RETAILERS SOUND OUT CHANCE FOR MUSIC'S SALES

EARL PAIGE / Additional reporting: DAN ALAIMO

With the success of sell-through video under their belts, supermarket chains are now looking at adding programs offering the latest music recordings.

Some retailers tried selling music in the past, with mostly negative results, although many continue to offer seasonal products and in-and-out promotional programs. But renewed interest in selling top-line products has been sparked by a technologically driven rack-jobbing program developed by the same executives who put music in the Circuit City electronics stores.

National publicity via an article in Forbes and a well-thought-out approach to the challenges supermarkets face merchandising music compact discs and cassettes have chains looking closely at the offerings of Fresh Picks, Richmond, Va., said industry observers. If Fresh Picks' program works, other music suppliers will not be far behind in an effort to get their products into food stores, the observers said.

Some retailers told SN that the time may be right to give music a try.

"Video is going so well that, frankly, we are looking for other products to add to the mix," said Randy Weddington, video specialist at Harps Food Stores, Springdale, Ark.

While he would not comment specifically on the division's plans for music, Archie Fralin, spokesman for the Mid-Atlantic Kroger Marketing Area in Roanoke, Va., said assortment is a concern for many supermarkets that have diversified beyond video in the past few years.

"We've done the usual in-and-outs with CDs and cassettes, but beyond that, one of the problems is finding available space," said Jay Larson, director of general merchandise at Consumers Food & Drug, Springfield, Mo.

An opportunity for Consumers might be at two stores where the rental sections have been remodeled from live inventory to storage behind the service counter. "This was done to conserve space. It has opened up the department," he said. He would not say if the chain is now considering adding music, though.

Marbles Entertainment, Los Angeles, which operates leased-space video departments in stores of Vons Cos., Arcadia, Calif., and Lucky Stores, Dublin, Calif., also has tried music. During the Christmas holidays, budget music at price points under $10 "did exceptionally well," said Matthew Feinstein, vice president.

"Music ties into the whole entertainment center atmosphere, where customers can go to one place for all their home entertainment needs, and it is inside the supermarket for complete one-stop shopping," he said.

But other retailers told SN of their failed efforts to sell music.

"We were five years before our time when we first tried music," said Mark Fisher, former video sales and operations manager at Stop & Shop, Quincy, Mass. "We loved the concept we came up with. It was a whole design to sell the movie soundtracks along with the rentals. If the customers rented the movie they could buy the soundtrack at $2 off. But we were very tight on shelf space and that hurt us," he said.

"We tried music three years ago in our seven markets and flopped," said Todd Wangerin, video buyer and supervisor at Econo Foods and T&C Markets, Iron Mountain, Mich. "We had everyone behind us and we just couldn't make it work. We have two strong competitors nearby with music, which was also a handicap."

One retailer with a positive experience in music is Dale Johnson, owner of Dale's Dairy Mart, Missoula, Mont. "We've done music in the past and it was fair. You are depending on the impulse customer. However, we were totally racked," he said.

Besides his two food stores, Johnson runs five video stores and has music in two of them, he noted. He is considering further expansion of music, he said.

Video in supermarkets has paved the way for music and other home entertainment software, said Scott Kay, vice president of Videoland Distributors, Hubbard, Ohio, a video-racking company that services 230 food stores. "We have thought about music. Our biggest consideration is that there is always the space situation and there is such a wide range of products people are looking for. We're afraid that we couldn't do justice to music products right now, so instead we are looking at adding CD-ROM," he said.

While Ron McMillin, vice president of sales for the Western Region at Sight & Sound Distributors, St. Louis, also sees potential for CD-ROM in supermarkets, he is wary of putting music in. "A number of video distributors have tried music in supermarkets, but found that it is a business unto itself," he said.

Meanwhile, Fresh Picks is moving forward. In late March, the company was getting ready to place its first installation in a Boston-area chain, said Michael Rigby, president. He has told SN that he is targeting 150 to 200 stores by the end of this year, and 500 to 600 stores by the end of 1998. Rigby would not identify the Boston chain he is testing with.

When deciding to test the program, that chain looked at more than the economics of the music offering, he said. "They were sold on the promotional aspects of what a contemporary music department delivers to the customer, and the kinds of customers it can attract," said Rigby.

But the economics work well for the supermarkets too, he said. "Supermarkets are geared to a profits-per-linear-foot per-week formula, and the figure we were told they like to see is $9. We are coming in over $10," he said.

Fresh Picks will manage inventory on a store-specific basis using handheld scanning technology, he said. "We feel we can exactly fit music to the stores' demographics -- to a pin," said Rigby.

An executive with Polygram Video, a sister company of Polygram Group Distribution, New York, thinks the potential for selling music in supermarkets is great. "We think there's a tremendous opportunity for companies that are heavily invested in video to pursue the music side as well," said Allan Golden, vice president of sales.

The demographics of supermarket shoppers -- female and male customers who may not be visiting record stores any more -- are favorable for music sales. "They may have grown out of that teen-to-young-adult record store curve, but are very comfortable within the supermarket environment. They would respond very favorably toward purchasing audio product if it was offered in the supermarket environment and if it were properly merchandised, marketed and presented," said Golden.

But some music suppliers contacted for this story were more cautious in their assessment of the potential for selling music in supermarkets.

"There's a question in my mind" about music in supermarkets, said Harold Lipsius, chairman of Universal Record Distributors, Philadelphia. "It's been tried in food stores over and over, but none of them were ever able to do it. But I have been wrong before," he said. "The first problem is assortment, putting in a full spread of items so people have a selection of front-line products to pick through. But if it is specialty product -- seasonal or cutouts -- that's an entirely different story," said Lipsius.

Space, shrinkage and pricing are the three chief challenges for music in supermarkets, said Patrick Kirsch, president of Dart Distributing, located in the Minneapolis suburb of Chaska, Minn. Kirsch hesitated to prioritize these challenges because they are so specific to individual retailers.

"Price is of lesser concern unless your account is sitting across from a Best Buy, Circuit City, Target or similar discount retailer. If you've got Mariah Carey or Garth Brooks at $13.99 and Target has it at $10.99, then you have a problem. The consumer is sophisticated nowadays, and knows the value of music," said Kirsch.

With deep catalog products, "the price is not so sensitive. But you have to be in the same ballpark as the competition." Product placement in the main part of the supermarket is crucial, he noted. "You need to be out on the selling floor and not in the video department," he said.