ANIMATION STEPS UP

DAN ALAIMO / Additional reporting: Wendy Toth

If past history holds true, this fourth quarter will see some highly animated video sales in supermarkets.

The summer box office is up, as is the number of G- and PG-rated movies. On the other hand, the impact of gas prices on discretionary spending and supermarkets' willingness to commit to the hit sell-through category remain question marks.

Counting the late September release of "Curious George" and some re-releases, there are no fewer than 10 animated movies coming up this fourth quarter, and about a dozen movies that generated over $100 million at the box office. The biggest of these is the PG-13 but still family-friendly "Pirates of the Caribbean: Dead Man's Chest," which has made over $400 million and was still playing strongly in theaters as of Labor Day weekend.

"The studio releases this year appear to be much stronger than last year," said Jack Serota, vice president, general merchandise/health and beauty care, Price Chopper Supermarkets, Schenectady, N.Y. "We are looking forward to a great selling season."

Considering all the animated and family titles coming out, Bob Gettner, video buyer/coordinator, B&R Stores, Lincoln, Neb., said, "They've saved the best for last again this year, so I think it should be really good."

Doug's Supermarkets, Warroad, Minn., is in an area where the average age is 26, and "that means we've got a greater number of kids here in town," said owner Steve Hagen. So with the abundance of children's and family movies coming up, "I look for that to be a good thing for us," he said.

"The fourth quarter is shaping up to be one of the best we've seen in years," said Bill Bryant, vice president, sales, for video distributor Ingram Entertainment, La Vergne, Tenn.

Among the key animated titles for the fourth quarter reported by Ingram are big hits "Cars," "Over the Hedge," "Ice Age: the Meltdown" and some more modest performers like "Curious George," "Garfield: A Tale of Two Kitties," "Monster House," "The Ant Bully" and "Barnyard: the Original Party Animals." Disney has two high-profile re-releases: "The Little Mermaid" and "The Fox and the Hound 25th Anniversary Edition."

On the list of titles grossing over $100 million at the box office, many are PG-13, but none are rated R. These include "Pirates of the Caribbean: Dead Man's Curse," "Cars," "X-Men: the Last Stand," "The Da Vinci Code," "Superman Returns," "Ice Age: the Meltdown," "Over the Hedge," "Click;" "Mission Impossible III," "Talladega Nights: The Ballad of Ricky Bobby," "The Devil Wears Prada" and "The Breakup."

While some supermarkets are reluctant to bring the high-profile movies in because of low margins, competition and shoplifting concerns, there is potential for cross-merchandising. For example, sequels like "Pirates," "Superman" and "Ice Age" can be displayed with the earlier movies with higher margins, book-based products like "Curious George," "Da Vinci Code" and "Devil Wears Prada" could go with the printed versions, and "Talladega Nights" with NASCAR merchandise.

"I think it's going to be a big quarter," said Preston Phillips, nonfood manager, Day's Market Place, Heber City, Utah. "There are a lot of movies that did really well at the box office that are going to be released to DVD, and I'm sure that success will be passed through to the retail sales."

Like others, the low margins on the big hits gives Phillips pause. "It means we'll have to find somewhere else to make a gross." In some cases, this will mean positioning new movies near related older DVDs to spur sales of those higher-profit titles. "That's what we hope for and that's why we place them where we do. If it's a kids' title, I like to put it near the section with other kids' products," he said.

BIG SUMMER BOX OFFICE

That sales and rentals follow box office success is a long-established pattern for the video trade. After a prolonged slump, theatrical ticket sales bounced back this summer, led by big titles like "Pirates" and "Cars." Total ticket sales were up 7.1% for the 115 days from May 5 to Aug. 27 versus the same period in 2005; they had declined 10% last year, according to Exhibitor Relations, Encino, Calif.

The combined box office dollars of major movies announced for October is $1.09 billion, which is higher than the $1.04 billion earned for titles released in the entire third quarter, according to the Supermarket Division of Rentrak Corp., Portland, Ore. Corresponding numbers for November and December were not available.

"The theatrical box office reflected an increase this summer compared to last year," Bryant said. "Home video releases always benefit from strong box office revenues."

"In our view, the release slate is strong, and unfulfilled consumer demand will have grown over a couple of lean quarters," said Mark Fisher, vice president, membership and strategic initiatives, Entertainment Merchants Association, Encino, Calif., formerly the Video Software Dealers Association. "The improved health of the box office indicates that movies will be highly sought when they are released on DVD."

"Coming off a slow summer, we are greatly anticipating the fourth quarter and our customers' response to this summer's high-grossing movies," said Terese Davis, video specialist, Schnuck Markets, St. Louis. "These are movies that are fresh from the box office and are of a caliber that customers will want to watch them over and over again. We believe our customers will respond well to the family-oriented movies rated G, PG and PG-13."

Clemens Markets, Kulpsville, Pa., carries G and PG hit films on an in-and-out basis, said Larry Schimpf, director of HBC/GM, and he bases his buying decisions primarily on box office success. "If it was a poor performer, I won't even buy the DVD," he said.

THE FAMILY FACTOR

"Supermarkets are a family environment," said Andrew Miller, director of Rentrak's supermarket division. "Proportionally speaking, family [video] is probably their strongest genre."

With other studios aggressively marketing animated and family fare, "everybody's vying for a piece of what was originally Disney's action," said Greg Rediske, president, Video Management Co., Tacoma, Wash. "That's good for us, because it fits the part of the business we are in - it appeals to the mothers and the kids," he said.

"Animated and family titles have traditionally done very well in the supermarket channel, and the strength of the titles this quarter will be a significant traffic driver for their stores," said Jeanne Hobson, senior vice president, sales and distribution, Buena Vista Worldwide Home Entertainment, Burbank, Calif.

Research shows that not only are these titles traffic drivers, but they significantly increase the market basket size above and beyond the cost of the DVD, Hobson said. "It will be important for this channel to ensure they have prominent displays at the front of the store and in cross-promotional areas."

"We anticipate that hit family-oriented titles will be excellent performers and will reflect what consumers expect to find in supermarkets," Fisher said. "As there was a rich array of kid and family-oriented movies released this summer, a wide selection will be available this fourth quarter."

Budget Video Is a Hit

Facing a challenging market for hit sell-through videos, some supermarket operators are cutting back on purchases of high-profile movies and focusing instead on value-priced product.

"We much prefer doing budget sell-through," said Greg Rediske, president, Video Management Co., Tacoma, Wash., which provides the video program for 100 stores in rental and 300 in sales in eight states.

With loss-leader price competition from the electronics stores and mass merchants, and return problems because of repricings, "I have very few stores where I do hit sell-through anymore because it is not worth it. I discourage people from buying hit product for sell-through as much as I can because it's just a pain in the neck," he said.

Instead, Rediske is focused on the budget product. "There's a lot more margin in it. You don't have the hassles with returns. You don't get beat up on price as much. It's just a whole lot better animal for us to deal with," he said.

It's a similar story at B&R Stores, Lincoln, Neb., where "we don't put as much emphasis on the big hits as we used to," said Bob Gettner, video buyer/coordinator. "We'll still have all those titles in the stores, but we won't buy as much as in the past." Gettner cited price competition and decreased discretionary spending in reaction to the high price of gas as reasons.

Meanwhile, B&R is running value programs, especially on previously viewed DVDs and closeouts of VHS product, he said.

"Value titles still perform very well for us," said Jack Serota, vice president, general merchandise/health and beauty care, Price Chopper Supermarkets, Schenectady, N.Y. He also sees strong sales of hit sell-through in the upcoming fourth quarter.

The growth of budget product in supermarkets is apparently confirmed in numbers from the Strategic Planner of ACNielsen, Schaumburg, Ill. For the 52 weeks ending Aug. 12 for food stores with $2 million and over in sales, volume was literally flat at $416 million, the same as the year before. However unit volume increased 5.8% to 31 million.

"Budget video performs well in supermarkets as the price points are geared toward impulse purchase," said Bill Bryant, vice president, sales, Ingram Entertainment, La Vergne, Tenn. "Supermarkets will need to be creative to merchandise budget video along with all of the fourth quarter hits."

However, many large chains are either locking up these movies or putting them behind service counters, noted Andrew Miller, director, Supermarket Division, Rentrak Corp., Portland, Ore. "Other than the value-priced promotional product, it looks to me like they are almost in retreat," he said.

Currently, recognizable titles that sell at about $5 are "pure impulse purchases. That's the kind of stuff that is really sailing in supermarkets." Miller sees this kind of product increasing to price points approaching $8 in the future, "and supermarkets will do great with that, but if they start locking everything up, goodbye sales."

Dan Alaimo