SMITH'S PLANS TO ROLL OUT CD VENDING MACHINES

DAN ALAIMO

SALT LAKE CITY -- Smith's Food & Drug will roll out vending machines selling music compact discs to 27 of its 29 southern California stores by mid-June. The first two Smith's vending units were installed in late May in stores in Mission Viejo and Yorba Linda, said Peter Folger, president of Vending Intelligence, Culver City, Calif. Located near the video rental departments, the machines stock 48 different titles of the top hits, with 850-1,000 units of inventory, he said. Smith's executives declined to comment. Additionally, Vons Cos., Arcadia, Calif., extended its test of the CD vending units from seven to 13 Pavilions format stores last month, confirmed Julie Reynolds, senior communications director. Vons began the test last October. Hughes Family Markets, Irwindale, Calif., has the machines in three stores, and Alpha Beta, La Habra, Calif., has one machine. "We are testing it right now and taking a look at customer reaction, which has been positive so far. The machines are doing well," said Reynolds. "It's considered an alternative sale opportunity." Revenues from the first Pavilions' machines have increased about 15% a month since they were installed, noted Folger. "We will consider expansion based on continued customer response and available space for the machines in our stores," said Reynolds. The retailer would not divulge its timetable for rolling out the units. "However, our customers can look forward to seeing more of the CD vending machines in our stores," she said.

Folger hopes to extend the program across the country later this year. "We will definitely be in one or two more major chains. They will probably be in Florida or the Northeast, and we also are looking at a chain in Tennessee for country music," said Folger.

Unlike Pavilions, Smith's sells recorded music in its secured video departments, but the company has found these products to be problematic, said Don Klostermann, marketing director of Vending Intelligence. "Music is a tremendous hassle for Smith's to retail, although they believe in it as a viable service," he said. The vending program eliminates issues like shoplifting, staffing and returns, he said. The buyers "no longer have to be concerned with analyzing the music industry. They can devote their attention to things that may be more fruitful and less time consuming."

CD shrinkage also is a concern at Vons. "The vending machine technology makes it available to sell this product in a supermarket while protecting it from the risk of theft," said Reynolds. Customers find the machines convenient, because of the three payment options they offer -- cash, credit card or ATM card, she said. By pushing the large buttons, which contain the image of the CD's cover art, people can sample a passage of the music through the machines' audio system. "The vending company maintains current titles are competitive, usually a dollar or two cheaper than at a record store," she said. CDs that have a list price of $12.99 sell for $9.49, while those that list at $16.98 sell for $13.99, said Folger. The retailers' acceptance of these machines "means that they understand the widespread and cultural appeal of music and the value that it brings to their stores," said Folger. At Hughes, the CD vending program has not done well enough to merit expansion, but not badly enough to be discontinued, said Wayne Streva, liquor buyer-merchandiser. "It's not taking up space that I need for anything else and it serves a purpose for the customers. It's a turnkey operation and it's rare that we get a customer complaint," he said. Hughes has the machines in the front lobby of its stores. But the vending machines do better when they are inside the store, somewhere near the front, said Klostermann. "The machines that do best for us are in an end-cap position." They do equally well in food or nonfood areas of the store, he said. The location near the video departments in the Smith's stores is ideal, he said. "That will allow us to be part of that entertainment department and do cross-promotions with them. We will be able to draw that entertainment-driven customer to that section of the store," he said. The product mix of the vending machines includes adult contemporary, top-charted rock and roll, soundtracks and children's music, along with country, jazz and classical, said Folger. "It is quite a broad offering and everything in there is top product. These are the same new titles that you would find up front in a record store," he said. Product sales mirror those of the national charts, but because the supermarket machines appeal to an older clientele, adult contemporary moves best, he said. The soundtrack from "Philadelphia" was the best-seller in March for the supermarket machines, he noted. "We have made it a policy to not carry explicit-version urban rap, and that policy has hurt us monetarily. Record stores make quite a bit of money on that genre, but we don't think it is appropriate for the supermarkets," said Folger. The company hopes to test compact disk read-only memory vending machines later this year, he added. "Since that product is also sold in a jewel box, it is completely compatible. We are following that trend very closely because it is a medium of the future and right now it is not widely available," he said. "I'd like to get it started before the end of the year, because there is going to be a big push on CD-ROM this Christmas. All we need to do is find the right chain and the right CD-ROM publisher to work with us," said Folger.