Supermarket video buyers gathering at Expo E3 Atlanta, June 19 to 21, will be evaluating interactive media as a way to diversify their product mix.
Computer software holds particular promise in this area and is especially appealing as an impulse item, according to the several chains that are merchandising software lines.
"People are now able to buy more software products on impulse because there is a lot more software available at lower prices," said Ken Currier, chief executive officer of Expert Software, Coral Gables, Fla.
"At $10 billion in sales, last year was a record-breaker in the software industry," said Dave Phelps, director of public relations for the Software Publishers Association, Washington. "Supermarkets want to get in on the action, and publishers are recognizing the need to look at a variety of distribution channels," Phelps said.
David Balfour, multimedia marketing manager at Ingram Entertainment, the La Vergne, Tenn.-based video distributor, said that, "with prices for some products at $14.99 and under, software is becoming a mass-consumable item. The key for retailers will be their commitment to the category. Software will need to be placed near magazines and greeting cards and not necessarily near the audio and video section."
What's more, there are some indications that supermarket customers might prove to be a premium market for software makers. A recent study by New York-based PolyGram Home Video showed that computer ownership by people who rent videos in supermarkets was 43.9% last year, exceeding by about 10 percentage points the 34.3% total personal computer penetration into U.S. households, a figure supplied by Dataquest, the San Jose, Calif.-based research organization.
To be sure, there are still many more cereal aisles than CD-ROM kiosks in U.S. supermarkets. A survey of several retail chains of various sizes revealed only one, Black Mountain, N.C.-based Ingles Markets -- that was considering adding this category to its stores.
But the vanguard of suppliers pursuing this customer base into supermarkets is convinced that, just as they did with video rentals, the mainstream of American grocery retailers will soon embrace the benefits of selling software.
One of those suppliers is Dallas-based Major Connections, which is providing what it bills as a turnkey solution for supermarkets that wish to enter this market niche.
"There is very little risk for the supermarkets," said Margaret Pacheko, vice president of marketing at Major Connections. "The total outsourcing approach is a unique model -- we take care of location, replenishing, promotion and marketing of the computer software in the supermarkets.
"The software is sold on consignment. All sales are tracked by scanning at the checkout, and supermarkets can enjoy up to a 30% return on sales. That's pretty good when all we require is 4 square feet of real estate in the store."
Pacheko said that software sales figures are doubling month by month for the supermarkets that already have delved into this market.
Grand Union Co., Wayne, N.J., sells computer software in conjunction with Major Connections. "We've been extremely successful with video and floral departments, as well as with ATM and banking services, and we anticipate the same results with computer software, which is quickly becoming an impulse buy much like magazines or books," said Gary Mistarka, general merchandise manager at Grand Union.
Major Connections is working on the concept with other supermarkets, including Kroger Co., Cincinnati, and Tom Thumb, Dallas. None of those chains would return phone calls seeking comment on their activities regarding software in their stores.
David Lonsdale, president and chief executive officer of Major Connections, said, "Our alliances with top software publishers like The Learning Co., Hasbro, 7th Level, Cambrix Publishing, Expert Software, Graphix Zone and others give us access to an enviable product mix of best-selling titles at competitive prices."
According to Pacheko, Major Connections plans to provide more than 500 software titles to supermarkets, with prices in the $9.99 to $49.99 range. "We want to keep a variety of titles available to the consumer, in a price range conducive to an impulse purchase. Our research shows that the typical buyer will be a female, at least 25 years old, who would probably never shop for software in a computer superstore."
The software titles provided by Major Connections include programs for business productivity, education and entertainment. "People aren't shying away from the higher-priced titles," said Pacheko. "Consumers seem to like Select Phone, a $39.99 business productivity program that provides users with an easily searched database of 95 million business and residential telephone numbers. But the No. 1 selling title is Tonka Construction, a kindergarten-level 'edutainment' program that sells for $14.99. Some consumers are actually asking for particular software titles, further convincing us that this is a viable market."
Major Connections would replenish the software products every two weeks.
Software may be located in several store departments. Health and medical-related software would be placed near the pharmaceutical items. Educational titles would be placed near the toys and school supplies. Other titles would likely be placed near magazine or book racks.
Some software suppliers and supermarkets opt for the dump bin in supermarkets. "The dump bin gives consumers the impression that the products in it are sale items," said Ron McMillin, vice president of sales at Sight & Sound Distributors, Salt Lake City. "And they're right. Price tags on programs in the dump bin often reflect a 70% savings off regular list price. And some of the software programs that we provide to the supermarkets are former best sellers. Consumers are getting a good deal on a good product."
For the software market, Sight & Sound provides the software, dump bin and signage. Computer accessories such as mouse pads and compact disc jewel cases may also be part of the deal, McMillin said.
Beyond education and business software, shoppers can look forward to renting or purchasing a Movie CD. Introduced by Sirius Publishing, Scottsdale, Ariz., Movie CD takes the movie rental concept to another level.
"It is the first time anyone has launched a new software format where no one has to buy new hardware to run it," said Dwayne Whitten, vice president of sales and marketing at Sirius. "Movie CD gives anyone the ability to play movies on a computer, as long as they have a CD-ROM drive."
Whitten said that this new product category offers millions of movie titles as well as educational programs. "This is a great supermarket product. We've already seen incredible sales."
According to Whitten, Movie CD offers an attractive entertainment alternative, especially for business executives who travel with a laptop and are often waiting for airplanes or stuck in traffic in a taxi. College students who are equipped with a computer but no television may also enjoy this, he said.
"We want to enable people to turn their computers into personal multimedia entertainment centers," said Whitten. "However, we're not out to compete with VHS format movies. This is a different market."
Prices for Movie CDs fall into the $9.95 to $19.95 range, said Whitten. The discs are also rentable, usually for about $2 per night.