K-VA-T WRITES THREE MORE SECTIONS INTO VIDEO RENTAL SCRIPT

DAN ALAIMO

GRUNDY, Va. -- K-VA-T Food Stores here opened three new video rental departments last month, introducing a test of DVD rentals in those stores, said Brenda Vanover, video coordinator/merchandiser.

All were live inventory departments of about 1,100 square feet with 2,600 rental units. "We have found that, on the average, 1,100- to 1,200-square-foot departments are about the perfect size for us," she said. Video tapes are 68% of the inventory, with 23% of those in new releases. Video game units are about 17%, audio books are 11%, while about 4% is in CD-ROMs for rental, she said.

There are about 40 units of DVD rental inventory in the stores, Vanover said. DVDs rent for $2.50 a day, the same as the retailer's new releases. The chain is not renting hardware units.

"One problem with DVD so far is the different packages. That makes it really hard to merchandise," said Vanover.

The new sections bring the retailer's total to 37 departments in 67 supermarkets. The company had started with 13 rental departments in 1992 when it bought out a rack jobber. "Our upper management team is very devoted to video," Vanover said.

The three departments went into locations where the retailer did not have video rental before. One was a remodeled store, another was a replacement store and the third was a new store. Vanover said the retailer may add two or three more rental departments in the first half of 1998.

With the addition of other service departments, such as pharmacies and banks, "video will have to show that it can compete in terms of the share of profits it generates in the space we have been provided," she said. "We must continue to analyze how future technologies will affect the delivery of home entertainment, but for now we will move with the market changes into products like DVD, Nintendo 64 and Sony PlayStation."

The large number of titles coming out direct-to-sell-through in the fourth quarter is good news for K-VA-T's rental program as the retailer can bring in greater quantities and make high profits. But on the sell-through side, "with so many titles, we have to be very selective because of our limited floor space and the profit we can make on each title," said Vanover. "Since margins are lower on some sell-through titles, we will continue to decrease our buys until the [minimum advertised prices] are raised."