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DAN ALAIMO

Cost-related issues topped the list of biggest challenges facing supermarket video operations in SN's seventh annual State of the Industry Report.

The challenges were ranked by survey respondents on a scale of 1 to 5, with 5 the most important. This list was compiled based on the average ratings. Four new issues were added to this year's survey, and one of them, "Margins at minimum advertised price," topped the list. Notably, one respondent indicated that on a scale of 1 to 5, this issue merited a 10.

The problem for many retailers is that, on some studio titles, the difference between MAP and their cost isn't sufficient to recoup handling expenses or potential shrinkage, according to industry observers. For some smaller retailers, the cost is above MAP, which is the price most retailers advertise on the release date of major event titles.

"Some studios are improving on that and some studios don't care," said one distribution executive who asked not to be identified.

Meanwhile, the discount trade appears to be unconcerned about profit levels on these products. "Mass merchants have a whole different mind-set as to what video means to them. It's all volume," said the executive.

"The studios, in general, have been responding to the supermarkets' needs in the margin area," said Bill Bryant, vice president for sales, grocery and drug at Ingram Entertainment, La Vergne, Tenn. He especially commended efforts made by Universal, Paramount, Warner, Fox and Columbia.

The longtime No. 1 issue on this list, "Cost of acquiring videos," dropped to second with the addition of the MAP margins item. "Cooperation with other internal departments" was last, which was a surprise considering the difficulty respondents said they had implementing cross-merchandising programs with sell-through event titles and tie-in grocery products. This may indicate that supermarket video executives have lost enthusiasm for these programs and feel that it isn't a battle worth fighting.

Retailers Rank Video Challenges

Margins of sell-through videos sold at the minimum advertised price are the biggest challenge, retailers said. Shrinkage and management support slipped significantly from last year, while a new entry, "Communicating Hollywood excitement in-store," is a major concern. Cost of videos, lack of space and specialty-store competition remain big issues.

The Biggest Challenges or Problems Facing Supermarket Video Operations, as Ranked by Respondents

1. Margins at minimum advertised price

2. Cost of acquiring videos

3. Lack of space

4. Increased competition from video specialty stores

5. Labor

6. Communicating Hollywood excitement in-store

7. Shrinkage

8. New technologies (like video-on-demand or satellite)

9. Pay-per-view windows

10. Lack of advertising funds

11. Selecting and managing inventory

12. Upper-management support

13. Too many direct-to-sell-through titles

14. Cooperation with other internal departments