HOUSTON -- Supermarkets could gain a 30% to 40% share of the video rental business within the next three years, said Ron Eisenberg, president and chief executive officer of ETD Entertainment Merchandising here. This would be about twice their 1995 share of 16.4%, as reported in SN's State of the Industry Report on Supermarket Video. "The big opportunity that I see is supermarkets greatly increasing their market share," said Eisenberg. "I really think that is going to happen, which gives individual chains an opportunity for very significant growth in the category." ETD is the largest video distributor in the country, said Eisenberg. The company did more than $1 billion in total sales last year, with 30% to 40% of it coming from supermarkets. ETD also is the only video distributor for Blockbuster Entertainment, Fort Lauderdale, Fla. But supermarkets remain a very substantial growth area for the video industry, said Eisenberg. "I don't see anything on the horizon that I would count as a significant negative. Their challenge is simply to capitalize on the great opportunity before them," he said. Eisenberg and ETD pioneered rentals in supermarkets as early as 1980, putting departments in stores of Randalls Food Markets, Houston. In the early 1980s, the distributor also put chains like Tom Thumb, Dallas (now part of Randalls); H.E. Butt Grocery Co., San Antonio; King Soopers, Denver, and the Kroger Marketing Area based in Houston into the video rental business. "Those people have been in this business going on 15 years now," said Eisenberg. Today ETD supplies 25 to 30 chains with over 3,000 stores. Among them are other Kroger divisions; Dierbergs Markets, Chesterfield, Mo.; Homeland Stores, Oklahoma City; Fry's Food Stores of Arizona, Phoenix; Dillon Cos., Hutchinson, Kan.; Grand Union, Wayne, N.J.; Food Giant Supermarkets, Sikeston, Mo.; Brookshire Bros., Lufkin, Texas, and Bashas', Chandler, Ariz. While Stop & Shop Cos., Quincy, Mass., is cutting back its video program and Dominick's Finer Foods, Northlake, Ill., is getting out altogether, Eisenberg was quick to point out that neither one is an ETD customer. "I wouldn't make too much out of a couple of chains deciding to leave the video business, because that is only two chains out of the entire country. I would disregard that as an aberration and not as the beginning of a trend," he said. "What we are hearing from many buyers is that video is a big percentage of their nonfood category. If that is true, why would they take it out?" said Julie Cross, ETD's vice president of marketing. The opportunity for supermarkets to gain share in the rental market will come as more of the smaller video specialty stores get out of the business or are acquired by larger chains, said Eisenberg. "There is a consolidation going on among the video specialty retailers that will result, in my opinion, in less stores," he said. Some of this business will be picked up by the video specialty chains, but supermarkets are well-positioned to get their share, and maybe more. "Even if the video industry grows by a couple of points better than inflation, the supermarkets -- simply by picking up market share -- have an opportunity to experience much faster growth than the industry," he said. Support from upper management is key to attaining the 30% to 40% share Eisenberg thinks is possible, as is partnering with a good vendor. "The more they ask from us, the better we can advise them and help them manage their video departments," said Cross. In many cases, ETD has its own employees based at the retailers' headquarters, acting in an advisory role, she noted. "But top management of the chain has to be committed to the category," said Eisenberg. "They have to devote sufficient space to it and they have to be innovative," he said. "They have to run it almost as a separate business. They can't just expect to throw it out there and have it picked up by the customers," he said. Some supermarket executives are worried that new in-home delivery technologies will supplant the rental business. But, Eisenberg said, "these things are way down the road." Numerous tests have been run and none have succeeded. "Now everybody is backing off very, very rapidly. The rental business will be with us for a while," he said. Sell-through is not cannibalizing the rental business, as a recent article in Forbes suggested, he said. Indeed, the growth of sell-through video represents an opportunity for retailers to bring in multiple copies of tapes to rent, he said. On selling these tapes in supermarkets, the key to success is running effective in-and-out promotions and merchandising the product in the main part of the store, said Eisenberg. Having distributor representatives on-site to make sure the product goes out and is serviced properly makes a big difference to many retailers, he added. The growing number of sell-through titles with suggested retail prices under $10 is yet another video opportunity for supermarkets, said Eisenberg. "But the product had better have merit to begin with. It still comes down to title selection," he said. Contrary to what many in the industry advocate, Eisenberg believes retailers should concentrate more on in-and-out programs than on establishing permanent in-line sections. Eisenberg cited his 25 years working with the supermarket business, supplying magazines, books, audio, videos and other entertainment products. "You can take the best title known to man, put it out at $6.95 in a supermarket, and at the end of three weeks you are probably going to achieve 90% of the sales that you are ever going to achieve in that store for the rest of eternity," he said. Customers are in the store more than twice a week, he noted. "It's not like shoe polish, where you are going to sell 50 every week, over and over and over. With video, you are going to put it out and it is going to blast off. But by the fourth week, the customers have seen the product seven times. If they didn't get hooked the first seven times, the odds aren't too good that they are going to get hooked the eighth," he said. "That's the nature of the supermarket retail business as it pertains to our type of product," he said. This is one aspect of the supermarket that studios haven't fully understood, said Eisenberg. "This is not the type of installation where you can sell 10 copies of 'Old Yellar' every week for eternity. It just doesn't work that way," he said. "Permanent sections have their place, but today and in the future, the lion's share of video sales will come from in-and-out promotions," he said. That lack of understanding is one reason why direct sales and shipping arrangements between supermarkets and retailers -- circumventing distributors -- will never work, Eisenberg said. "If I have ever seen two entities so totally unprepared and ill-equipped to deal with each other, it's the supermarket and the Hollywood studio," he said. "They don't do business the same way. They will both wish to do business on their own terms, and I don't think that it will be a happy marriage." Retailers need to keep an eye on emerging technologies like CD-ROM and the new game formats, as well as upcoming digital video disc, but not move too quickly, said Eisenberg. On DVD, "supermarkets should simply watch the development of the format. Then as it expands, ease into it, being careful but supportive, and grow with the growth of the format," he said.
Eisenberg offers the same kind of wait-and-see advice on the new game formats and CD-ROM. The game business has been down, "but it's too soon to pull the plug. They should watch it and the time from now through next Christmas will tell the story," he said. On the other hand, video game close-outs at low prices have been very effective in supermarkets, he noted.