Slowly, but relentlessly, supermarkets are increasing their share of the sell-through video market, mostly at the expense of mass merchandisers.
Retailers are gaining sales by increasing their presentations in the main part of the store, away from the video rental section, and becoming more creative in their displays.
With more permanent sections and by focusing on theatrical titles other than children's, they are becoming video sell-through destinations.
And with aggressive pricing on big hits, they are convincing consumers that they are competitive with the mass merchants and discount electronics chains, while picking up impulse sales.
"In the past year, we have gained a lot of sell-through share on the mass merchandisers," said Tom Hembree, vice president of operations at K-VA-T Food Stores, Grundy, Va. "Much of that is because there have been more and better titles to sell. But we also have made a more concentrated effort to sell more movies," he said. "There is definitely an increase in market share," said Rick Ang, buyer at Video Mart, Sacramento, Calif., which racks the video program in 17 Bel Air supermarkets. "Supermarkets are realizing their power in the sell-through field and they are starting to exercise it a little more," he said. Supermarkets are taking advantage of their natural traffic draw and using video sell-through to build it, said Ang. "Whatever the situation, everybody has to eat. That is quite an advantage," he said. Supermarkets have grown from a 12.7% sell-through market share in 1994, to 13.6% in 1995, to a projected 14.5% in 1996, according to SN's fifth annual State of the Industry Report on Supermarket Video, published in March. Total video sales in supermarkets should top $1 billion for the first time this year, the survey projected. Some see supermarkets' portion of video sales trending even higher. "We expect supermarkets to exceed 20% of sell-through market share this year," said Bill Bryant, assistant vice president of major accounts and special markets at Ingram Entertainment, La Vergne, Tenn. "That is a pretty phenomenal number." Meanwhile, mass merchandisers' share of the sell-through video market reportedly has been steadily declining.
SN store visits have found that some mass merchants, notably Target, have scaled back their video merchandising and promotions on the last few "event" titles, including "Snow White and the Seven Dwarfs," "Babe" and "Pocahontas." Wal-Mart continues to stock vast quantities of these titles, but stores visited by SN recently have given them less merchandising prominence than in the past. Meanwhile, fast-expanding electronics chains like Best Buy and Circuit City have been ramping up their sell-through video efforts. But in the last year, most of these retailers have been staying at the studios' minimum advertised price on the big hit titles. If retailers advertise below MAP, they cannot collect co-op advertising dollars. However, even Sam's, the Wal-Mart-owned warehouse club chain, which does not advertise, priced Disney's "Pocahontas" at $16.75, just slightly below the $16.95 MAP, SN found in a Houston-area store. In the past, stores like Sam's would price hit videos a dollar or more below MAP, which is also much less than the cost most retailers pay for these titles. MAP is typically a small increment over most retailers' cost. This pricing trend makes it easier for supermarkets to compete, said a video executive with a Midwestern chain, who asked not to be identified. "I've been pleased that Wal-Mart is sticking to MAP. At least now we are making a little bit of money," he said. Because hit movies have such a high level of consumer awareness, pricing is a critical issue for retailers that carry them, said industry observers. Many consumers are familiar with the prices on hit videos and if they see a supermarket advertising these titles at a competitive level, they will perceive that chain as having low prices on other products as well, the observers said. So, most supermarkets price the big titles either at MAP or slightly higher, SN has found. "We are going with MAP pricing in most of our stores," said Clifford Feiock, video coordinator at Nash Finch Co., Minneapolis. "But we're not making a lot of money on them." Sometimes Nash Finch will offer the additional incentive of a free rental with the video purchase, even when the title is priced at MAP, he said. "But we don't price our videos below MAP," said Feiock. Harp's Food Stores, Springdale, Ark., operates in Wal-Mart's backyard, but prices hit sell-through titles about a dollar above MAP with no negative consequence, said Randy Weddington, video specialist. "Convenience has a lot to do with it," he said. Harp's is gaining in sell-through market share on Wal-Mart, Weddington believes. "So far, we are not turning our customers off by being a little higher than Wal-Mart. They feel that as long as they are in our stores, they might as well pick up the product from us," he said. Besides aggressive pricing and convenience, supermarkets are picking up sell-through market share by displaying the titles in the main part of the store, as well as in the video rental department. Sales are significantly higher when the video is presented on an end-cap, perhaps with related cross-promotional products, or in shippers located near the checkouts, retailers said. These displays attract all the store's customers as opposed to the smaller percentage that frequent the rental area, they said. "Video rental traffic is less than the total store traffic," said Jeff Olson, video specialist at Copps Corp., Stevens Point, Wis. "When videos are displayed in the main part of the store, you reach everybody," he said. "Some of our stores don't have video centers, so that's not an issue," said a video executive with a Southwestern chain, who asked not to be identified. "But in stores where we have video centers, we try to place the shippers elsewhere in the store as well because we have customers who are not video customers who very likely may be video purchasers," he said.
"If we've got the shippers tucked back away in our video centers, we might miss out on that sale," he said.
Also, customers who are looking to rent a movie for $3 or less are not necessarily in the right frame of mind to pick up a $15 to $20 sell-through title, retailers have told SN. This is very different in the main part of the store.
Sales of videos merchandised in the main part of the store are roughly 30% to 50% higher than those sold in the video rental area alone, estimated Matt Dillon, video director at Boogaart Retail division of Fleming Cos., Concordia, Kan. "You catch some people in the video department. But if you catch them out in the store, you get more impulse purchases," he said.
"Sell-through videos always move better anywhere there is greater traffic flow," said the Southwestern video executive. "Anytime we can place something in the natural traffic pattern of the store, that's always a plus," he said. Harp's has two stores in its headquarters town of Springdale, Ark., noted Weddington. One has a very successful video rental department, the other does not offer rental. In the store with video rental, sell-through titles are merchandised in that department. In the other store, the shippers are positioned near the checkouts. "The store without video rental consistently outsells the store with rental by two-to-one and sometimes three-to-one," said Weddington. "We have found that when supermarkets only display feature sell-through products in enclosed video departments, they see a substantial decrease in the quantity of products that they can sell," said Ingram's Bryant. "The products lack visibility and they lose potential for impulse sales," he said. Yet it is still a challenge to get videos in prime selling positions in the main store, the retailers said. In most cases, the obstacles to doing this come down to two very old issues: space availability and shrink. Addressing these issues involves decision-makers other than the video executives, such as other buying departments, store managers and sometimes top management. "In the grocery business, just about every category in the store, and just about every salesman selling items into the store, wants their product right out front," said Ang of Video Mart and Bel Air. "So the grocery manager who controls the floor space has to balance it between one product and another," he said. "We are competing with every other department of the store that wants that space and those sales," said the Southwestern video executive. Demand for prime space by seasonal products is sometimes a factor, especially around holidays like Halloween and Christmas. But having a big, high-profile title to sell that will pull big numbers overrides other concerns, he said.
"When we go all out for a video title, placement is not such a big concern. It's more of an issue with the ancillary titles," said the executive. "You can't tie up prime space with a secondary title," said Dillon of Boogaart's. In line with the priorities of other departments, "a title has to warrant the space," he said. At Bel Air, prime space is not given to video sell-through "as often as we would like," said Ang, but it is there for the big titles. "For example, on 'The Aristocats,' we've got our stores involved in Disney's 288-piece roof-top display. It is 8 feet tall and 6 feet across. Some of our huge stores are using combinations of that, or just a single one as an end-cap display, and then tying it in to the rebate product in the same display," said Ang. Sell-through movies do bring excitement to a store that other products don't, said Ang. "We have the entertainment edge. It is a good visual product to promote. Studios and distributors put a lot of flash and attention-grabbing elements into these promotions and we think they are very appealing," he said. K-VA-T is merchandising sell-through titles regularly in the main part of the store, said Hembree. The key to this has been a consistent flow of good sell-through product, he said. "You have to keep the program going. You can't just go in and out and expect to gain space for sell-through. You have to have a continuous program," he said. K-VA-T goes beyond just the big hit titles for this. "There is unique product available to sell, like some of the old TV shows that are on video now. That also helps sales," said Hembree. Some video executives find that national cross-promotions with packaged goods and other products sold in the supermarket help them get space on the main sales floor.
"It makes a lot of sense for the other department and for video, and increases sales for both," said Olson of Copps. Once the other department sees that sales boost, "they are more willing to share the space next to their product," he said.