DESTINATION: VIDEO

DAN ALAIMO

ST. LOUIS -- Supermarkets have transformed video rental into a destination in this market. The grocery channel has become a dominant force in video by dedicating space and positioning departments in prominent, up-front locations; investing in inventory with a large percentage of titles devoted to new releases, and getting exposure through advertising.

Each of the four major chains here operates large, live-inventory departments that serve as destination shops within the supermarkets they occupy. While in some parts of the country supermarket video is a new concept, in St. Louis the

main players got started with rental in the early days of the video business. The result is a consumer base that not only expects to find videos when it goes to shop for food, but makes special trips to these stores to rent movies, according to industry observers. Supermarket share of rentals in St. Louis is more than 50%, with Blockbuster accounting for most of the remainder, according to an industry source. This supermarket share is significantly higher than most other market areas. "Supermarkets have dominated the St. Louis market for a long time," said a video distribution executive familiar with the area. "They advertise on radio. They advertise in our weekly papers. They have educated the consumers. The consumers know very well that they can go to the supermarket to rent a video," said the executive. The biggest players in the St. Louis video rental market are: Schnuck Markets, St. Louis, with 54 rental departments in its 70 St. Louis-area stores. Schnuck also operates seven large stand-alone video specialty stores. Blockbuster Entertainment, Fort Lauderdale, Fla., with more than 35 stores in the area. Dierbergs Markets, Chesterfield, Mo., with 13 large, high-volume departments in its 15 stores. Dierbergs also has a stand-alone video specialty store adjacent to one of its supermarkets. Shop 'N Save Warehouse Foods, Kirkwood, Mo., owned by Supervalu, has 25 price-oriented rental departments in its 33 stores. National, run by Family Co. of America, St. Louis. The new operation has 11 departments in its 23 stores. Hollywood Entertainment, Portland, Ore., recently entered the St. Louis market with its first store in St. Charles, Mo., and has plans for five more stores within a year, said industry sources. Star Video, an independent specialty retailer, has five stores with as many as 17,000 pieces of rental inventory. New rental chains entering the St. Louis market, like Hollywood, will have a tough time wresting market share from the supermarkets, said the distribution executive. "The supermarkets are very well established. It could be a fight for a chain like Hollywood to attract customers because the supermarkets have been a video rental destination for such a long time. It will be a hard consumer habit to break," said the executive. In the St. Louis market, "it's between the grocery stores and Blockbuster," the executive noted. "Supermarket video is strong in St. Louis, but so is Blockbuster," said Jamie Molitor, director of video operations at Dierbergs Markets. "Obviously there is potential out there or Hollywood wouldn't be coming into town as aggressively as it is," she said. "You can't look at your competition as just being the other supermarkets. You have to look at Blockbuster and Hollywood, and also look at what the mass merchants are doing in sell-through," she said. "But the biggest thing we have going for us is the supermarket traffic. If I can capture that audience and bring it into the video department, I can't lose," said Molitor. Many of these chains are also becoming destination stops for video sell-through, competing with the mass merchants like Wal-Mart and Target, electronics stores like Best Buy, and specialty stores like mall-based Suncoast Motion Picture Co. For example, Dierbergs and Schnuck carry shippers of the major "event" titles on an ongoing basis. Dierbergs is now rolling out a permanent ongoing sell-through program for new products, while Schnuck has carried such titles for some time. All the retailers sell previously viewed movies. "The supermarkets in St. Louis are very aggressive with sell-through. They have dedicated sections. They carry the shippers," said the distribution executive. To date, Schnuck has had the biggest commitment to sell-through, the executive said. In the week that SN visited St. Louis-area stores, Schnuck, Dierbergs and National carried "The Aristocats" and "Waiting to Exhale," while Shop 'N Save only had "The Aristocats." Pricing was at about the same levels as the big discount stores, with most around the minimum advertised prices set by the studios. Dierbergs' Deep Commitment With its new store in Warson Woods, Dierbergs has the most sophisticated in-store video department in the area. The 1,898-square-foot department is in the front of the store, but has its own separate entrance, which further underscores its identity as a video destination. The department has about 4,000 rental units, of which more than 40% are new releases. New-release selections in other stores have just been increased to 30% to 40%, as evidenced by temporary signs that were in place in some locations. Dierbergs' departments range in size from 800 to 4,250 square feet, said Molitor. Most are 1,000 to 2,000 square feet, with 4,000 to 5,000 rental units in inventory. The largest, a stand-alone store adjacent to a supermarket, has more than 9,000 rental units, she said. "Dierbergs has always taken the position that if they are going to do something, they are going to do it right," said Molitor. "All of the video departments are either in the front of the stores, or have a separate outside entrance. You can't miss them," she said. Rental rates at Dierbergs are $3 for one night on new releases less than 30 days old; $3 for two nights on other new releases; $1 for two nights on all other videos, and $3 for two nights on games. On Tuesdays and Wednesdays the retailers has a rent-one-get-one-free offer good on all videos. The new Warson Woods store, which opened in January, was the first to test an 8-linear-foot permanent sell-through section. Now the retailer is testing the rental of Sony PlayStation software there. When SN visited, depth of copy of new releases in the store was 25 copies of "Bridges of Madison County," 24 copies of "Cutthroat Island" and 27 copies of "Braveheart." Several other Dierbergs departments are in a "rail car" design at the front of the store. For example, one in Florissant, Mo., is 104 feet long by 14 feet wide with an inventory of more than 8,000 rental units. Schnuck: A Strong Second Schnuck Markets is the second largest player in the St. Louis rental market, next to Blockbuster. Out of its 70 St. Louis-area stores, 54 have video departments, while six have adjacent stand-alone Schnucks Video Super Stores. One other stand-alone store, which distribution sources said was obtained in Schnuck's acquisition of National Tea Co. last year from Loblaw Cos., Toronto, is not near a supermarket. Schnuck has a total of 91 stores and 73 video rental outlets. Executives of the company would not comment on this story. In visiting stores, SN found that the video departments and stores varied widely in design and presentation. In part, this is because of the assimilation of existing National departments into the chain, and also because of the retailer's long history in video. For example, some departments are older, in the long and narrow "rail car" format, while others reflect more recent design concepts. Most use the distinctive grid racking of JD Store Equipment, Los Angeles. SN visited three of Schnuck's stand-alone video stores. The one store acquired from National at 9430 Midland Blvd., Midland, Mo., was much larger than the others -- about 6,500 square feet. A lack of decorations and a "for lease" sign in front indicated that Schnuck may not have a long-term commitment to this location. Two other stand-alone units were located right next to Schnuck's supermarkets. One at 4333 Butler Hill Road, St. Louis, was 3,600 square feet and another at 115 Cross Keys Shopping Center, Florissant, Mo., was 4,600 square feet. These stores had close to 10,000 pieces of rental inventory, with about 20% in new releases. However, new release inventory at Schnuck was more difficult to estimate than at other chains because tapes are rented in their original jackets. Because of that, there is no evidence at times of the hottest new releases that are out on rental. These two stores had 250-square-foot multimedia centers set apart in a back corner of the store. These areas offered a wide range of products for rent, including 16-bit video games, 8-bit games, Sega Game Gear games, Sega CD games, CD-ROM programs, Nintendo Virtual Boy games, Sony PlayStation games and Sega Saturn games. A 500-piece laserdisc selection was also merchandised in the multimedia area. There also were demo units for Virtual Boy and Saturn in the special section, as well as software, hardware and accessories for sale. Total inventory in these areas alone was around 1,500 units. Offerings in the stand-alone stores also included audio books for rent, sell-through videos, VCR and game machines for rent, Kodak film, soft drinks, snack and candy items, and Disney Signature art. Each store also had a display of movie-related paraphernalia for sale, such as T-shirts, baseball caps and cups. SN visited about a half-dozen Schnuck supermarkets with in-store video departments. Two were former National stores. These departments ranged from 800 to 1,700 square feet, with total inventories from 5,000 to 9,500 rental units. The store with the most tapes was not the one with the biggest space. The Schnuck unit at 8867 Ladue Road in Ladue, Mo., packed 9,500 tapes into 1,120 square feet; many were displayed spine out. Other Schnuck stores merchandised tapes face front. Most of the departments were in the front of the store, but one was in a front corner near the pharmacy. In another, a converted National store where new merchandising concepts were being tested, it was in the middle of the store, in a buffer area between fresh foods and the main grocery aisles. This was the smallest of the Schnuck departments. No matter the size, SN estimated that the Schnuck video departments carried about the same number of new releases: 1,500 units. As a percentage of total rental inventory, this ranged from 15% to 30%. All departments carried the same wide variety of products seen in the stand-alone video stores: old and new format video games, CD-ROM, audio books and laserdiscs. Sell-through offerings included shippers of event titles, new products such as repriced rental titles and children's videos, and previously viewed tapThe result is a consumer base that not only expects to find videos when it goes to shop for food, but makes special trips to these stores to rent movies, according to industry observers.

Supermarket share of rentals in St. Louis is more than 50%, with Blockbuster accounting for most of the remainder, according to an industry source. This supermarket share is significantly higher than most other market areas.

"Supermarkets have dominated the St. Louis market for a long time," said a video distribution executive familiar with the area. "They advertise on radio. They advertise in our weekly papers. They have educated the consumers. The consumers know very well that they can go to the supermarket to rent a video," said the executive. The biggest players in the St. Louis video rental market are: Schnuck Markets, St. Louis, with 54 rental departments in its 70 St. Louis-area stores. Schnuck also operates seven large stand-alone video specialty stores. Blockbuster Entertainment, Fort Lauderdale, Fla., with more than 35 stores in the area. Dierbergs Markets, Chesterfield, Mo., with 13 large, high-volume departments in its 15 stores. Dierbergs also has a stand-alone video specialty store adjacent to one of its supermarkets. Shop 'N Save Warehouse Foods, Kirkwood, Mo., owned by Supervalu, has 25 price-oriented rental departments in its 33 stores. National, run by Family Co. of America, St. Louis. The new operation has 11 departments in its 23 stores. Hollywood Entertainment, Portland, Ore., recently entered the St. Louis market with its first store in St. Charles, Mo., and has plans for five more stores within a year, said industry sources. Star Video, an independent specialty retailer, has five stores with as many as 17,000 pieces of rental inventory. New rental chains entering

the St. Louis market, like Hollywood, will have a tough time wresting market share from the supermarkets, said the distribution executive. "The supermarkets are very well established. It could be a fight for a chain like Hollywood to attract customers because the supermarkets have been a video rental destination for such a long time. It will be a hard consumer habit to break," said the executive. In the St. Louis market, "it's between the grocery stores and Blockbuster," the executive noted. "Supermarket video is strong in St. Louis, but so is Blockbuster," said Jamie Molitor, director of video operations at Dierbergs Markets. "Obviously there is potential out there or Hollywood wouldn't be coming into town as aggressively as it is," she said. "You can't look at your competition as just being the other supermarkets. You have to look at Blockbuster and Hollywood, and also look at what the mass merchants are doing in sell-through," she said. "But the biggest thing we have going for us is the supermarket traffic. If I can capture that audience and bring it into the video department, I can't lose," said Molitor. Many of these chains are also becoming destination stops for video sell-through, competing with the mass merchants like Wal-Mart and Target, electronics stores like Best Buy, and specialty stores like mall-based Suncoast Motion Picture Co. For example, Dierbergs and Schnuck carry shippers of the major "event" titles on an ongoing basis. Dierbergs is now rolling out a permanent ongoing sell-through program for new products, while Schnuck has carried such titles for some time. All the retailers sell previously viewed movies. "The supermarkets in St. Louis are very aggressive with sell-through. They have dedicated

sections. They carry the shippers," said the distribution executive. To date, Schnuck has had the biggest commitment to sell-through, the executive said. In the week that SN visited St. Louis-area stores, Schnuck, Dierbergs and National carried "The Aristocats" and "Waiting to Exhale," while Shop 'N Save only had "The Aristocats." Pricing was at about the same levels as the big discount stores, with most around the minimum advertised prices set by the studios.

Dierbergs' Deep Commitment

With its new store in Warson Woods, Dierbergs has the most sophisticated in-store video department in the area. The 1,898-square-foot department is in the front of the store, but has its own separate entrance, which further underscores its identity as a video destination. The department has about 4,000 rental units, of which more than 40% are new releases. New-release selections in other stores have just been increased to 30% to 40%, as evidenced by temporary signs that were in place in some locations. Dierbergs' departments range in size from 800 to 4,250 square feet, said Molitor. Most are 1,000 to 2,000 square feet, with 4,000 to 5,000 rental units in inventory. The largest, a stand-alone store adjacent to a supermarket, has more than 9,000 rental units, she said. "Dierbergs has always taken the position that if they are going to do something, they are going to do it right," said Molitor. "All of the video departments are either in the front of the stores, or have

a separate outside entrance. You can't miss them," she said. Rental rates at Dierbergs are $3 for one night on new releases less than 30 days old; $3 for two nights on other new releases; $1 for two nights on all other videos, and $3 for two nights on games. On Tuesdays and Wednesdays the retailers has a rent-one-get-one-free offer good on all videos. The new Warson Woods store, which opened in January, was the first to test an 8-linear-foot permanent sell-through section. Now the retailer is testing the rental of Sony PlayStation software there. When SN visited, depth of copy of new releases in the store was 25 copies of "Bridges of Madison County," 24 copies of "Cutthroat Island" and 27 copies of "Braveheart." Several other Dierbergs departments are in a "rail car" design at the front of the store. For example, one in Florissant, Mo., is 104 feet long by 14 feet wide with an inventory of more than 8,000 rental units.

Schnuck: A Strong Second

Schnuck Markets is the second largest player in the St. Louis rental market, next to Blockbuster. Out of its 70 St. Louis-area stores, 54 have video departments, while six have adjacent stand-alone Schnucks Video Super Stores. One other stand-alone store, which distribution sources said was obtained in Schnuck's acquisition of National Tea Co. last year from Loblaw Cos., Toronto, is not near a supermarket. Schnuck has a total of 91 stores and 73 video rental outlets. Executives of the company would not comment on this story. In visiting stores, SN found that the video departments and stores varied widely in design and presentation. In part, this is because of the assimilation

of existing National departments into the chain, and also because of the retailer's long history in video. For example, some departments are older, in the long and narrow "rail car" format, while others reflect more recent design concepts. Most use the distinctive grid racking of JD Store Equipment, Los Angeles. SN visited three of Schnuck's stand-alone video stores. The one store acquired from National at 9430 Midland Blvd., Midland, Mo., was much larger than the others -- about 6,500 square feet. A lack of decorations and a "for lease" sign in front indicated that Schnuck may not have a long-term commitment to this location. Two other stand-alone units were located right next to Schnuck's supermarkets. One at 4333 Butler Hill Road, St. Louis, was 3,600 square feet and another at 115 Cross Keys Shopping Center, Florissant, Mo., was 4,600 square feet. These stores had close to 10,000 pieces of rental inventory, with about 20% in new releases. However, new release inventory at Schnuck was more difficult to estimate than at other chains because tapes are rented in their original jackets. Because of that, there is no evidence at times of the hottest new releases that are out on rental. These two stores had 250-square-foot multimedia centers set apart in a back corner of the store. These areas offered a wide range of products for rent, including 16-bit video games, 8-bit games, Sega Game Gear games, Sega CD games, CD-ROM programs, Nintendo Virtual Boy games, Sony PlayStation games and Sega Saturn games. A 500-piece laserdisc selection was also merchandised in the multimedia area. There also were demo units for Virtual Boy and Saturn in the special section, as well as software, hardware and accessories for sale. Total inventory in these areas alone was around 1,500 units. Offerings in the stand-alone stores also included audio books for rent, sell-through videos, VCR and game machines for rent, Kodak film, soft drinks, snack and candy items, and Disney Signature art. Each store also had a display of movie-related paraphernalia for sale, such as T-shirts, baseball caps and cups. SN visited about a half-dozen Schnuck supermarkets with in-store video departments. Two were former National stores. These departments ranged from 800 to 1,700 square feet, with total inventories from 5,000 to 9,500 rental units. The store with the most tapes was not the one with the biggest space. The Schnuck unit at 8867 Ladue Road in Ladue, Mo., packed 9,500 tapes into 1,120 square feet; many were displayed spine out. Other Schnuck stores merchandised tapes face front. Most of the departments were in the front of the store, but one was in a front corner near the pharmacy. In another, a converted National store where new merchandising concepts were being tested, it was in the middle of the store, in a buffer area between fresh foods and the main grocery aisles. This was the smallest of the Schnuck

departments. No matter the size, SN estimated that the Schnuck video departments carried about the same number of new releases: 1,500 units. As a percentage of total rental inventory, this ranged from 15% to 30%. All departments carried the same wide variety of products seen in the stand-alone video stores: old and new format video games, CD-ROM, audio books and laserdiscs. Sell-through offerings included shippers of event titles, new products such as repriced rental titles and children's videos, and previously viewed tapes. Rental rates were the same at all Schnuck stores SN visited. New releases were $3 for a three-day, two-night rental. Other videos were $1 the same period, but with a posted promotion of "Rent One, Get One Free Every Day."

Shop 'N Save's Price Incentive

Shop 'N Save Warehouse Foods, Kirkwood, Mo., a division of Supervalu, Minneapolis, takes the low-price road in its 25 video rental departments. But while charging 99 cents a night for new releases and 49 cents a night for other videos, the retailer does not skimp on new releases. In the two stores visited by SN, new releases were 50% and 75% of the total rental inventory. "While video is a traffic builder for us, it has also been a profit center," said Kim Stewart, video specialist at Shop 'N Save. (For further details, see related story on Page 51.)

A National Rebirth

After a brief time operating under the Schnuck banner following last year's acquisition, 23 stores were sold back to the former National management. These stores opened this spring under the National store name and the corporate name of Family Co. of America. The company operates 11 video rental departments under the name National used previously, "That Video." Executives at Family Co. did not return calls for comment. In two stores visited by SN, the departments were right off the main entrance. Big signs at the entrance to the department highlighted the retailer's offer of "New Releases, 2 Days, 2 Dollars." The departments were bright and neat, using angled display fixtures that showed most of the videos' box art. Rental rates for products other than new releases were 99 cents catalog videos, and $1.99 games. The same two-day period applied. In a store at 4432 Lemay Ferry Road, St. Louis, there was gray carpeting and a bank of three monitors. The store had reopened as a National unit in March. There were many empty slots in the racks, and an employee said that the inventory was in the process of being built up. The 1,260 copies of new releases were about 36% of the 2,200 total rental inventory. SN estimated that the department could ultimately hold about 3,000 tapes. Depth of copy was difficult to estimate because the original boxes went out with the tapes. The department made more extensive use of subcategory groupings than other retailers' video rental sections. For example, there were special sections for children's new releases, epics, Harrison Ford movies, Mel Gibson movies, music videos, martial arts, cops and robbers and children's sing-alongs. There were about 250 games, including the 16-bit Sega Genesis and Super Nintendo cartridges, and the old 8-bit Nintendo game cartridges. The departments also offered camera film and blank videocassettes, and the service counter was dedicated to the video area. Previously viewed movies and games were offered at $4.95 and $7.95. A second store visited by SN, at 4 Mark Place in Fairview Heights, Ill., had 10 units of audio books for rent. In that department there was a sign highlighting a promotion based on the new release, "How to Make an American Quilt." In a June 10 drawing, customers could win a full-size quilt, a one-cup coffeemaker and a cappuccino mug.