KEEPING PACE IN THE RACE

DAN ALAIMO

In a year that most people in the video trade would like to forget, supermarkets held their own in the face of increased competition and a disappointing flow of titles.

Some retailers were up and some were down, but on balance, supermarket video programs kept up with other classes of trade during 1997. Rentals were down less than the rest of the industry, while sell-through revenues grew at about the same pace.

And following the lead of the big movie studios, retailers are gathering their forces for a renewed push to boost video revenues in 1998.

"There's an attitude of extreme optimism throughout the supermarket industry with regard to the video category," said Bill Bryant, vice president, sales, grocery and drug, Ingram Entertainment, La Vergne, Tenn. "The strong release schedule for both sell-through and rental will stimulate sales, which will be supported by aggressive studio programs and distributor support."

In its seventh annual State of the Industry Report, Supermarket News found that the total of rental and sell-through video categories in supermarkets was essentially flat, going from $2.33 billion in 1996 to $2.34 billion in 1997. It's projected to grow 6% this year, to $2.48 billion.

Overall, SN estimates that supermarkets have about a 14% market share of the total business, a number that's changing little from 1996 to projections for 1998. "In 1997, a lot of supermarkets struggled and some of them excelled," said a distribution executive, who asked not to be identified. "But overall, 1998 looks like a pretty good year, based on the release schedule."

The performance of supermarkets in video reflected that of the video business as a whole. Combined rental and sell-through sales reached $16.6 billion in 1997, a very small improvement over 1996's $16.5, according to Tom Adams, president, Adams Media Research, Carmel Valley, Calif. Adams projects that the industry will grow 5.2% to $17.4 billion in 1998.

Respondents to SN's survey of supermarket video programs apparently outperformed both the overall video trade and supermarkets as a segment within it. On average, their rental revenues increased 3.5%, while sell-through rose 7.1%. But there was a great disparity in performance. Nearly as many respondents reported declines in rental revenues as reported growth, and about one-sixth of the respondents said their sell-through business declined. In previous years, retailers were almost unanimous in reporting double-digit growth in sell-through.

SN concluded, however, that based on reports by key industry suppliers, the overall supermarket video business trended lower than this year's survey sample implied. Rental revenues in supermarkets declined 1.4% to $1.36 billion this year, from $1.38 billion last year. SN projects a 5.1% growth in 1998 to $1.43 billion as the overall rental business improves and supermarkets aggressively take advantage of studio buying. Rental makes up a slightly greater percentage of total video revenues for supermarkets than it does for the video trade as a whole, 58% versus 55%.

Supermarkets had approximately a 15% share of the total rental business in 1996 and 1997, a number that's projected to rise to 15.6% in 1998.

In sell-through, SN estimates that supermarket sales were up 3.2% to $980 million, from last year's $950 million. This will increase 7.1% in 1998, to $1.05 billion. From 1996 to 1998, supermarkets' share of the sell-through market is holding steady at a little under 13%, with a very slight decline each year as other classes of trade make inroads.

Some of the key rental trends that emerged from the study were:

Retailers are aggressively expanding the new releases they carry, and many more are interested in shared transaction fee programs than in previous years.

Supermarkets continue to expand the number of video-rental sections, particularly live inventory departments.

Supermarkets have a strong interest in trying the new DVD technology, and 10.3% already carry it for rental.

The average rental rates have risen for three consecutive years, while margins have stabilized.

There's been a sharp decline in game revenues, but a commitment to buy more of the new game software now in demand.

Sell-through trends included:

A move toward more permanent sell-through sections, although fewer respondents reported selling videos in the main shopping areas of supermarkets. Higher margins reflected the sales of more product that's not as price sensitive as event titles. Non-children's theatrical sell-through titles remain an important part of supermarket's sell-through mix.

A continuing four-year decline in active cross merchandising with tie-in products. Respondents cited internal issues as among the biggest obstacles.

More are diversifying their sell-through offerings into products like games and computer software, while offering more sell-through titles priced under $10.

More are buying direct from the big studios, but the respondents also cited margins of event titles when sold at minimum-advertised price as their biggest challenge.

The survey was conducted and tabulated by Supermarket News' offices in New York and Cleveland. The confidential questionnaire was sent in January and February to supermarket chains, independents, video-rack jobbers and wholesalers across the country. Additional interviews with prominent suppliers familiar with the field were used to determine sales and market-share information. Video industry numbers from Adams Media Research were used as a base to calculate supermarket volume.

Survey respondents included 77 companies representing 7,976 stores in 1997. The survey results are based only on responses from companies now active in home video. The results reflect video rentals at 2,557 supermarkets and sell-through activity at 5,848 stores. Total annual dollar volume for retailers responding to the survey exceeded $80 billion in 1997.

Supermarkets Keep Their Share

In the face of daunting competition from specialists in rental, mass merchants and electronics stores in sell-through, and new technologies like satellite delivery systems, supermarkets maintained their share of the video market.

Share of Total Video Industry Revenues

Rental

1996 15%

1997 15.1%

1998 15.6%

projected

Sell-Through

1996 12.9%

1997 12.8%

1998 12.7%

projected

Total

1996 14.1%

1997 14.1%

1998 14.2%

projected

Source: SN estimates based on video industry numbers from Adams Media Research, Carmel Valley, Calif.

Total Revenue Picture

A rebound in the rental market late in 1997 kept what had been a very bad year to just a 3% decline, according to Adams Media Research. Sell-through registered a disappointing 4% growth for the year.

Retail Sales for All Classes of Trade in Billions

Rental

1996 $9.22

1997 $8.98

1998 $9.17

projected

Sell-through

1996 $7.35

1997 $7.62

1998 $8.29

projected

Total

1996 $16.57

1997 $16.60

1998 $17.46

projected

Source: Adams Media Research, Carmel Valley, Calif.

Supermarket Revenues Slow Down Last year was not a good one for the video trade and supermarkets shared in the rental downturn and slower-than-expected growth in sell-through. Improved performance is projected in 1998 because of new marketing programs from the studios and strong upcoming titles like "Titanic."

Retail Revenues in Billions

Source: SN estimates based on video industry numbers from Adams Media Research, Carmel Valley, Calif.