In spite of tough loss-leader competition this fourth quarter from other classes of trade, supermarkets expect to hold their own selling big hit video titles.
Supermarkets will build on their traffic, frequency of shoppers' visits and convenience to consumers to capture sales of "Snow White and the Seven Dwarfs," "Jurassic Park," "The Flintstones" and other titles in the months ahead. While most supermarkets won't have the lowest price in town, they will be close enough to make consumers think that it's not worth an extra trip to go elsewhere, video executives told SN. "We are not conceding the market to the mass merchants just because they can throw out a price that is unreasonable," said Louis Stinebaugh, director of general merchandise at Baker's Supermarkets in Omaha, Neb. "We also are not conceding to the McDonald's of the world, who can draw the price of a video down by offering it with a hamburger," he said. "We believe that we have a built-in clientele for the convenience and value that we are going to offer. We are going to be very competitive. We are not going to be $3 different than the mass merchants, but we might end up being 40 or 50 cents different if they decide to go crazy," said Stinebaugh. Bashas' Markets, Chandler, Ariz., has a video program that capitalizes on the supermarket's foot traffic. "We definitely will not be the lowball seller," noted Bill Glaseman, video specialist. The other classes of trade "are very aggressive, and we anticipate that they will continue to be very aggressive. We will try to be somewhere within the range of their prices," he said.
The frequency with which consumers visit supermarkets is a great competitive advantage over the mass merchants, said Jim Rowland, director of nonfood at P&C Food Markets, Syracuse, N.Y. Customers may go to Wal-Mart or Kmart once a month, "but at P&C, they're in at least once or twice a week. We've got a leg up on them there," he said.
When it comes to the all-important video street dates, "they're going to be in to see us before they are in a Wal-Mart or Kmart. We have gotten our retails down to where we're very, very competitive with those guys. So I don't think they are going to run out there for a 50-cent or $1 savings," said Rowland.
This is part of a plan to build consumer awareness that P&C is the place to buy sell-through videos, he said. "We set a precedent that we will always be there with these titles so our customers will be looking for them here and not have to go anywhere else," he said. One change P&C has made in its video program was to take greater advantage of the street dates, he said. In the past, P&C had the hit sell-through videos shipped through its central distribution center and this resulted in one or two delays from street date.
"We decided we've got to be there on street date, so we had our distributors start shipping the product United Parcel Service directly to the stores," he said. The result has been a 10% to 20% sales increase, Rowland said. Frequency of customer visits is the key to the video program at Carr Gottstein Foods, Anchorage, Alaska, too, said Gary Schloss, vice president of general merchandise. "That's why we have done so much better in video than the Kmarts, the Wal-Marts and even in rental than Blockbuster," he said. "The customers are in our stores shopping anyway. They can rent the video and bring it back at the same time. It's not an extra stop for them."
On the top sell-through titles, "we don't have to beat them," said Schloss. "But we don't want them to undercut us either. We'll stay competitive with them and we will do more business than them in those areas."
Said Lannie McDaniel, general merchandise buyer at Horner Foods, Tulsa, Okla.: "We don't use video as a draw for our stores because of grocery. That's our draw. Bread, hamburger meat, pop and all that -- that's going to bring them in, not the video." Horner offers video to its customers as a convenience, he said. "It's another one of those things that, if we don't have it, they'll go someplace else to get it," he said. On sell-through pricing, "the only way to hold your own is to be there with the Joneses," he said.
Noted Larry Hage, division supervisor at Ray's Food Place, Brookings, Ore.: "We still sell our fair share. You don't have to be the dirt cheapest, but you do have to position yourself in the ball game as a convenience," he said. Marge O'Neil, corporate secretary at O'Neil's Markets, Tacoma, Wash., sees Kmart advertising videos for much less than her stores do, "but I don't know what difference it makes," she said. "We don't go that cheap, and we still sell our share."
Shirley Decker, video buyer at Goff Food Stores, Haslett, Mich., said: "I don't know if the competition is getting any tougher than it was already. When I see them selling titles like 'Aladdin' below cost, we can't compete with that. We're not strictly video and I'm required to make a profit somewhere."
Decker was surprised to find Goff's price on "Aladdin" lower than Meijer's price, while Target
and Wal-Mart were lower than everybody. "We knew we weren't going to make any money on it. It will be the same way on 'Jurassic Park' -- it will be a loss leader," she said. Minimum advertising pricing has helped stabilize pricing a little, she said. MAP is a policy where studios set a price below which retailers can't advertise a video. If they do advertise a title below MAP, they may not receive co-op reimbursements.
"I appreciate what the studios are doing, and it will help some. But I think you are still going to see below-cost promotions on 'Jurassic Park' simply because not getting the co-op is not going to kill those retailers," said Decker. Because of MAP, a major Midwestern retailer did very well on "Mrs. Doubtfire," said a video executive with that company, who asked not to be identified. "We actually made money on that one. I think it caught everybody by surprise. We had listened to our distributor on it, and we went through quite a lot of product, making very good margins," the executive said. "But on 'Jurassic Park,' I've got a feeling that a lot of people are going to break MAP. But if they stick with MAP, it should be OK," the executive said.
"The margins are slim, but just having the customer in the store is half the battle," said Tim Harrison, video supervisor at Food Giant Supermarkets, Sikeston, Mo. "If we can keep them walking into our stores rather than Blockbuster or Wal-Mart, then just leave the rest to me and they'll be my customer forever."
A strategy that mass merchants can't duplicate is giving out free rentals with the purchase of a sell-through tape, said Harrison. By promoting the total savings to consumers, "grocery stores, who can't go below cost, can effectively move some product through the store without compromising too much," he said. Additionally, the store benefits from the return trip when the customer brings the video back, he noted. Some competition that retailers can do little about at store level is the McDonald's video promotions. In the fourth quarter, McDonald's will offer four titles from MCA/Universal to consumers for $5.99 with the purchase of a large sandwich. The boxes will include a $2.50 coupon good toward the purchase of "Jurassic Park." "It kills us," said McDaniel of Horner. "Your rentals can do nothing but go down. So I don't like it. It hurts my business."