A DIVERSIFIED RESPONSE

PAT NATSCHKE LENIUS

Diversification will be the supermarket's key to surviving the new age of electronic interactivity and all that in-home delivery systems promise.

In SN's Third-Annual State of the Industry Report on Supermarket Video, 33% of respondents said they worried about the impact future in-home delivery technologies would have on their business. To counteract the competition from emerging multimedia technologies, retailers said they would diversify into alternative areas. Many retailers are already testing the waters with new software and related products.

Cindy Seale, general manager of video operations at Jitney Jungle Stores of America, Jackson, Miss., said, "We are now in the stage of testing the market as far as different areas [or expanded mix] for our video departments."

However, she added, "this is something that will be a slow process."

New products -- computer software, video games, audio books, audio music, music video and interactive multimedia products such as CD-ROM -- have the capability of transforming supermarket home video outlets into total entertainment centers.

The total entertainment concept was forwarded at last year's Food Marketing Institute General Merchandise/Health and Beauty Care Conference in Dallas, where FMI introduced its Total Entertainment Pavilion. Exhibitors representing video and publishing, as well as companies with alternative entertainment products, showcased their wares in a separate exhibition area, apart from the regular nonfood exhibitors.

The pavilion promoted the idea that supermarkets' growth in home video lies in its potential to move beyond the traditional VHS format and video departments that offer strictly rental and sell-through videos into integrating video, books, magazines and new multimedia software under one area.

"Video departments are slowly becoming total family entertainment software departments, creating their own little area within the grocery store. In five years this trend will be a lot more developed. Technology is moving so fast," Seale said.

Video games offer the most immediate promise for food retailers who wish to diversify their product line, while products such as audio books and music video are producing mixed sales results for some supermarkets. For most retailers, CD-ROM products are still in development and waiting in the wings.

Nash Finch Co., Minneapolis, is "looking at all the aspects" of an expanded video department, said Clifford Feiock, video coordinator.

"Video games are a rapidly growing [category] for us. We are starting to offer audio books and they are somewhat successful. At this point the audio books are not fantastic, but they are growing. We are looking at CD-ROM rental, but the time is not right yet. We hope to do some test stores this year on CD-ROM," he said.

Nash Finch has carried music videos for a long time, but on a store-by-store basis. Some stores do very well with them, but they tend to work better as a rental item vs. sell-through, Feiock said.

"We have tested a couple different programs of computer software that have been marginally successful. It is growing as more people become aware of what is out there and how it can be useful," he said.

The video department's layout and format is an important consideration in merchandising new products such as computer software.

For example, the video departments at Nash Finch are not necessarily the best place to display computer software because of the store-within-a-store format, said Feiock.

"It does not get the total traffic flow the supermarket attracts," he added.

"We are considering the possibility of some permanent endcaps. That would be ideal for both sell-through video and computer software. We are carrying sell-through titles on a hit-or-miss basis. They are displayed on a cardboard display piece in the video rental department. There is no way to merchandise them properly in the video department," he said.

Nash Finch may test a total store security system that would make it possible to have a video department that is actually in the center of the supermarket, rather than in a separate room, he said.

"That would change the look of things completely. At that point we could have video rentals in the middle of the store. That is when we would also like to consider having video near the books and magazines. That is not possible in our present format," Feiock said. Seale of Jitney Jungle said customer demographics also was an important factor in testing products.

"We base [the mix of] every store on demographics. We look at what we can offer to that particular area. We chose one store in a high-traffic location with good demographics. It is one of our larger stores serving a mixture of clients: middle to upper-income, dual-income households," Seale said.

Video games have been added to the video departments in certain locations, she said.

"We tried Nintendo, then it became obsolete. We still like the game business. You have to have it if you are having a video department. We have not gotten involved in CD-ROM interactive video. I won't say we will do that tomorrow or ever. That is something down the road," Seale said. Jitney Jungle expects to test some different locations with computer software in the near future, but it is still shopping around for the right package, she said.

"We don't want the consumer to get home and find he has to pay a fee" for the software, Seale said.

The software might be included in the video department or might be displayed in the regular general merchandise section, she said.

"We work closely with the general merchandise department to decide where we will sell more" of the item, Seale said.

Jim Lefebvre, nonfood director at Stanley Stores, Bay City, Texas, said his company has taken some steps in refocusing the video department into more of a total family entertainment software center.

"We are heavy into games and into family movies. We participate in the Dove rating program where movies carry a sticker. We have gotten some pretty good response from that," Lefebvre said.

Stanley Stores has both classics and best sellers available as books on tape. About 400 titles are carried.

"They have been somewhat of a disappointment. The response has not been as good as we anticipated. These are book tapes you can rent for about the cost of buying the paperback. Customers can rent the tape for a week for about $5. Response has been spotty," Lefebvre said.

The retailer has offered coupons and other promotions to try to increase awareness and boost business, but books-on-tape are still not quite where they should be in terms of performance, he said.

"We are not getting heavily into computer software because we find that a lot of our customers are less computer literate than the masses. A lot of the programs are IBM compatible but still have problems. The timing is bad right now for computer software for the clientele we seem to be appealing to," he said. The video departments also carry film and batteries, but they are primarily audio-video centers, Lefebvre said.

Jodi Tyler, video specialist at Roundy's Pick 'n Save division, Pewaukee, Wis., which oversees 13 corporate Pick 'n Save stores, said Sega CD games are being test-marketed in the stores.

"We haven't done CD-ROM yet. We have not found enough information on the saturation out there to validate having that in the department," she said.

Audio books are being tested in a few units. Music tapes are also being tested in some stores. "We are still very much in a pilot program. We have only been testing for a few months. It is too soon to say how the tests are going. We like to run a test about six months before we analyze the results and consider expansion," Tyler said.

Pick 'n Save has not added computer software because the retailer has not seen a need for it and does not have the knowledgeable staff required to help customers make a wise choice, she said. "We don't want to just put stuff in dump bins and say 'here' to customers. If we are going to do it, we want to do it right," Tyler said.

The other question is, are consumers looking for computer software in a food store, she said.

"They have spent a lot of money on the computer. Are you going to put a $5.99 program into this investment? When I shop for programs, I look for quality and something that has backing behind it. I think we are still staying away from going into the computer end," she said.

Ideally, books and magazines should be displayed near the video department, but where the departments are already established in one area, it is not always possible to relocate them, Tyler said.

Thrifty Food Stores, Burlington, Wash., has been testing audio books in two stores for a couple of months and they seem to be doing well, according to Sandy French, video coordinator. One store carries CD-ROM, she said.

"We have CD-ROM in our Marysville store and it does really well. It is not really a college town and it is not considered an upscale or high-income area. The manager there just put it in," French said.

Thrifty has a successful business in video games, particularly the regular and super Sega lines, she said.

Music videos have been carried and offered for rental, but they did not do well and were discontinued except for occasional in-and-out promotions with a major star such as Garth Brooks, she said.

"Thrifty is getting ready to build more stores, and I am not sure what the format of the video department will be, but I expect it will be more of an information/ entertainment type center. We originally called it a service center, then changed the name to video department. "In the video department we also offer rug cleaning, film developing, keys, ready-to-eat popcorn, watches and batteries, and in some stores, gourmet candies.