Retailers want to work more closely with their video trading partners on policies that affect promotional funds and product returns. Most of the studios have different procedures on co-op and market development funds, which are difficult for large supermarket chains to manage, according to participants at SN's video roundtable. Retailers and distributors would also like to see more flexibility on returning unsold product, especially with the proliferation of big sell-through titles this year. "We need more flexibility with market development funds to make it more retailer-specific," said Kirk Mueldener, video distribution manager at Hy-Vee Food Stores, Chariton, Iowa. "Again, that comes down to standardization." "I don't think that the studios understand that it costs us money to handle returns," said Sharon Stagner, merchandising coordinator at Seaway Food Town, Maumee, Ohio. "Co-op is a problem whether you are a grocer with 50 stores or a specialty retailer with 50 stores. Standardization is an issue for both, whether it is in advertising or in defective returns," said Steve Berns, president and chief executive officer at SVI (Supermarket Video Inc.), Encino, Calif. SN's video roundtable participants had the following to say about these difficult trade issues:
. Compared to other businesses, getting consensus among six entertainment corporations is next to impossible. Culturally, it's difficult for us to consider. But when you have an opportunity to sit down on an individual basis with a studio representative, you should explain your needs very specifically. Our company takes pride in our system and how we work with distribution. It's probably the most flexible system, and from the standpoint of processing paperwork and moving funds back through the distribution mechanism, I think we're probably the quickest at it.
BERNS: I agree entirely on the advertising funding issue. But I tend to disagree with those who say that supermarkets with video operations have so many different concerns from specialty retailers. Having worn both hats, I can say that the problems are the same. Co-op is a problem whether you are a grocer with 50 stores or a specialty retailer with 50 stores. Standardization is an issue for both whether it is in advertising, or in defective returns -- uniformity or standardization in how defectives go back has always been a headache in this industry. There are six major studios and six different programs in place. Echoing what Teri said, standardization is needed in advertising allowances and defective returns. But these are not just supermarket problems. We all have the same problems.
MUELDENER: We need more flexibility with MDF to make it more retailer-specific. Again, that comes down to standardization.
INGRAM: One of our big issues is that sometimes the studio representatives who are meeting with customers have very large goals to hit, but they have MDF monies that they are dangling as a carrot to get a big buy.
In some cases, our customers are buying more product than they need, than they could possibly sell, but they buy it because they have got to support their company's advertising, and they've got to get that money. In our partnering with the studios, we've become more and more aware that's a growing problem for us. The studios are under a lot of pressure to hit the numbers on their big sell-through titles. But in the end, if we load up the channel with too much product, and the studios are just focused on the front-end goals and not the total sell-through goals, and they don't see what's coming back, then we're in for some rough sledding. There's twice as much feature sell-through this year compared to last year. One of our biggest concerns is to try to lessen the goals a little, or to make them more reasonable. We want the consumer to decide how much product is going out rather than trying to jam the system. It is just so inefficient to have it go in and come out. It costs us twice as much to bring it back, and I'm sure it costs retailers a lot of money too, because you have to pay the freight back in most cases.
STAGNER: Sure it does.
MUELDENER: I repeatedly tell the studios that it is actually going to cost me money to present their product.
STAGNER: I don't think that the studios understand that it costs us money to handle returns.
PIERCE: But keep in mind that returns don't become a bed of roses when they come back to us either. Speaking for Columbia Tri-Star, the health of the independent wholesaler is absolutely vital. The independent wholesale mechanism in this business is incredible. It is unbelievably effective. Sometimes I don't think that the distributors realize how efficient they are. Each individual studio has to deal with issues and problems in their own manner. Culturally, in this business, every movie is unique with a separate P&L. Some people might say, "You have a company and you have product, so it's just a matter of mixing it together." It's not. It is individual deals with individual producers, and every title is accounted for on an individual basis. That's why you see this drive to hit a specific number -- it depends on the particular deal with that picture. But historically, that's the way the business has been structured.
INGRAM: With big sell-through titles that do better than expected at sell-through, when you have incremental units out there, they are available to consumers. The fact that those sales are not lost is an incentive for the studios to load up the channels because their materials cost is $2 to $3 and their margins are great on that incremental unit. So I understand why they want to have more product out there than what we would deem necessary. But it does put a strain on us.
MUELDENER: From our standpoint, success in the sell-through business is the result of distributors offering us a return guarantee. You wouldn't have near the numbers or any success if it wasn't here on guarantee, in my opinion.
STAGNER: If not for the guarantee, we would be very, very conservative.
INGRAM: But as we see more and more sell-through, you might see distributors start addressing their returns policies that they give customers. There's only so much product that returns warehouses can hold. Sometimes they're full.
MUELDENER: I think a very important thing that's starting to occur is that the studios are being a little more flexible with their market development funds. One in particular is allowing us to spend the MDF on specific tie-ins and items that we can give away in a contest to call attention to that particular rental title. When they start getting specific with us, that's when we become successful.
SEVERINSEN: We use our funds in various ways through our in-store promos and flyers, and for radio events. We do some things with our local papers. We use our funds in as many ways as possible.
SN: What lies ahead for the future of video distribution?
INGRAM: As things have evolved, the studios are giving us the product earlier and earlier. When we get it significantly earlier, we can ship to a lot more retailers from a lot fewer locations. We want to have fewer facilities, less inventory, better fill rates, and remain at the level of service that our customers expect. In most cases, we are maintaining sales offices in areas where we've closed our shipping offices. Will-call is mostly a regional issue. Additionally, many of our larger customers and the studios want to deal through electronic data interchange. We've got a whole staff that does nothing but set up EDI relationships with customers and vendors. You are going to see a lot more of that. We are trying to get costs out of the system. Efficient Consumer Response (ECR) is a perfect example. We are trying to partner up with our customers and take costs out of our systems so we can pass on a decent cost to our customer and still make a profit. You are going to see more distributor consolidation. Ultimately, and I'm not going to name names, but I think you are going to have a very few main distributors. Good, bad or indifferent, that's the way the market's going and we have to react to that.