Supermarkets fought back hard this year to protect their nonfood turf.They did it by being first to market with a new over-the-counter switch pain killer.
In video, retailers took full advantage in merchandising an unprecedented number of popular theatrical family releases in the fourth quarter. Some were very aggressive, and did not sit back when they saw their competitors break street date on MCA/ Universal's "Jurassic Park."
Video grew into a much bigger force at supermarkets this year. SN's sales projections for 1994 put supermarket video at the
$2.62 billion mark, up 18.8% from the previous year.
The games industry also gave supermarkets help by protecting its family image, devising a games rating system that went into effect by the fourth quarter.
Major supermarket chains banded together and filed a lawsuit against leading drug companies, charging them with unfair pricing practices based on class-of-trade distinctions.
Finally, this year the National Association of Service Merchandising, Chicago, a 15-year-old organization representing service merchandisers, shut down. This signaled that shakeouts are occurring in the distribution system, and are affecting the way nonfood goods are getting onto supermarket shelves.
Here are the top five nonfood news stories of 1994.
Aleve Relief
With this year's introduction of Aleve from Procter & Gamble, Cincinnati, supermarket health and beauty care departments graduated from the pee-wee leagues to the National Football League in prescription to over-the-counter switches.
After years of fumbling and flailing on OTC introductions, food stores tackled Aleve with renewed fervor, challenging their drug store and mass merchant rivals for the dominant dollar volume on the product. Many supermarkets stocked Aleve on June 13, its first day of availability, blitzing their respective markets with aggressive pricing and promotions for the pain killer, the first analgesic to make the switch from prescription to over-the-counter since ibuprofen in 1984.
While Aleve had a mid-year launch, the industry had been plotting its strategy for the product since Jan. 11, the date the Food and Drug Administration approved P&G's bid to market the low-dose form of the prescription drug naproxen sodium. Trade shows in 1994 abounded with presentations and informal discussions about how Aleve could be best promoted and merchandised.
The General Merchandise Distributors Council made a significant contribution in making the food industry aware of the potential that prescription to over-the-counter products can offer by conducting two studies on the subject.
Ultimately, P&G's product looked like a winner for the manufacturer, and supermarkets benefited as well, drawing $36.4 million in dollar volume for Aleve through Nov. 30. According to Towne-Oller & Associates, New York, that was more than drug stores, which posted $34.1 million in dollar volume for Aleve in the same time period. Supermarkets also saw consumers pay increased attention to the entire analgesics category, as competitors like McNeil's Tylenol, Whitehall-Robin's Advil and Bristol-Myers' Excedrin countered the Aleve launch with aggressive advertising and increased promotional activity on their products. McNeil introduced the new Tylenol Extended Relief to block Aleve and Whitehall-Robins filed a lawsuit that questioned Aleve's advertising claims.
But competitive frays aside, supermarkets exhibited an aggressive first play with Aleve that may forever change consumer perceptions about where to go first to find OTC switches. Food retailers still have a lot of yardage to make up since 45% of people polled in a recent SN consumer survey said they still head to drug stores first to find OTC switches. Yet, Aleve was an important step in the right direction.
And with the possibility of dozens of future OTC switches in the coming years, switches that could hold the promise of increased volume and profitability, that bodes well for supermarket retailers.
Pharmacy Avengers
In early February, four of the nation's largest supermarket chains joined forces to file a lawsuit against 16 major pharmaceuticals manufacturers and a large mail order drug prescription company.
Kroger Co., Cincinnati; Albertson's, Boise, Idaho; Vons Cos., Arcadia, Calif., and Safeway, Oakland, Calif., filed their suit Feb. 14 in Federal District Court here accusing the drug companies of selling their products to mail-order pharmacies, health maintenance organizations and hospital pharmacies at substantially lower prices than they charge supermarket pharmacies for similar quantities purchased. The price differences are not based on volume, they claim, but are instead based on class-of-trade distinctions.
The case alleges price discrimination in violation of the federal Robinson-Patman Act, in addition to price fixing.
The supermarkets' suit followed a similar action taken by major drug chains and filed on Oct. 14, 1993. The retail pharmacies in this case allege that the defendants violated the federal Sherman Act, which prohibits price fixing, by conspiring to maintain high and ever-increasing prices to community pharmacies.
All the cases filed under both federal statutes were consolidated in Chicago for the purposes of discovery and obtaining depositions. The combined cases, representing 60,000 pharmacies and naming 25 pharmaceuticals manufacturers and seven drug wholesalers as defendants, were labeled as a class action suit. A trial date of Feb. 5, 1996, has been set for the class action. The individual cases are expected to remain in Chicago until at least September. At that time, the suit filed by the supermarket operators may go back to Cincinnati for trial.
Shows Sliding Away
Two nonfood trade shows catering to the supermarket industry suffered from anemic attendance in 1994, while another convention marked the demise of a trade organization.
During the All-Industry Convention, Oct. 27 to 30, the National Association of Service Merchandising, a 15-year-old distribution and merchandising organization, decided to dissolve itself. While the show drew the most participants of any NASM convention, more than 450 distributors, manufacturers and guests, the organization nonetheless had suffered the blows of a changing marketplace and decreased interest from the manufacturer sector. Attendance dipped at the Food Marketing Institute's GM/HBC Conference, held Sept. 25 to 27, which drew 1,972 attendees, down from 2,814 in 1993. Worse news for the conference was that only 250 to 260 supermarket retailers attended.
Exclusively HBA suffered, too. Held March 23 to 25 in Chicago, the show drew 322 retailer and distributor companies, down 13% from the previous year's 371. The number of buyers slid to 592, down 14% from 692.
This, of course, left immediate questions about the vitality of, and the need for, the conferences. Deeper questions linger, too. Have supermarket executives lost interest in the nonfood category? Should FMI and Exclusively HBA alter their shows or change their location or timing? Or could the suffering attendance just be an indication that there are too many trade shows to choose from, and evolution is simply dictating that only the strong will survive?
Washington-based FMI has already promised "dramatic" changes for its 1995 conference. Exclusively HBA, Chicago, blamed its 1994 decline on the fact that its meeting came only six months after its September, 1992 edition, where Exclusively HBA first announced its schedule change to a spring show.
Truly, though, 1995 will be a tell-tale year for the nonfood conferences. Many manufacturers have told SN that improved retailer attendance will be the key to drawing them back to the shows in 1996. And so, the conference committees and organizers must pull their agendas together or meet a fate similar to NASM's.
The Year of Mega Hits
It was a blockbuster sell-through year for supermarket video. Retailers benefited from quality family theatrical releases dominated by the success of Walt Disney's masterpiece, "Snow White and the Seven Dwarfs," and Steven Spielberg's dinosaur epic, "Jurassic Park" from MCA/Universal.
Sales of Disney's classic have exceeded its initial shipments of 20 million units. "Snow White" became available Oct. 28, for this holiday season only. Disney, Burbank, Calif., said it has shipped all inventories, and believes, along with many others, that "Snow White" is on track to becoming the No. 1 selling videocassette of all time. Julie Reynolds, senior communications coordinator for Vons Cos., Arcadia, Calif., said, "Our stores have reported that 'Snow White' is performing well ahead of our expectations. In fact, all indicators point toward our sales of this video doubling those of 'Aladdin's' last year." "Aladdin" sold 24 million units, and "Beauty and the Beast" sold 22 million units, according to Disney. "Snow White" is the highest grossing theatrical animated film of all time.
Universal City, Calif.-based MCA/Universal's release of "Jurassic Park," which is the highest grossing movie of all time with $900 million in worldwide box office sales, produced a free-for-all as retailers among all classes of trade broke the Oct. 4 street date.
The Video Software Dealers Association, Los Angeles, quickly called an emergency meeting on Oct. 14 and formed a task force to make recommendations on the street date concept.
"Adherence to street dates is critical to the orderly marketing of video products," said Jeffrey P. Eves, VSDA's president. Other theatrical movies released in this fourth quarter included MCA/Universal's "The Flintstones," FoxVideo's "Speed" and "Black Beauty" from Warner Home Video.
The momentum created in this fourth-quarter selling period is expected to continue well into 1995, pushing supermarket video revenues to an all-time sales high, passing 1994's projected revenues of $2.65 billion, an 18.8% increase over the previous year, according to SN's third State of the Industry Report.
Disney made other newsworthy headlines in 1994 that could affect the future of supermarket video. Disney's studio chief, Jeffrey Katzenberg, resigned, and formed a new movie studio with two giant entertainment talents, Spielberg and David Geffen.
Disney began expanding its direct-sell program to supermarkets. Wegmans Food Markets, Rochester, N.Y., started buying direct from Disney in September. Accounts that buy direct are offered a 2% to 4% break on the cost of goods, and market development funds. In return, Disney wants better exposure for its products at store level, sources said.
The acquisition of SuperComm, Dallas, by Walt Disney Co. focused the video industry's attention on supermarkets as never before. The SuperComm system of pay-per-rental, shared-revenue distribution primarily services supermarkets, and Disney executives said they intend to keep it that way. SuperComm now has 24 supermarket retailer accounts and 1,211 individual stores, but many more will probably soon follow. The move gave instant credibility to a distribution system previously regarded as suspect by many in the video industry. It also meant that big marketing funds are going to be spent on promoting video rentals in supermarkets. Supermarkets using this system will have access to more copies of top rental releases. This will enable them to promote their programs more aggressively, increase consumer participation in their video departments and thereby increase overall store traffic and sales. It positions supermarkets more clearly than ever to become dominant players in the future of the video industry. The emergence of shared-revenue as a viable distribution method enables supermarkets to continue to increase their role in the video rental business at a time when overall video industry rental growth has matured. But it also raises questions about what's next: what will the other studios do in regard to shared revenue, what will become of traditional video distribution and what is Disney's next move?
Ratings Rated High
Rated video games were on supermarket shelves for the first time in the fourth quarter.
The Interactive Digital Software Association, Washington, representing the game manufacturers, and the Software Publishers Association, also in Washington, representing personal computer software developers, developed separate ratings systems. Neither association could agree on supporting one universal system. In the end, the IDSA won the endorsement of Sen. Joseph I. Lieberman, D-Conn., and Sen. Herb Kohl, D-Wis., who were both pushing for regulation of the violence found in video games.
"Today is a turning point in the battle to protect our kids and re-establish some standards," said Lieberman in referring to the establishment of an independent ratings system during a Senate hearing held on July 29. Supermarkets concerned about how violent video games might affect their family image welcomed the new system.
An Entertainment Software Rating Board was formed to rate products in five categories: early childhood, kids to adults, teens, mature and adults only. Icons were developed to represent each of these categories with phrases that describe the game content appearing on the video game package.
The VSDA came out in support of the IDSA system. "The rating system proposed by the IDSA is easy to understand, consumer-friendly and sensitive to parental concerns," said Jeffrey P. Eves, VSDA's president.
