The earth has moved, but the show goes on.
New technologies, heightened competition in rental and sell-through, and big shifts in the way videos are distributed have changed the face of the video industry in the past year. But despite the atmosphere of uncertainty, customers continue to rent and buy videos -- many of them in supermarkets.
"There is still a lot of opportunity for supermarkets in both rental and sell-through," Brad Ufer, video merchandiser, Coborn's, St. Cloud, Minn.
Some say that when the dust settles in the video trade, supermarkets will be in an even better position to compete. "With our traffic, if costs drop and revenue sharing takes off, we are poised to become a major rental factor," said Kirk Mueldener, director of video operations, Hy-Vee Food Stores, West Des Moines, Iowa.
But as supermarket video executives gather in Las Vegas this week for the annual Video Software Dealers Association convention, they will be looking for answers. What do the events of the past year mean? Is the current state of distribution programs good for them? Are they getting as good a deal as other retailers? And, most importantly, what's next for the video trade?
These answers won't be easy to find, but the VSDA show is the right place to look for them. Against that backdrop, Supermarket News presents its sixth annual state-of-the-industry video roundtable. This year the roundtable was conducted by phone in the weeks leading up to the VSDA show.
At least one roundtable participant sees no immediate end to the uncertainty. "I just see us in a continued state of change," said Greg Rediske, president, Video Management Company, Tacoma, Wash. VMC is a consulting firm that serves as an external video buying and merchandising operation for about 250 stores, including those of QFC and Haggen.
"Video needs a resurgence," said Gary Schloss, vice president, general merchandise, Carr Gottstein Foods, Anchorage. "We need to come up with something new and exciting to help stimulate the video business. DVD may be the answer," he said.
"Because of what's going on with the revenue sharing and all the other various programs, it's difficult to get to the point where you can benefit from all of this and, at the same time, not get hurt by it," said Rediske.
There was a strong sentiment among the roundtable participants that all retailers ever wanted was one big fundamental change. Brenda Vanover, video coordinator/merchandiser; K-VA-T Food Stores, Grundy, Va., spoke for all when she said, "I would like them to forget those kinds of programs and just lower the prices."
The wide-ranging conversations touched on all the hot buttons in today's video industry. (Note: comments from Patty Price, video/service center merchandiser, Randalls Food Markets, Houston, also are included in some segments of the roundtable discussion.) The topics included:
-- Big changes for distributors -- The new shared revenue and copy depth programs -- New release trends at retail -- Building on supermarket synergy and bringing Hollywood excitement into stores -- The present and future of DVD -- Shrink and other operational issues -- Sharply increased competition for rental and sell-through -- Improving sell-through merchandising and margins -- The impact of new under $10 product on previously viewed sales -- Storm clouds approaching over co-op advertising -- And video games and other products to enhance revenues and profits.
Here is what the retailers said about the current state of the video business for supermarkets, the challenges they are facing and what they need from their suppliers:
SN: What is your take on the state of video in supermarkets -- rental and sell-through?
UFER: There is still a lot of opportunity for supermarkets in both rental and sell-through, but I think the vast majority of the opportunity exists in sell-through. Rental transactions for 1998 at this point are flat. But I also find that there is a new sense of optimism in the industry based upon some of the actions that the studios have taken in establishing promotional programs.
VANOVER: Video is still very strong. However, rental is stronger than sell-through for us because we had to pull sell-through off the main sales floor because of shrink. But we are putting rental departments in all our new stores.
SCHLOSS: Video needs a resurgence. We need to come up with something new and exciting to help stimulate the video business. What I think is really affecting video rental is the influx of so many movie channels, and the cable companies lowering their prices on pay-per-view movies. That has had a major effect. What will really give video a shot in the arm is DVD when it comes in strong.
REDISKE: The video business is rather volatile at the moment. Because of what's going on with revenue sharing and all the other programs, it's difficult to get to the point where you can benefit from all of this and, at the same time, not get hurt by it. I just see us in a continued state of change.
MUELDENER: In the overall video business, we are probably over-saturated with locations for the rental activity that is going on right now. The sell-through business, satellite television, Internet and the good economy have probably contributed to a deterioration of rental activity today. At some point we are going to reach an equilibrium. But for supermarkets, the potential is there depending on what happens in the next nine months. With our traffic, if costs drop and revenue sharing takes off, we are poised to become a major rental factor.
PRICE: The market is responding more to sell-through than it is to rental. Part of this is due to the aggressive pricing of competitive mass merchandisers like Wal-Mart, Target and Sam's.
SN: What is the biggest challenge you are facing in video?
MUELDENER: The cost of acquiring rental product and maintaining customer interest and customer count. The margins at minimum advertised price on some sell-through titles also is a concern, but I think Disney is finally addressing it. They're going to be raising MAPs and their costs only slightly. So that's going to help a little bit. Once the MAP issue is addressed, then we need to work on shrinkage.
SCHLOSS: The biggest challenge relates to the quality of movies. With all the new releases, it seems to me we're not getting the substance we were many years back. There have been some real hot titles, but not enough to really stimulate the video business. Our business is predicated on what the studios are doing. If the studios produce nothing then we gain nothing. They're going to have to come up with substance to help drive business at our end.
Another issue is the cost of new releases. It seems like the cost of new releases has increased tremendously over the last year or so causing our profit margin to erode. Our sales are being affected, our gross profit is being eroded.
PRICE: Gross profit for sell-through is one opportunity. The studios are too aggressive competing with one another on MAP. Columbia TriStar has been a great partner in this area. They have offered several titles with a reasonable MAP that has allowed us to be competitive and also able to profit. I also would like to see all of the high maintenance studio programs dropped. I'd prefer an up front lower price. I don't mind having goals -- within reason. A third challenge is the identity of the departments. With limited space to merchandise, we have an opportunity to present the depth of copy in a way that satisfies the customers' perception.
VANOVER: The nice weather has been affecting us greatly. Other challenges are competition and rental activity on some movies dying off faster than they used to. There are too many copies in the marketplace because of revenue sharing and other programs. One example is the new James Bond movie, "Tomorrow Never Dies." We still haven't made everything back on that. It's not doing as well as I expected.
REDISKE: More than anything else, we need to move the stores to the next level. It's not like it was in the good old days when you could just throw the product up on the shelf in a nice neat fashion and everything happened. The environment in the grocery stores needs to change to make video more of a special stop. Improving promotions would attract more people. Just having the product is not enough any more, and getting the resources allocated to do that can be difficult sometimes.