ENCINO, Calif. -- Supermarkets continued to lose market share in video rental and sell-through revenues in 2000, according to a report issued by the Video Software Dealers Association here late last month. There have been some indications that the competitive pressures on supermarket retailers are decreasing, however.
The Annual Report on the Home Entertainment Industry 2001 listed supermarkets as capturing 7.6% of the total rental market last year. That's a decline from the 8.6% share recorded by grocers in 1999 and the 10.6% share in 1998, according to Adams Media Research, Carmel Valley, Calif., which supplied the rental data to the VSDA. Adams found that supermarket sell-through revenues also declined last year, to 9.6% of the total market, including 2.3% of the DVD market and 7.3% of video sales. In 1999 supermarkets captured 9.8% of video sales, and in 1998 they captured 10.1%.
The VSDA report did find one trend that could be seen as favorable to the supermarket video market, however: The number of independent video operators is continuing to decline, albeit at a slower pace. The report stated that 940 video storefronts were shuttered in 2000, vs. 1,396 in 1999. In 2001, the VSDA predicts that 700 stores will close down.
Some supermarket operators said the decreased competition has taken some of the heat off in terms of pricing and other competitive issues.
"The Blockbusters and the Hollywoods seem to be going after each other more than they go after us," said Bob Gettner, video buyer and coordinator, B&R Stores, Lincoln, Neb. He said his stores generally offer lower pricing than those two rental giants, but B&R does not offer multiple-day rentals on new releases, as those chains do.
B&R charges $2.68 or $2.75 per night for new releases, depending on the location.
"Competition hasn't been as big a problem as it has in the past, although there's a lot less people to be competing with," Gettner said. "We don't have the smaller people out there, we have ourselves and the big boys, and that's about it."
According to the VSDA, total rental revenues in 2000 were $8.25 billion for all channels. As expected, DVD rental revenues grew to encompass a much greater percentage of the total. Revenues from DVD rentals in 2000 were 6.9% of total rental revenues vs. 2.9% in 1999. The VSDA predicted that DVD rental revenues would increase to 19% of total rental revenues this year.
The association, which represents video retailers, predicted that the recent trend of increasing DVD sales at the expense of the VHS format would continue. Sales revenues from video will total $6.3 billion this year, while DVD sales will total $6.18 billion. DVD will surpass VHS next year in sales volume, the VSDA predicts, with $8.86 billion in sales vs. $5.42 billion for video.
Meanwhile, the report came out at about the same time that Blockbuster reported its results for the first half of the year. The Dallas-based chain said it expected to receive 30% of its rental revenues from DVD by the end of the year, up from 16% now. Blockbuster said the growth in DVD rental revenue would allow it to cancel some of its revenue-sharing agreements with studios, which it began in 1997 to gain better prices on tapes.
"The growth in DVD rentals has made the company less reliant on lower-margin VHS revenue-sharing agreements," said Larry Zine, chief financial officer, Blockbuster, in a conference call with analysts.