Top home entertainment executives from the major movie studios are now focused on growing the video business in supermarkets.
They understand the obstacles that retailers see, such as shrink and aggressive pricing competition, but with the mass, electronics and specialty video channels up to speed on DVD, the executives see supermarkets as their next big challenge. At a recent video show, they told SN that category management and a balanced approach to new releases and catalog product is supermarkets' best strategy for taking advantage of the burgeoning DVD market.
"I see it as a day-in, day-out category that's managed much like health and beauty or food," said Jim Cardwell, president, Warner Home Video, Burbank, Calif. Supermarkets are an opportunity for growth for the studios, he said. "It's probably an underutilized distribution channel."
As DVD use proliferates and continues to move from its early user base that was predominantly male to the female and family demographic, "the supermarket customer is perfect to drive growth for us," Cardwell said. And for the retailers, "I believe that the margins (in catalog) are great compared to supermarkets' other products," he said.
"Both Warner and New Line are taking a fresh approach to supermarkets and we are attempting to reinvigorate that market," said Stephen Einhorn, president and chief operating officer, New Line Home Entertainment, Los Angeles, a sister company of Warner. "The biggest issue is finding a merchandising and distribution model that allows the supermarket to make money, and we are trying very hard to figure that out."
With the rapid growth of DVD, supermarkets have had the opportunity to "reinvent themselves" in video, said Rodney Satterwhite, vice president, retail business development, Warner Home Video. "A lot of supermarkets are getting into video now, but you have to do it right. It's not just a new-release business. You have to take a balanced approach."
Supermarkets are one of the biggest growth opportunities for Disney's home entertainment business, said Bob Chapek, president, Buena Vista Home Entertainment, Burbank, Calif. "Now that DVD has reached the mainstream, and is appealing to families, it is exactly the time for supermarkets to get involved with the category again," he said.
"The age-old question is, do you play in a land of hits or do you play in the land of catalog? The propensity for people to buy catalog titles on DVD now is extraordinary. They are generally priced very attractively and would make a nice impulse item to help round out the market basket for supermarkets," he said.
Shrink was an issue with VHS and is now a bigger issue with DVD, Chapek acknowledged. "We've seen retailers who, if they manage it appropriately, can minimize shrink so they get all the benefits of being a category while managing some of the negatives," he said.
Sell-through catalog is "big for supermarkets because there are great margin opportunities," said Mike Dunn, president, Twentieth Century Fox Home Entertainment, Beverly Hills, Calif. "DVD is a very efficient product to stock. There are some shrink issues that we are working with certain supermarket retailers to overcome. So it's an opportunity that just has to be handled properly."
Dunn predicted that supermarkets will continue to gain a larger market share in video. "They struggle because the supply chain is not as efficient for a supermarket as it is for a mass merchant -- a lot of them are on an in-and-out basis. It will grow, but it will be work," he said.
"Supermarkets have always been important, but they are really going to be the next frontier of growth," said Tom Lesinski, president, Paramount Home Entertainment, Hollywood, Calif. The extension of DVD into the family-oriented market plays right into supermarket demographics, and the food channel has a proven track record in the past in selling videos, he noted.
"Grocery is the natural place for DVD to grow. It should be an exciting opportunity for the grocery business because it's a great high-margin product and brings excitement to the store. We are thoroughly embracing grocery and hope to get a lot of growth out of it," he said.
"In our near- and long-term plans, grocery will be a bigger part of our business," Lesinski said.
When it comes to certain lines Paramount has acquired the rights to, like Nickelodeon, the supermarkets already carry other licensed products, said Michael Arkin, senior vice president, marketing, Paramount Home Entertainment. "Cross merchandising would help make a stronger presence and a bigger footprint by bringing together the various licensees in the supermarket."
"Grocery and drug are huge opportunities for DVD, as they have been in the past for home entertainment products," said Marshall Forster, executive vice president, North America, Columbia TriStar Home Entertainment, Culver City, Calif. But to compete in this business, the supermarkets need to be better connected to the studios. "The supply chain management needs to improve and I think everybody is working in that direction."
Forster noted that there was a time when supermarkets were exiting the video business, especially in rental, "but we are starting to see a resurgence of that trade coming back into the business. DVD is a hot product and they want to be able to compete with some of the big-box guys, particularly those mass merchants that also have grocery. They now feel that it is a necessary category, and we feel that they are embracing it, and we want to work with them to grow the category," he said.
"Video has always been a great traffic driver, particularly family movies," said Kelley Avery, worldwide head of DreamWorks Home Entertainment, Glendale, Calif. "It's our job as studios to be marketing aggressively and getting those customers into supermarkets to pick up their VHS or DVD."
Many supermarkets were waiting for the installed customer base for DVD to get broad enough, said Kelly Sooter, head of domestic home entertainment, DreamWorks Home Entertainment. "Now with 50 million households, and 75% of households with kids under 12 have a DVD player, it is truly there for them. Now they can come back in and maximize the business opportunity," she said.
"With the arrival of sell-through DVD and the ability to have much lower-priced goods, the supermarket provides an excellent opportunity to satisfy a spontaneous purchase," said Bill Sondheim, president, GoodTimes Entertainment, New York. "It's an opportunity to reach the mainstream consumer that may not be as likely to go into a video store as they used to be."
There's been a resurgence of supermarkets in video during the last two years, he said. "I suspect that for the next two to four years, we are going to continue to see a growing percentage of the total retail mix belonging to the strong supermarket chains," Sondheim said.
"There are a lot of supermarkets that got burned in video in earlier years and are now figuring out how to get into it in a very supportive way, particularly with sell-through," said Steve Beeks, president, Artisan Home Entertainment, Santa Monica, Calif.
"As marketers, we've all matured a lot in that we now understand how to work with other products that are sold in the supermarket environment to create in-and-out programs and promotions that help them not only move video, but the staples of their business, such as beverages, cereals and everything else," added Glenn Ross, president of the Family Home Entertainment division of Artisan.
"I'm happy to see that there is a lot more emphasis from the grocery stores on video because that has always been something that we've focused on since our consumer is the same," said Debbie Ries, senior vice president, sales and marketing, HIT Entertainment, Allen, Texas. "They are thinking about how they can differentiate themselves from the mass merchants and have really focused on the video category and grown that business significantly."
A GIANT LEAP FOR DVD SALES
PITTSBURGH -- While studio executives are heralding the resurgence in supermarket video, Giant Eagle here is among the chains that have stayed with video throughout the transition to DVD and is now seeing big growth in sell-through.
"Our numbers are terrific," said Chuck Porter, director, Iggle entertainment and video. "We are up about 300% on DVD sell-through vs. last year, and overall we are up about 120%." In recent months, these numbers have been even higher, he said, 400% for DVD vs. a year ago and 150% overall.
"We've been displaying more and more catalog product in the body of our stores. We recently put out a custom-designed fixture so that customers who are shopping in the grocery store can find them and get their DVDs from us," Porter said.
This fixture is gradually being installed throughout the chain, depending on the size and configuration of the store. "We are looking to expand it into more stores and we are going to have other fixtures that will fit better in the stores," he said.
Working closely with distributor Ingram Entertainment, La Vergne, Tenn., Porter said both companies, as well as a studio that is involved, are very pleased with the results so far, although "it was a lot of effort to get this together," he said.
"And it is really just a start for us. We are attempting to get our fair share of the sell-through video business, which we have not been able to do in the past. We are trying to get aggressive on sell-through and really drive the DVD sell-through business. We believe there is a large opportunity out there for us right now," he said.
The retailer is developing programs that will be more price competitive with others in the sell-through video market, he said. Giant Eagle will do this by either adding value or "getting creative with price," Porter said.
"We are not competing toe-to-toe with the Wal-Marts and Best Buys of the world on the price of new releases. They have a very different strategy. They are looking at these titles, I believe, as loss leaders -- the same way that the supermarket looks at turkeys," he said.