ON WITH THE SHOW 2004-07-12 (2)

LIZA CASABONA / Additional reporting: Dan Alaimo

QUINCY, Mass. -- Stop & Shop Supermarket has gone a step beyond the ordinary with its Bestsellers! entertainment software departments.

While most supermarkets have an institutional and in-store separation between video products and books and magazines, this Ahold USA division has put them together in an attractive department at the front of many of its stores, and combined them with items not usually carried by grocers, such as music, video games, comic books and related licensed products. As the name implies, assortments are limited to best-selling titles.

As an experiment, this has been newsworthy, but the 5-year-old program has grown to 105 sections out of about 350 stores, and the retailer is adding over 20 a year, said Marco Cunha, buyer. That is why Stop & Shop is named SN's Supermarket Video Retailer of the Year.

"Our overall marketing strategy is to make our customers' lives a little bit simpler. What Bestsellers! does is allow us to enhance the one-stop-shopping experience for them," said Peter Hettinger, vice president, nonfoods, Stop & Shop.

The success of the Bestsellers! concept, Hettinger said, "is the operational commitment, it's the willingness to take chances, and it's a good solid sales program on a weekly basis that focuses on the right items, on what we think is going to be hot for the week."

"It takes dedication and commitment to the categories from a corporate and a store level -- Stop & Shop has a true dedication and a real commitment to the categories," said Cunha of the strategy behind Bestsellers!

It is that commitment to the entertainment section that industry observers said has really moved Stop & Shop to the leading edge of the industry.

"Commitment breeds success. Stop & Shop commits resources, including personnel, space, store design, marketing programs and the right product to succeed," said Bill Bryant, vice president of sales, Ingram Entertainment, La Vergne, Tenn.

Stop & Shop opened its first test Bestsellers! department in 2000, gradually increasing the number of sections over the next four years. During 2004, the chain expects to add 20 to 25 new Bestsellers! sections, and to continue at that rate into the near future, Cunha said.

Back in the early 1980s, Stop & Shop was a pioneer in video rental with some of the industry's first offerings. The program grew from small, shared-revenue sections to large, store-within-a-store live inventory departments. At its peak, the chain had 60 in-store video centers, according to industry sources familiar with the chain.

The retailer opened several stand-alone stores adjacent to supermarkets in the mid-1990s, according to SN reports at the time. The company began to exit the rental business in 1996, while signaling it intended to remain a player in sell-through, SN reported.

Beginning in the late 1990s, Stop & Shop started to look at closing the gap between its stores and the mass merchants, said Hettinger, and saw the mass operators were doing a huge business in the entertainment-related categories. Five years ago, that was an aggressively expanding area, he pointed out.

Stop & Shop went to an outside company, then called Columbus Circle, which is now part of Shalek Advisors, Purchase, N.Y., to help it revamp its entertainment offerings.

"It's a little scary. Stop & Shop was very brave to take on this concept," said Nancy Shalek, president, Shalek Advisors. Shalek was part of the development process of the Bestsellers! concept.

"In a sense, this is very antithetical to the way supermarkets think. That was probably the biggest challenge and has been the biggest part of the success [of the section]." Successful implementation required retail personnel committed to staying on top of the right product mix and willing to bear with the operational initiatives at the corporate and store levels, Shalek said.

Implementing the concept, while something that most supermarkets could and should do, required courage and faith on the part of the retailer, she pointed out.

"We've been pretty successful in closing the gap with mass merchants, at least making it less of a huge difference, and in general, we've been successful at putting ourselves in a position relative to supermarket and drug competitors," Hettinger said.

"Stop & Shop has proved that the leap of faith can be taken and does pay out. All of the issues involved, from shrink to inventory management to operational intensiveness, are daunting challenges for most retailers. But once you make that leap, the rewards are there," Shalek said.

Typical Bestsellers! departments measure about 120 linear feet and 1,600 square feet, and are located at the front of the store. In Stop & Shop's new prototype supercenters, the sections are in the center of the front end. In retrofitted stores, the location is determined by specific store constraints. There are also outposts of entertainment products throughout the store, particularly at the front end.

Departments are laid out with two 40- to 45-foot gondola running down either side and four islands in the center. Two of the islands feature promotional merchandise, one is a music island, and the other holds the top children's licensed merchandise. The main gondolas are divided into set sections: Eight feet of wall space is given to video games and computer software, six feet and two feet, respectively; 16 feet on one side is dedicated to video and DVD releases, eight feet of children's and eight feet of general releases. The rest of the section is divided between books and magazines.

Shrink is addressed with a multi-camera, closed-circuit television system and by protecting high-theft targets like DVDs, music and games with plastic cases that must be opened with a special key at the checkouts, SN found in store visits. Stop & Shop executives declined to speak about shrink.

The Bestsellers! sections open to the front of the store with theatrical, interactive displays that attract attention and traffic, Hettinger added.

"It is an interactive department with a very eye-catching design package. It's kind of theatrical, and has a bit of flair. It naturally draws people into the aisle, particularly children," he said.

Products featured within the stage set by the section design are carefully chosen based on best-selling authors, top-grossing box-office movies, industry buzz, marketing support levels and other indicators, Cunha said.

By limiting the products offered within that layout, Stop & Shop is able to maximize the profits of the space, said Shalek. Typically, out of the hundreds and thousands of CDs or movies released every year, most profits are generated by only a handful, she pointed out.

A specialty store, such as those in video, needs to carry the full run of inventory, including stockkeeping units that don't generate a profit; supermarkets are free of that, she said.

"When you're a supermarket and someone is coming to you, not for videos, not for music, but for food, you're able to cherry-pick the sales and offer them only the products they are most looking to buy," she said.

Supermarkets typically try to offer consumers every variety of a product that they could possibly want in an effort to meet any demand. With entertainment products, those needs can be addressed in a more targeted manner by limiting the assortment to top sellers, Shalek said.

This is an idea retailers in other channels have grasped, but the supermarket approach has typically been very different, industry observers pointed out.

"Bestsellers! Entertainment sections have enabled Stop & Shop to become a destination for entertainment product, very similar to the big-box mass merchants. Consumers learned and now expect to find the latest entertainment products at Stop & Shop," Bryant said.

The concept of the sections, Shalek said, is built largely around convenience and ease of purchase for the consumer.

"If you recognize that supermarkets are convenience destinations for these kinds of products, you have the opportunity to price them from the convenience point of view. You don't have to be the cheapest video store on the block. You are going to be the most convenient video store on the block," she said.

When Less Means More

QUINCY, Mass. -- Video product like DVD isn't the only entertainment software category getting top billing in the Bestsellers! sections at Stop & Shop.

Following its pattern of innovation in sell-through VHS and DVD, Stop & Shop extended its vision to other related categories. Books and magazines have come to play an important role in the video sections' success.

Of two gondolas running down either side of the entertainment section, 32 to 36 feet are dedicated to books on one side. Magazines take up the remaining 26 feet opposite of that.

Stop & Shop's in-store events have drawn attention to its book section, helping to build its high profile, according to Marco Cunha, buyer for the Bestsellers! departments. The store holds as many book signings as it can schedule, he said. Recently, one Stop & Shop hosted a Mary Higgins Clark signing in a store in Aberdeen, N.J.

"Everyone is trying to get book signings. We'll request several throughout the year and we land a handful," he said. The stores have held other successful in-store events. For example, the New England Patriots showed up to do signings in Quincy, Mass., and Pembroke, Mass., when the Super Bowl DVD was released, Cunha noted.

Stop & Shop also tweaked the magazine category. Integral to the Bestsellers! concept are outposts of entertainment product throughout the store, including the front end. Books, magazines and videos find their way into many departments, including food, said Nancy Shalek, president, Shalek Advisors, Purchase, N.Y.

Traditional impulse items like batteries, film and magazines were rearranged to make room for books and videos. This required another leap of faith for Stop & Shop when it had to initially give up the placement income of some magazines, she said.

"We more than made up for it in sales not only of the books, music and video, but also of the magazines by putting the right magazines there," Shalek said.

In the Bestsellers! sections, the magazine offerings have been limited, like the other categories, to only those that sell best. Shalek estimated that the store went from 1,500 magazine titles to just over 200, which resulted in improved sales.

"Where you place the product and how you place the product is critical. The section is laid out to facilitate easy and quick sales," Shalek said.