Supermarket video executives are gearing up for what may be their biggest ever fourth quarter.
The combination of some very strong and salable titles with the burgeoning DVD format is a potent mix that many believe will result in record sales before the year ends.
"I think we will be considerably ahead of last year, and probably ahead of the year before," said Bill Glaseman, video specialist, Bashas', Chandler, Ariz. "I am very optimistic about seeing good numbers in the last quarter."
There are now a dozen movies expected to be released in the fourth quarter that grossed over $100 million at the U.S. box office, according to data from distributor Ingram Entertainment, La Vergne, Tenn. Two were far higher: "Spider-Man" at $404 million and "Star Wars: Episode II: Attack of the Clones" at $300 million. Two titles that are being re-issued for the first time on DVD also are box-office champions: "E.T. - The Extra Terrestrial" did $399 million in its first theatrical run, and "Beauty and the Beast" garnered $145 million the first time around, reported Ingram.
Other titles in the over-$100 million club include: "Men in Black II" at $187 million, "Ice Age" at $176 million, "Austin Powers in Goldmember" at $168 million, "Scooby-Doo" at $151 million, "Lilo & Stitch" at $139 million, "The Bourne Identity" at $128 million, "Minority Report" at $128 million, "Mr. Deeds" at $123 million, "The Sum of All Fears" at $118 million, and "XXX" at $106 million and counting.
All 12 movies will be released at sell-through pricing on DVD and none have R ratings, indicating suitability for the grocery store environment, industry observers noted. Meanwhile, plenty of other titles also will play well to the supermarket audience, including "Scorpion King," "Spirit: Stallion of the Cimmaron," "Divine Sisters of the Ya-Ya Sisterhood," "Stuart Little 2," "Land Before Time 9 - Journey to Big Water" and "Barbie as Rapunzel." In addition, studios will be promoting catalog programs and holiday-themed product for Halloween and Christmas, while third-quarter releases like "Monsters, Inc." and "Lord of the Rings" continue to sell.
That's a lot of titles to find space for in three months. But while the stakes may be higher than past years, retailers are confident they will find the room and sell lots of product.
"I couldn't ask for anything better when it comes to the fourth quarter," said Bob Gettner, video buyer/coordinator, B&R Stores, Lincoln, Neb. The hits will draw customers into the retailer's stores where they will find other, more profitable product. "If they are browsing my 'Star Wars' movies, maybe they'll browse my Christmas product where my margins are about 40%, and I'll make a pretty decent ring on one sale," he said.
"So I can't wait for all that stuff to come in. Space is always a factor, but who doesn't have a problem with space?" Gettner said.
"This year's fourth quarter will blow last year's away, especially when you consider the box-office dollars," said Laura Fisher, video coordinator, Martin's Super Markets, South Bend, Ind. "Sales are going to explode. It's one big title after another and all of it in time for Christmas," she said.
During the fourth quarter, Martin's typically dedicates an endcap to video sell-through that becomes a focal point for merchandising, she said. "It helps when we display them out in the store in a high-traffic area. There is one specific location where the customers know they can find videos," Fisher said.
"Merchandising displays in a high-visibility area of the store is the best way to take advantage of the many fourth-quarter, sell-through titles," noted Bill Bryant, vice president, sales, Ingram Entertainment, La Vergne, Tenn. The big titles are well spaced out, compared to past fourth quarters, he said, "and DVD software will be a much larger portion of sales this year because of the continued increase in DVD hardware sales.
"This fourth quarter will be very strong. With the first half of 2002 tracking far beyond previous years, this should be a banner year for home entertainment products," Bryant said.
"I expect great things from the fourth quarter, particularly with the DVDs, where there's been a real explosion," said Greg Rediske, president, Video Management Co., Tacoma, Wash.
Video Management supplies 300 supermarkets with sell-through product, as well as running the rental operations in 120 stores. Many are in rural areas where DVD has yet to catch fire for rental. But in sell-through, DVD is becoming dominant everywhere. "I have some stores that do not want any VHS for sell-through on any adult titles; they only want DVD. We generally try to put in a small amount of VHS for sell-through and the predominant amount for DVD," he said.
Fisher saw a significant increase in DVD sales after last Christmas, and ever since, the retailer has been remodeling its video departments for more DVD product in anticipation of this year's fourth quarter.
B&R also has increased its DVD presence in the last year, Gettner said. Because of that and the increasing market demand for the new format, "hopefully we are going to see some big percentage increases," he said.
DVD will mean a much stronger sell-through in the fourth quarter than in past years and will contribute to an increase in Bashas' overall video business, Glaseman said. "We have enjoyed a pretty good business increase because of DVD rentals. Now it is obvious that sell-through is going to be much better and, depending on the number of programs that come through, I think that we will do very, very well because of the increased business in DVD.
"There are still a lot of people out there buying VHS and other people are buying DVD, and I think that all points to a very, very good season," Glaseman said.
There are a number of high-profile re-issues planned for first-time DVD release for the fourth quarter, including "E.T. - The Extra Terrestrial," "Beauty and the Beast," "A Hard Day's Night," and a boxed set of the three "Back to the Future" films. But with space at a premium, supermarkets tend to give top priority to the new release hits.
"In the case of 'ET,' I'm going to put that out based on the fact that it has not been available on DVD before," Glaseman said. But when it comes to the other programs, "if it is going to overcrowd my schedule, I might not put them out," he said.
"You have to pick and choose," Rediske said. For example, in a less-crowded quarter, he might bring in more copies of "ET" and "Beauty and the Beast." "At this point, it's just a matter of doing a little bit of everything," he said.
B&R will bring in "ET" and "Beauty and the Beast" because there is a new generation that hasn't seen these movies, Gettner said. For the other titles, the retailer will bring in some limited quantities and do special orders, he said.
The movie studios recognize the potential for supermarkets to do a big business in home video products this fourth quarter.
"The fourth quarter this year is going to be the biggest in the industry's history," said Steven Feldstein, senior vice president, corporate and marketing communications, Twentieth Century Fox Home Entertainment, Century City, Calif. "We've got two formats that present an enormous opportunity for all classes of trade, and specifically for supermarkets because of their traffic and demographics," he said.
"DVD, in particular, is a mass market and family item more so this year. So retailers have a unique opportunity to take advantage of the multiple partners involved on all of the studios' promotions to present unique, sizzling entertainment properties in their stores and create environments around them," Feldstein said.
The studios also appreciate how difficult it is for retailers to find display space for all the big titles that are coming out in the fourth quarter.
"These products work for everybody," said Paul Pasquarelli, vice president, sales, Buena Vista Home Entertainment, Burbank, Calif. "The retailers' challenge is how to get every product on the floor and give it enough time to do its business," he said.
The solution, Pasquarelli said, is to concentrate on a number of key movies. "They don't have to be the king of everything. Focus on a few good titles and make a good promotion, give it the best retail space and try to have good in-store execution," he said.
"The studios are making more PG and PG-13 movies that are getting very, very large box offices, and they fit the grocery dynamic in terms of acceptable product for sales," said Kelly Sooter, head of domestic home entertainment, DreamWorks Home Entertainment, Glendale, Calif. "That is leading to a very, very big fourth quarter," she said.
The majority of supermarkets do not have dedicated sell-through fixturing where they can put remainder copies after shippers have sold down, she said. This is another aspect of the space squeeze many retailers experience in video.
"Most grocery accounts will only take in one or two pieces of corrugated at any given time. So I think they are going to be severely challenged this fourth quarter because the product mix is going to be so strong and so appropriate for their shoppers that, to be able to compete with the mass and club retailers out there, they are going to have to find merchandising solutions to be able to offer a wider selection of product. With their current merchandising strategy, they would have to pick and choose," Sooter said.
DVD sales are surging, she noted. DreamWorks research indicates that where VHS-only families would buy five to eight video titles a year, households with DVDs are buying 20 titles. "You are going to see a huge appetite to pick up more than one title this fourth quarter," she said.
Overall, this fourth quarter "will break every record," Sooter said. "I think you will see individual products breaking records, and I think that you will see the overall dollars generated in the fourth quarter breaking records," she said.
Dedicated sections result in significantly greater video sales, said Rodney Saterwhite, vice president, retail business development, Warner Home Video, Burbank, Calif. "We found that stores that have an everyday, in-line set tend to buy up to 50% more product on large, new releases because consumers know they are going to have the video in that store. They don't have to guess. It's consistency of location and availability of product," he said.
This also gives retailers a place to merchandise non-hit product that usually yields higher profit margins than the big titles where the pricing is "footballed around," he said. "On the secondary titles, there is not as much price awareness, and not as much competition from the mass retailers. We feel that is an opportunity for grocers to come in on," Saterwhite said.
"Retailers have personalities, and the best way to differentiate and show that personality is with the non-hit product," said Glenn Ross, president, Family Home Entertainment, a division of Artisan Home Entertainment, Santa Monica, Calif. "Everybody has the hit product. Everybody is going to have 'Barbie as Rapunzel.' Everybody is going to have 'Ice Age,' and they should. But on a title like 'Reservoir Dogs,' which is a real niche product, there are some stores that are going to do better with it than others because of the personality profile of their customers," he said.
It's the variety provided by non-hit product that will keep customers coming back, said Sallie Fraenkel, senior vice president, program enterprises and distribution, Showtime Networks, New York. "The grocery stores have to remember that the people coming in are as different as night and day, and have tastes that run the spectrum. The more that they can offer to satisfy the broadest possible range of customers, the more those customers will keep coming back. The bigger your range, the more you are going to satisfy a broad range of customers," she said.
"Clearly the supermarkets are going to bring in the big titles, and the smaller titles are going to be more of a challenge," said Martin Blythe, spokesman, Paramount Home Entertainment, Hollywood, Calif. "But I think they need to look at what is new to DVD as opposed to those titles that are simply re-issues. The re-issues can be important because they are often special edition, but consumers are going to come looking for what is new to DVD," he said.
In the fourth quarter, "it's an issue of managing the relationships with studios and managing the space they are going to have to dedicate to video," said Steve Beeks, president of Artisan. "I know floor space is a big issue for supermarkets. You have to have discipline in terms of what you bring in, how long you support it and how much space you give it," he said.
"They are going to have to pick and choose -- it's very simple," said John Reina, senior vice president, sales, Columbia TriStar Home Entertainment, Culver City, Calif.
Noting his studio's strong slate of box-office successes, Reina said, "'Star Wars' will have its day. 'Monsters, Inc.' will have its day. We'll have our day, and any good, strong title that really hits the mass market will have its day in grocery."