RALPHS BECOMES PLAYER IN MUSIC SELL-THROUGH

DAN ALAIMO

COMPTON, Calif. -- In its first step toward becoming an aggressive player in entertainment software in southern California, Ralphs Grocery Co. is rolling out an in-line music sell-through program to all its stores, said Graham Lee, vice president of general merchandise-health and beauty care. "The corporation has determined that it is going to make a major commitment to home entertainment, and this is one of the first segments we are getting into," said Lee. The departments, which Lee said will carry about 1,000 compact discs and cassettes, are currently located in 18 stores, he said. They are 12 linear feet with an end-cap.

Ralphs may extend the program to as many as 100 stores within the next 12 months and then to all its stores within about 18 months, he said. Following its merger with Food 4 Less Supermarkets, La Habra, Calif., Ralphs will have about 280 stores, he said. "We are looking for categories that we don't currently do business in, trying to get the other guy's sales," said Lee. Ralphs regards music specialty stores as its primary competition in this area, he said. "Music was a category that we thought would have some opportunities in the grocery business." Although other retailers have offered music in the past, this will be the largest music program in conventional supermarkets at this time in this country, said industry observers. If coupled with a major commitment to video rental, Ralphs could become a leader in the merchandising of entertainment software, they said. The chain already carries all the big sell-through video hits, and has an ongoing program of special in-and-out video and music promotions. "Home entertainment is an area that has not been fully explored

by supermarkets," he said. Besides rolling out the music program, Ralphs also plans to add more video rental departments, he said. "We are now exploring locations throughout southern California for additional expansion," said Lee. The retailer currently has three rental departments that are run on a leased space basis by Supermarket Video, Encino, Calif., a joint venture of Rentrak, Portland, Ore., and Japan's Culture Convenience Club. The in-line sections and many of Ralphs in-and-out music promotions are supplied by PS Enterprises, Santa Fe Springs, Calif., said Lee. PS distributes the products and also services the in-line sections, he said. "Our relationship with Ralphs is excellent in this portion of the music business. They are certainly a leader in terms of supermarket music sales nationwide," said Dave Meek, vice president of PS Enterprises. In visiting a Ralphs store in Westchester, Calif., SN found that the section was located in a center aisle at the front end of the store, with a prominent end-cap facing the checkouts. The music section was named "Music Connection," but the name is being changed to "Ralphs Music Choice" because of a trademark conflict, said Lee. CDs and cassettes were merchandised on attractive black-and-white wooden fixtures.

"We wanted the design to be somewhat upscale," said Lee. "It had to be functional and it had to be contemporary." The section was set apart from the sell-through videos in the store. The next step will be to introduce a check-stand rack for the program that will be used in smaller stores, said Lee. It will offer an assortment of 30 to 40 titles. "That will give us the opportunity to do some chainwide promotions, which is where we need to be," he said. "We are designing it ourselves and it will be out probably in the next three to four weeks," he said. Because of its smaller size, the new rack can be rolled out faster than the 12-foot sections, he said. The inventory at the store visited by SN included about 800 CDs and 300 cassettes. The selection featured a wide variety of music, with emphasis on pop and children's. It also included country, rhythm and blues, jazz, easy listening, classical and sound tracks. Budget products were mixed in on the racks with current hits. Children's products were merchandised on the bottom shelf of the in-line rack and on a freestanding Walt Disney Records 200-unit display unit adjacent to the checkouts. The selection included Disney read-along book and cassette products priced at $4.99, and Disney movie soundtracks, such as "Aladdin" and "Snow White" priced at $14.99 for CD and $9.99 for cassette. Lee said the chain is learning as it goes along about what the ideal assortment should be. For example, children's titles will be cut back in favor of more hit products. "We find that it really is the Top 40 that motivate the sales in that category," he said. Pricing in the Ralphs music section was competitive with music specialty stores. For example, Bruce Springsteen's "Greatest Hits," The Eagles' "Hell Freezes Over" and Elton John's "Made in England" were priced at $14.99 for CD and $9.99 for cassette. "Those who are more than casual purchasers of CDs know what the price range should be. We find that we have to stay pretty close to that," Lee said. So far, the retailer has used dollar-off coupons to promote the section. The music business "is a low-margin category," said Lee. "It's very competitive, yet the numbers are such that the incremental sales make it worthwhile for us to continue," he said. Most of Ralphs' music sales are now coming from impulse purchases, he said. Many retailers stop short of carrying hit music titles because of concerns about shrinkage. But radio frequency devices that use technology from Checkpoint Systems, Thorofare, N.J., are attached to the products and have helped Ralphs meet this challenge, he said. Shrinkage "is a significant issue with this category. It is something that had to be dealt with, but we are comfortable that we are doing OK with it," said Lee. The shrinkage problem is no greater for the Ralphs music sections than for any other product in the store, said a source in the music industry. The in-line program builds on Ralphs' success with aggressive in-and-out music promotions. One such program began on June 15 when Ralphs advertised "Motown Legends" recordings, with compact discs priced at $5.99 each or two for $10, and cassettes at $2.99 each or two-for-$5. The series included compilations from artists like Diana Ross and The Supremes, The Temptations and Michael Jackson.