Direct purchasing of sell-through products is one of the bigger quandaries facing supermarket video at mid-decade. On the one hand, it is a way to boost margins, which is especially important on sell-through titles that must be sold close to cost. But on the other, there are the video distributors, usually offering better, more localized service for all the retailer's video product needs. The distributors don't put the requirements on purchases that a studio might.
Either way, participants at SN's video roundtable said retailers should be looking for more help on Efficient Consumer Response issues and for enhanced levels of communication.
"I'm sure we are one of many companies that have looked into going direct with studios," said Clifford Feiock, video coordinator at Nash Finch Co., Minneapolis. But because of the various requirements to carry more of the direct-selling studio's products, "I'm not sure that looking into direct purchasing is even worthwhile," said Bill Glaseman, video specialist at Bashas' Markets, Chandler, Ariz. Most of the benefits of direct relationships between studios and retailers are already in place, noted Ron Eisenberg, president of ETD Entertainment Merchandising, Houston. "My account execs can't go see a buyer without tripping over half a dozen studio reps who are in the reception room waiting to make a direct pitch in terms of product, advertising programs and so forth," he said.
The direct sales themselves are not the main objective of these relationships, said Dennis Maguire, vice president of sales at Buena Vista Home Video, Burbank, Calif. "It is not just about getting a better price," he said. "Direct sales means building a partnership to grow the business, and nothing more."
Whether a retailer is buying from the studio or a video distributor, Buena Vista is increasing its emphasis on ECR. "In any kind of relationship, we would look to push the ECR movement," he said.
"ECR is about being more efficient and the distributor partnering with the supermarket," said David Ingram, president of Ingram Entertainment, La Vergne, Tenn.
Andrew Kairey, senior vice president of sales and marketing at MCA/Universal Home Video, Universal City, Calif., also emphasized the importance of building partnerships over direct sales. "A direct relationship doesn't always refer to direct selling. At MCA, direct relationships have always meant direct communications," he said.
Here's how the discussion about direct buying and ECR went:
SN: More studios are selling more products directly to more retailers. What does this mean to the future of supermarket video?
FEIOCK: We really want to grow our partnerships with the studios and with the distributors. We have barely scratched the surface of what rental and sell-through can do in our supermarkets. I am asking for help from studios and distributors to help us grow that business.
MAGUIRE: Direct sales is not an objective unto itself. First and foremost, it is not just about getting a better price. Direct sales is only important if retailers are not being serviced by their current distributor. Some distributors are better than others at servicing their accounts.
SN: Do direct sales facilitate the ECR movement?
MAGUIRE: We would like to have a relationship where we pay and bill electronically, where we receive point-of-sale data electronically, where we do everything together to push as much cost out of the system and deliver the goods into the store at the lowest possible cost to the retailer and to us. This can be done through distributors or, if the distributor is not providing the service that a retailer is looking for, through a direct relationship. But it's mostly about building a partnership, and not about getting a better price on goods.
INGRAM: For distributors, ECR is about hooking up electronic data interchange, getting rid of some paperwork. We've got a lot of customers interested in that sort of interaction.
KAIREY: There are many different types of direct relationships. When you talk about selling directly to somebody, the most important thing that you need to have in place to handle this is systems. By systems, I don't mean just shipping, packaging and hopefully collecting from all the customers. What's really more crucial is having point-of-sale information for a replenishment system so we are maximizing the selling opportunity.
A lot of people are presumptuous in thinking that anyone can go out and sell direct. We don't have an upside if we don't have a system in place that's going to give us good point-of-sale data that will tell us how to maximize the selling opportunity. In fact, we have a downside if we try to sell people directly without such a system.
INGRAM: A negative about buying direct for the customer is they're dealing with another person who is now in the loop in addition to their regular distributor. One of the reasons for distributors existing is so that the distributor can deal with the relationships with all the different studios and provide one-stop shopping -- just like the grocery store's one-stop shopping -- for their retailer customer.
EISENBERG: I think Andrew [Kairey] is right on the mark. For all practical purposes, the benefits of a direct relationship probably are 85% in place between studios and supermarket chains now. When you go a step further and start talking about the infrastructure and idiosyncrasies of a studio meshing with the infrastructure and idiosyncrasies of your normal retailer, I don't regard it as much a threat as a source of amusement. I don't think the two are equipped to deal with each other in terms of the mechanics of distribution. They are equipped to deal with each other in terms of sales and marketing programs, but that is taking place today. So I don't think there's that much to be gained by taking the next step beyond the sales and marketing presentations that are already in place.
This is perhaps a very narrow issue and obviously self-serving -- and I don't necessarily expect it to happen -- but the one thing I would most like to see is studios and retailers no longer getting together on big sell-through titles. The studio is gunning to get as big a number as it can so the studio executives are happy. The retailer wants as big a number as he can get so he can improve co-op and make an impact at retail. But when the returns come back over the limit, both parties are looking at the distributor and asking, "Why did you do such a stupid thing?"
GLASEMAN: As far as direct is concerned, each studio, has certain parameters that they want a store to have. But if it comes down to 8 feet of permanent space for this studio, 8 feet for another and another, we just don't have that kind of space.
Inside supermarkets, there is the most high-priced real estate in the universe and turnover is a factor. For instance, going back to books, we turn the titles in a book department a minimum of four times a year. To the idea that you're going to have perhaps say 12 to 16 feet for one studio, I don't believe any one studio comes out with enough new good sell-through titles to turn that rack four times a year. I predict that what will happen is you'll put in that 12 feet, you'll get an initial good sale, then it will dwindle off very fast and there won't be enough new titles to keep it fresh.
KAIREY: What I do not see on a large scale in the supermarket industry is real estate being given to sell-through sections that is planogrammed, and with product being freshened up, changed and rotated out.
VAN GORP: I don't see supermarkets devoting permanent space to specific studios. I'd love to see it, but with some exceptions, I'm not sure it would ultimately mean anything to the consumer. The way you're going to see movement of product is on an in-and-out, per-title basis on hit product outside the video department, then slotting it back into your normal sell-through assortment and allowing it to sell down there.
A lot of this just comes down to communication. How can we take this business to the next level? We have to keep the lines of communication open and work with each other.
KAIREY: When suppliers create programs for the industry, we are creating broad and general programs that address many different channels of distribution. It is extremely important that retailers speak out -- whether they are working directly with the manufacturer or through a distributor -- if they have an idea about how to create a promotion for a major sell-through title or any other type of assortment that will create a unique opportunity for the store.
MAGUIRE: I'd like to see a commitment to growing the category, a willingness to share information, a commitment to look at the support behind each product and make decisions based on that support, and to give product enough of a chance so consumers can make decisions on its value.
Good ideas grow business, bad ideas will slow the growth of business. It's the same with good and bad decisions. As Craig [Van Gorp] said, we need to keep the lines of communication open and share objectives. Our objectives will not always meet, but certainly many of them can mesh together to grow the business.
