NEW YORK -- Supermarkets plan on jumping on the DVD bandwagon wholeheartedly in the next year, according to a recent survey commissioned by GoodTimes Entertainment here.
Eighty-five percent of the supermarket video buyers who responded to the August survey said they planned to increase the amount of DVD they offer for sell-through in the next 12 months, and 82% said they plan to increase their DVD purchases for rental.
The large increase in DVD inventory on supermarket shelves is being offset by a small amount of downsizing in the VHS format, according to the study. About 7% of buyers said they would buy less VHS product for sell-through, and 14% are planning to buy fewer VHS tapes for rental in the coming year.
"VHS is retreating, but it's not an extremely rapid exodus," said Bill Sondheim, president, GoodTimes, which produces and distributes discount video products and also has a direct-response marketing division for other products. "Supermarkets are slow to get out of VHS, and I see that as a real opportunity and a competitive advantage for supermarket chains. There's a lot of consumers out there that for the next 10 years are going to have VHS as a big part of their lives, and there are going to be less channels of distribution supporting it."
Supermarket revenue from DVD sales accounts for about 12.7% of total revenues from the video category, according to the survey.
The survey, conducted by Redhill Group, Irvine, Calif., involved contacting 151 potential supermarket respondents, of which 83 carried VHS tapes for sale. Thirty-three of those also carried DVD. Of the 68 potential respondents who did not carry VHS, 24 said they discontinued offering VHS in the past year.
The biggest challenge supermarkets reported facing in their video departments was competition from discount stores, especially Wal-Mart. Eighteen percent of respondents cited "competition" as their top challenge, vs. 15% who cited "cost," 11% who cited "theft" and 6% who cited "space."
Retailers said better pricing was the best way suppliers could help them improve their profitability, followed by increasing advertising support.
Indeed, price was indicated as the key driver of sales in supermarkets: 63% of units sold are priced at $9.99 or less, 33% are priced at between $10 and $19.99, 5% are priced between $20 and $29.99 and 2% are priced at $30 or more.
About 22% of supermarkets that offer video are devoting less space in the stores than they did three years ago, and nearly half -- about 46% -- are devoting the same amount of space. The remaining 32% have increased their space allocations for video.
Fifty-seven percent of respondents said they have permanent video displays, and 67% said they frequently merchandise videos in locations other than the video sections.
The children's and family genres account for almost half of VHS sales in supermarkets, and top theatrical releases account for another 33% of sales. Supermarkets cited the success of the movie in theaters as the top criterion for determining how much space to allocate for the title.
Sondheim, whose company is launching a large-scale promotional tie-in with Pepsi this fall for its new "Rudolph the Red-Nosed Reindeer" sequel, "Island of the Misfit Toys," said he was encouraged by many of the trends he saw in the survey.
"It's very encouraging for us," he said. "We have a lot of family movies, and a lot of fitness titles, so what better place for them [than in supermarkets.]"
Bill Bryant, vice president of sales, grocery and drug, at video distributor Ingram Entertainment, La Vergne, Tenn., echoed the survey's forecast for increased DVD penetration in the supermarket channel.
"Many [supermarkets] are experiencing 15% to 20% of their rental revenue from DVD, which will continue to increase with hardware penetration," he said.
In addition, he said, he's seen consumers shifting back to the supermarket channel for their video rentals and purchases. He said that although the national specialty chains attracted consumers throughout 1998 and 1999 by offering increased copy depth on hit titles, "supermarkets have fought back."
"Once again consumers have embraced the one-stop shopping concept, where they prefer to make all their purchases in one location," he said. "Rental traffic and revenue have returned to the supermarket arena."