ST. LOUIS -- Sight & Sound Distributors here is starting a racking operation for supermarket video-rental departments.
Sight & Sound Services, officially launched at the beginning of the year, is now negotiating contracts with three retailers, all current customers of the distributor, said John Jump, vice president of sales. The racker is being run as a separate company by Reid Hilton, general manager, out of Sight & Sound's Salt Lake City branch, said Jump. Hilton was with Market One, also of Salt Lake City, which services the rental departments of Raley's Supermarkets, West Sacramento, Calif.
The program will rack the rental departments on a shared-revenue basis, a structure under which the racker owns the tapes, fixtures and computer system, while the retailer provides the labor and space. Proceeds from the whole video program are then split. This kind of program has been widely used in supermarkets since the early days of the video-rental business. It is different from shared-transaction-fee programs like those of the distributors or Rentrak Corp., Portland, Ore., where the revenues from each rental are divided.
"The mission is to give supermarketers an alternative to owning their own inventory," said Jump. "It's not at all unlike a Video II at Albertson's. It's very much the same premise."
The distributor started planning the endeavor last fall when "we began to hear rumblings from some of our supermarket customers that they needed some solutions," he said.
For these retailers, he said, keeping up with the various copy-depth and shared-revenue (per-copy) programs had become too much of a burden, while the competition from specialty chains had stiffened. "We've been trying to guide them through this maze of revenue-sharing and copy-depth programs," said Jump. "But then we kept hearing that there were some stores that weren't performing up to expectations -- not the whole chain, but just some stores. We started thinking that what we need to do is offer a rental rack job program as just another solution.
"We don't want to see the supermarket sector of the video business deteriorate. We've always wanted to build it because of the foot traffic," he said.
Initially, Sight & Sound Services will target existing customers, Jump said. About half of Sight & Sound's revenues come from supermarkets, "and dozens of those chains are interested in this kind of service for some of their stores," he said.
The company does not have a goal for the number of stores it wants to sign up, although it is limited by manpower to 50 or 60 by the end of the year, he said.
"What I really want to do is take care of those people I am already doing business with first." Jump said the company would consider increasing that number if there were sufficient demand. It would also consider implementing a store-within-a-store leased-space program if it were asked for.
The new company will offer retailers an option of bringing in more copies of new releases at additional cost.
"Anytime that someone is racking rental inventory, it is going to be difficult to satisfy the demand for new releases that the store may actually need. We are going to have a customizable plan for them so they can actually bring in more new releases on a leased basis or on a purchase basis to augment what we are going to be able to put in," he said.
The studios' current shared-revenue (per-copy) programs don't work for a racked program like Sight & Sound's "because of the minimums that the studios are requiring. But I've got a feeling that those minimums are going to moderate for supermarkets. It has got to happen or these supermarkets are not going to be able to compete where they go head to head with a Blockbuster Video or a Hollywood Video," said Jump.