale system, Safeway Denver management decided it would rather switch than fight.
It's another story in Seattle and panelists credit category manager Jack Kerstetter for much of the program's success in meeting specialty-store competition there. "He's probably the best video buyer in America," said a distribution executive. "There is nothing fancy about the departments and frankly the merchandising is fairly mediocre. But the locations in the stores, the tie-in with the service counter, the dedication to service, the knowledgeable employees, and the way the video bug permeates that whole organization, that's what makes it work."
The addition of 23 Carr Gottstein Foods video-rental departments in Alaska is another plus for Safeway's video program. "Alaska is just an incredible video market," said the distribution executive.
"They have a module that is exactly the same from store to store. The departments are attractive and well located."
8. Ingles Markets
New to the list is Ingles Markets, Black Mountain, N.C., which has been aggressively expanding video rental, as well as its store base. With 207 stores, the chain now has 86 departments, having doubled the number of video sections within two years. Many of them are attractively appointed store-within-a-store sections with the unique merchandising philosophy of stocking only new releases.
"Ingles inventory is all new releases and that's not a bad thing in this day and age," said a distributor. Although the Ingles' departments have a separate presentation, they are not live inventory, because of concerns about theft. The retailer also is dedicated to sell-through, which it displays in the main aisles of its stores.
Ingles has an attractive department design that it uses for all its newer stores. "They have a module that is exactly the same from store to store. The departments are attractive and well located," said a distribution executive. Ingles' video departments range from 550 to 700 square feet in the newer stores, Tony Federico, vice president for nonfood at Ingles, told SN for a previous story. Typical rental inventory is 3,500 tapes. "Initially, our objective was not to make money in video, but to draw store traffic. We were trying to upscale the whole store image and give customers another reason to come into the grocery store," he said.
Even with the focus on new releases, video rental became a strong profit center. "It just amazes me how much money you can make in this business," he said. Ingles departments average about 2% of store sales, he said.
"They've got dedicated, live, very, very nice departments. They are very theatrical."
9. Price Chopper Supermarkets
The video departments of Price Chopper Supermarkets, Schenectady, N.Y., have long been among the most attractively merchandised rental sections in the industry. The retailer's video program has also been characterized by aggressive promotion and marketing that maximizes its positioning in the supermarket environment. As the chain has continued to grow, and some others have faded, Price Chopper places ninth on this year's ranking. It has 46 departments in its 100 stores.
"They've got dedicated, live, very, very nice departments. They are very theatrical," said a distribution executive. "Along the top perimeter wall, there are cutouts of Clark Gable and others. You really feel the movie biz when you go into those stores."
"Price Chopper is one of the few chains that still does cross merchandising with tie-in partners of video releases," said a distributor. "They are very open-minded in promoting their video departments and as they open new departments, every one of them is live inventory, store-within-a-store."
"They understand the connection between value and home entertainment and they reap the residual of the repeat traffic in building loyalty."
10. Furr's Supermarkets
The most controversial supermarket video-rental program in the business is that of Furr's Supermarkets, Albuquerque, N.M., which offers all titles for 49 cents a night, every day. While each of the panelists said they disagreed with Furr's pricing policies, they admired the fact that the chain has been able to make it work and has stuck with it for six years. As a result, Furr's is added to SN's ranking of the All Stars of Supermarket Video in the 10th position. The chain has 65 departments in its 70 stores, suppliers estimated.
"At Furr's, video is the first thing you see when you walk through the door," said a distributor. "They understand the connection between value and home entertainment and they reap the residual of the repeat traffic in building loyalty for their stores." He characterized the 49-cent pricing policy as "an extreme measure, but it is matched by their commitment. Nobody I know of gets as many turns per store as Furr's and no one delivers a stronger pricing message."
"The most amazing thing about Furrs is they've made the 49-cent rental rate work," said a distribution executive. "They must be budgeting it as a loss-leader. Some of those stores are now double and triple and quadruple the size that they used to be. It's amazing to walk into a 3,500-square-foot store and see walls and walls of new releases, and have a 49-cent price. They are really the only retailer I've seen that has made discounting work, at least from what I can see by visiting their stores."
"Even with 49-cent rentals, Furr's still brings in new releases in volume," said a supplier. "While I disagree with 49-cent rentals, Furr's is responding to a need in the marketplace. I wish they would go to 99-cent rentals. That would still be a bargain."
Several very worthy supermarket video programs fell short of the top 10 list this year, most notably that of Randall's. A few years ago, the Randall's video program was regarded as one of the very best in the industry. However, it has been in a tailspin ever since long-time buyer Dorothy Jones left the company a year and a half ago, and Hollywood Video and Blockbuster Video started their all-out market-share assault, said the supplier panelists.
Since then, the buyer's office has seen several decision-makers move in and out and the balance sheet turn to red. But one very good sign is that almost all Randall's departments have been refixtured to provide for full face display of video boxes, panelists said. The retailer has 93 departments in its 117 stores.
One panelist disagreed strongly with dropping Randall's from the list. "Randall's is slipping, but they are still in there," said the distribution source. In remodeling the video departments, the chain has pulled out about 65% of the catalog inventory, "and they are much more oriented toward new releases and current hits now," the executive said.
Pathmark also dropped off the list this year. The company has seen financial difficulties, that when combined with the competitive environment in video rentals, has resulted in Pathmark buying fewer new releases. Also, the retailer had been one of the biggest users of the shared-transaction-fee program of SuperComm, Dallas, which was abruptly discontinued last year. Recently, Pathmark was acquired by Ahold USA, Atlanta, and suppliers are uncertain what this will mean to the video-rental program. While Ahold brings financial stability, no other Ahold chains have significant video-rental programs. It has about 120 departments in its 135 stores.
"Pathmark is probably the most extreme example of the benefits of revenue sharing in America," a distribution executive said. "If they don't put in another revenue-sharing program within six months, they'll probably go out of the rental business. With SuperComm, they gave the customer what she wanted. But when you give the customer what she wants and then you take it away, you are worse off than if you never gave it to her in the first place," the executive said.
A chain making a strong bid to crack the Top 10 is K-VA-T, which is expanding aggressively with large live inventory video-rental departments. K-VA-T has 40 departments in its 81 stores. "They have a store-within-a store concept and they are committed to other product lines like games and DVD," said a distributor. "They have dedicated employees and their departments are very well designed and located in the main shopping pattern of the store."