SELL-THROUGH SHOWS ITS CONTINUING STRENGTH

DAN ALAIMO

Sell-through video kept up its explosive growth in supermarkets last year, keeping pace with -- and by some estimates exceeding -- other classes of trade. Sales volume of sell-through products in supermarkets rose 18% in 1996 to climb to $1 billion from $860 million in 1995, according to Supermarket News' sixth annual State of the Industry Report on Supermarket Video. With mass merchants, electronics superstores and video specialty stores also boosting their sell-through programs, market share only rose slightly in 1996, from 13.7% to 13.8%. But supermarkets remain a potent force in the video industry with more potential for growth ahead.

SN projects another 19% increase for sell-through in supermarkets in 1997, with sales going to $1.2 billion and market share rising to 14%. (SN's research for the sales-volume numbers was based on multiple interviews with key video suppliers about growth and market share. The statistics cited above were derived from overall video-industry numbers provided by Adams Media Research, Carmel Valley, Calif.)

"There are just more supermarkets across the board that are making a firm commitment to video sell-through," said Bill Bryant, vice president of sales for grocery and drug at Ingram Entertainment, La Vergne, Tenn. "They are expanding their sections. Many of the supermarket chains are now in catalog video rack programs, so they are now selling higher-margin catalog video, as well as the new releases.

The percentage of sell-through movies coming from nonchildren's theatrical movies -- like "Independence Day" and "Twister" -- grew sharply last year, from 27.4% in 1995 to 33.2% in 1996. A slight increase to 34.8% is projected for 1997.

Most of these titles do well, said a video executive with a major Midwestern retailer, who asked not to be identified. "But each one has its own quirks," he said. For example, while "Independence Day" and "The Nutty Professor" did well, "Mission: Impossible" did not, he said. "We haven't seen the flow of titles slow down since last year. We have averaged one to two theatrical sell-through titles a month," he said.

One of the keys to sell-through success in supermarkets is getting product displays on the main sales floor, where more people will make an impulse purchase than if displays were in the video department or behind a service counter. This year's survey showed that more retailers are getting the message, with 88.1% saying they sell product in a main shopping area, up from 64.7% the year before. Properly displayed, "sales will increase 40% and up with product merchandised on the main sales floor," said Bryant. "It creates phenomenal increases."

Buena Vista Home Video, Burbank, Calif., has seen sales increases as high as 100% in stores that properly implement permanent displays, noted an official. "Permanent displays increase the selling life of promotional product and allow for greater placement of higher-margin catalog product," the official said.

The survey also found that 44.7% of retailers are expanding sell-through in inventory size, 44.7% offer low-priced in-and-out programs of under-$10 product, 10.8% are buying direct from a major studio, 10.6% sell only from secured areas or a service desk, 46.8% have an ongoing program in a permanent section, while 19.1% are expanding the number of those sections. Only 4.3% said they were cutting back or eliminating video.

"We added some permanent sell-through sections, as well as some sell-through shippers -- and the response was fantastic," said Denise Darnell, video supervisor for Southeast Foods, Monroe, La. "Now the customers are special-ordering movies, where before they would only pick them up on impulse if we had them," she said.

While the SN survey found rental margins are holding at levels close to previous years', sell-through margins declined sharply over the last three years, from 19.3% in 1994, to 16.1% in 1995, to 12% last year. Respondents projected a slight increase to 12.7% next year. This decline corresponds to the increased number of hit "event" movies being released direct to the sell-through market.

These titles are typically sold at prices very close to the retailers' cost. With more of the sell-through hits on the market, stores cannot carry as many of the lower-profile titles that usually bring higher margins, said industry observers.

To compete in sell-through, retailers can't avoid selling the hits near the minimum advertised prices set by the studios and followed by most discount stores, said Ron McMillin, vice president of sales for the Western region for Sight & Sound Distributors, St. Louis. The key to profitability is having a permanent section where they can sell the other products and get a "blended desired average," he said.

"You have got to blend the average margins of the titles that they can make money on with the event titles. The big advertising dollars from the studios drive traffic, but what they are really looking for is a profit center," said McMillin.

Computerized planogram systems help maximize the turns for those sections, he said. Shippers of mixed product put together by distributors also boost sales and profits, he said. When asked who their biggest competitor in video sell-through is, an overwhelming percentage -- 92.2% -- said it was mass merchants like Wal-Mart. Other supermarkets, electronics superstores like Best Buy and major video chains were cited by 2.6% each, and no respondent checked "other class of trade (drug, music, books, etc.)."

Best Buy used to be extremely aggressive on pricing the hits, often going below minimum advertised price, but has stopped in recent years, said the executive with the Midwestern chain. Overall, he sees his chain holding its own against the discounters.