AHEAD OF THE VIDEO CURVE

Dan Alaimo

Boldness, leadership and consistency have long characterized the video program of Schnuck Markets here.

From the beginning of video retailing in the early '80s, Schnucks has been among the supermarket leaders as video grew from a novelty to a mainstay of Americans' home-entertainment experience. The retailer's video program continues to thrive in sell-through and rental, as do complementary entertainment products, like ticket-selling services, and books and magazines.

It is because of the company's long-term and ongoing success in these categories that Schnuck is named SN's 2005 Supermarket Entertainment Retailer of the Year. The award will be presented at next week's Video Software Dealers Association convention in Las Vegas.

"Rental and sell-through video provide another reason for the customer to come to our store," said Denis Oldani, director of video. "We are in the business to sell groceries, and the more reasons you can give the customer to come to your store, the better chance you will have to sell them everything."

Mike Juergensmeyer, group vice president, general merchandise and pharmacy, said entertainment "falls into the overall corporate philosophy of trying to be a one-stop shop for our customers, satisfying their food needs, but also HBC, general merchandise, as well as their entertainment needs.

"Entertainment is an integral part of our GM selection and offerings to our customers. It's evolving as our customers evolve, and we're trying to change as their needs change."

Among supermarket chains, Schnucks has always been ahead of the video curve. Some examples, from a timeline provided to SN by Oldani:

- In 1982, it was among the first supermarket chains to put in rental departments, putting in its own program from the outset, as opposed to the revenue-sharing model of the day.

- In 1984, it opened its first "store-within-a-store" live inventory department, another leading-edge approach at the time.

- In 1986, it offered "Top Gun," the first major sell-through title.

- It opened the first of several freestanding video stores in 1988 and experimented with selling music CDs in 1989. The stores have since been incorporated into adjacent supermarkets, but the retailer is again considering the feasibility of selling music.

- Then in 1997, the retailer shocked suppliers, while delighting many customers, by going outside of its market to buy the brand-new DVD format at retail so it could it could be the first in its area -- and the first supermarket nationally -- to offer hardware and software rentals. It had the new format on its second day of availability, Oldani said. While electronics stores were selling the hardware, the software was not yet being tested in Schnucks market areas, the supermarket chain had it, establishing itself early as a destination for DVD.

"We believed that DVD was going to be the format for the future, and we wanted to be the first to have it," Oldani said.

Today the 103-store chain continues to operate 60 1,100- to 3,000-square-foot rental departments, Oldani said. This is down from its high of 90 departments in 1995 but still a significant number given the struggles of video rental in supermarkets across the country.

Schnucks has a thriving sell-through program in 97 stores and is constantly broadening its offering of DVDs, while continuing to offer VHS to the many customers who wish to buy or rent the older format, Oldani said. Value-priced, under $10 catalog titles are a big part of its current offering, as are hits and lower-priced product.

Meanwhile, it is looking ahead to the future of new, high-definition movie formats and the next generation of video games. Oldani's participation in the nascent Grocer's Council of the VSDA, Encino, Calif., is another example of the retailer's drive to stay on the cutting edge of trends, whether video or in other areas, he said.

"We've been in the VSDA for 20 years. We believe in the organization," he said. "You have to listen to everything that is going on, from the customer, the industry, the studios. You listen to it all, and then you can do what's in the best interest of your consumer."

While Schnucks has seen video rentals decline in favor of DVD sell-through like nearly every other retailer in the entertainment software business, it continues to maintain 60 rental departments, upgrading fixtures and staying current with the latest technologies, such as video games. Oldani also is watching the two competing high-definition formats that are expected to follow DVD: Blu-ray and HD-DVD.

The biggest issue facing the video industry today is the lack of consensus on the new disc format. "A dual format is tough for the consumer and the retailer to manage, and that is going to be a big challenge for the industry," he said. One of the reasons for DVDs' unprecedented success was the industry's unanimous agreement on the format.

"We've always had a strong business in DVD, and it has just continued to grow and grow," Oldani said.

In the past, Schnucks has carried nearly every product related to entertainment software, including Beta tapes, audio books, computer games, cell phones, pagers, televisions, VCRs, DVD players and, at one time, it had one of the a very large laserdisc selection, sources told SN. Video games have been a consistently strong part of the rental mix at Schnucks, and the retailer does well with event tickets through TicketMaster, MetroTix and a special arrangement with the St. Louis Cardinals.

In games, Schnucks has carried every platform that has come along. Oldani is now monitoring the progress of the new systems that were recently announced, and said the retailer strives to get the new games as soon as possible, despite the game makers' preference for giving it to other channels first.

"We always try to be out there as fast as we can when a new format of a game comes out," he said. "We like to be first if we can; we can't always. But we strive to get the first shipment out of our [video] distributor."

While some are writing obituaries for VHS, Schnucks is still renting and selling the format. "We have a fairly strong VHS business, and we are not in any hurry to get rid of our VHS inventory, whether for rental or sell-through," he said. "The customer is going to tell us when to get out of that business; we're not trying to tell the customer."

When it comes to the retailer's extensive budget selection, which includes recent titles priced under $10 and closeout product priced as low as $1, the percentage of VHS is much higher, Oldani noted.

Following the market, the retailer is increasing its sell-through offerings. The rental business was strong for Schnucks until the end of the decade, Juergensmeyer noted. "We've seen it move to more of a purchase-oriented category as opposed to rentals over the last four or five years, and we are adjusting our offerings to accommodate customers' needs," he said.

Since Schnucks stores do not have electronic article surveillance detectors at its exits, it must treat new-release, sell-through product carefully or risk losing it to theft, Oldani said. If a store has a secured video department, the new hits are sold there. Many of the sell-through-only stores have locking cabinets for these products, although it is left to the store management's discretion whether to display these products more openly, he said.

"We have to lock it up or it disappears," Oldani noted. While this is true with new releases of children's movies, it is not the case with the budget-priced videos.

Five years ago, Schnucks starting putting the under $10 product in about 20 stores, "and now it's in every store we can put it in," he said. The largest sections have 150 titles, with smaller configurations for stores with less space. "That's a tremendous program; we do very, very well with it," he said.

Unlike other catalog programs, which can have requirements unfavorable to the retailer, Schnucks developed its own, purchasing its own racks, Oldani said. Ingram Entertainment, La Vergne, Tenn., Schnucks' primary video distributor, supplies the product and does the planograms, but "it's our program; it's not anybody else's," he said.

In some stores, magazines and books are located near the videos, but this is not a part of an integrated entertainment products plan. However, Schnucks has discussed doing this, Juergensmeyer said. "It would involve a lot of resetting, so it's not something we would be able to accommodate overnight, but we're definitely looking at moving to that concept as it makes sense," he said.

Sales of magazines and books declined several years ago as the popularity of the Internet was increasing, he noted. "But they've really made a rebound in the last few years, and year-on-year sales are actually showing some growth."

Schnucks Video Milestones

1982 -- Opened chain's first video rental department, owned and operated solely by Schnucks.

1984 -- Opened its first self-contained video "store-within-a-store" rental department.

1987 -- Carried the first big sell-through title, "Top Gun," with a Diet Pepsi cross promotion.

1988 -- Opened its first freestanding video store not inside a supermarket.

1989 -- Tested music CDs in selected stores.

1994 -- Became a ticket outlet for the St. Louis Cardinals. Later added other ticket services; now sells tickets for most venues in the Midwest.

1995 -- Reached 90 video rental departments with acquisition of National supermarkets (a number of those stores were divested later that year).

1996 -- Created multimedia departments in self-contained video departments and video stores.

1997 -- On the second day of DVD availability, and outside of official test markets, rented DVD software and hardware in 15 Schnucks stores.

2000 -- Merchandised "movies for sale -- $9.99 and under" in permanent sections in main part of supermarkets.

2001 -- Created sell-through, new-release DVD sections.

2002 -- Created budget DVD sections for under $10 product.

Source: Schnuck Markets

Video Done Right

ST. LOUIS -- Schnucks Markets is held in high esteem throughout the video industry for its commitment to the category and long track record of innovation.

"They did it early and they did it right," said Andrew Miller, director, supermarket division, Rentrak Corp., Portland, Ore. "They were one of the very earliest of the major chains to do video rental themselves" as opposed to revenue sharing, he noted.

"Schnucks has done video right," confirmed Mark Fisher, vice president, membership, Video Software Dealers Association, Encino, Calif., and a former supermarket video executive. "A longtime VSDA member and a charter member of VSDA's Grocers Council, Schnucks has been committed to this business. They've been a successful, forward thinking, creative and trend-setting member of the industry," he said.

"Schnucks is one of the original pioneers in the supermarket entertainment category," noted Bill Bryant, vice president, sales, Ingram Entertainment, La Vergne, Tenn. "When one thinks of the one-stop shopping concept, Schnucks immediately comes to mind." Having entered the rental business in the '80s, the chain has remained fully committed to sell-through and rental video products throughout the years, he said.

"'Passionate' is a good word to describe Schnucks' approach to the entertainment category. 'Cutting edge' is a good term to describe the outcome. Schnucks has always been a leader in breaking new formats. Recently, the chain has applied considerable focus to value-priced sell-through product. As a result, Schnucks offers its customers a wide selection of DVD and VHS budget products at very attractive prices," Bryant said.

Speaking about Denis Oldani, Schnucks' director of video, Leslie Baker, vice president, sales, grocery and drug, at Ingram, said he is "very analytical and clearly processes every product offering and program available to him to ensure maximum profitability for Schnucks. He is great to work with and challenges us all to continually rethink how we approach the entertainment category."

Schnucks does a good job capitalizing on what essentially is a "fashion-driven" business, said Neil Stern, partner, McMillan/Doolittle, Chicago. "They have taken some bold steps to let their customers know that they are going to be first in the market with whatever the latest trend is. Falling behind is the kiss of death in this business. As soon as customers walk in and they believe that you are not going to have the right titles, or the latest releases, or the right format, you lose credibility."

Even with as mature a category as video rental, Schnucks' 60 locations and dominance of the local grocery business make it "a very credible competitor against a Blockbuster or a Hollywood," Stern said.

-- Dan Alaimo