H-E-B COMPLETES SALE OF VIDEO SPECIALTY UNITS

DAN ALAIMO

SAN ANTONIO -- H-E-B Grocery Co. completed the sale of 33 video specialty stores to Hollywood Entertainment Corp. March 3.

The sale price of the Video Central stores was $30.5 million, according to industry sources. H-E-B will continue to operate about 60 video departments within its supermarkets and two separate specialty stores that are adjacent to supermarkets, said Kristy Ozmun, director of public affairs.

"All this says is that we want to concentrate our efforts on continuing to develop our grocery business," said Ozmun.

"We still want to provide video rentals for our customers and we will continue to have videos for rental and purchase in our food and drug combination stores," she said.

H-E-B's Video Central was the largest freestanding video specialty store operation run by a supermarket company in the United States and was ranked among the top 20 specialty retailers, noted industry observers.

Supermarket interest in operating video specialty stores is mixed, the observers said. While some supermarket chains have found this level of participation in the video business very profitable, others prefer to concentrate on their core business. The majority of companies that have in-store video departments find them to be an additional customer service that is profitable and helps drive overall store traffic, noted the observers.

Meanwhile, many retailers have set up freestanding video shops in unproductive real estate -- old supermarkets they have closed but still have leases on, the observers said. Some chains, such

as Stop & Shop Cos., Boston, are setting up large video stores adjacent to new supermarkets, and are finding that approach the best of both worlds.

Because H-E-B has sold the name Video Central to Hollywood Entertainment, it will change the name of its remaining video operations to H-E-B Video Express, said Ozmun.

Craig Odanovich, former general manager of video for H-E-B, and a former Video Software Dealers Association board member, has a two-year consulting agreement with Hollywood Entertainment, said Mark J. Wattles, president and chief executive officer. "His participation in the video industry will be exclusively with Hollywood Entertainment, and we intend to use him a lot," said Wattles. Odanovich was unavailable for comment.

Odanovich will consult during the transition period, but intends to start a new business, said Wattles. Odanovich's new venture will not be in the grocery or video industries, he said.

All other key executives from the Video Central operation have joined Hollywood Entertainment, Wattles said. The remaining H-E-B video departments are being run by Art Seago, manager of video marketing.

The purchase of the Video Central stores was funded by a secondary public offering of Hollywood Entertainment stock in February. The 33 stores are part of the company's rapid expansion plans.

"[The acquisition] doubled our store base and made us the third-largest video rental chain in the United States," said Wattles. Blockbuster Entertainment Corp., Fort Lauderdale, Fla., is the biggest, followed by West Coast Entertainment, Philadelphia.

"We will be opening 30 additional stores this year. We will just continue to grow," said Wattles. Some of the 30 new stores will be in Texas, in the operating area of the Video Central stores, he said. "Certainly there will be changes" at at the Video Central operation, but they will be "minimal," said Wattles.

The $924,000 per store paid by Hollywood Entertainment was more than Blockbuster paid last year to franchisees for similar stores, said industry sources. The Blockbuster stores sold for an average of $750,000 per unit, the sources said.