SOARING WITH VIDEO

DAN ALAIMO

PITTSBURGH -- This Iggle is flying high.

Iggle Video is the home entertainment operation of Giant Eagle. Compared to other supermarket video-rental programs that crashed to earth in recent years, it is all but defying gravity. The name "Iggle" is derived from a local pronunciation of "eagle."

Excellence in marketing, merchandising and buying, and a willingness to seize on future trends, not just wait to follow them, are all hallmarks of Giant Eagle's video program. The result is a business that competes well with the big video chains like Blockbuster and Hollywood, with arguably more staying power because of its location within a major regional supermarket, said industry observers.

That's only part of the reason why SN selected Giant Eagle as its first Supermarket Video Retailer of the Year.

With a strategy in place for dealing with the rental trade, Giant Eagle has now set its sights on increasing its sell-through market share by going after the mass merchants and electronics stores, said Chuck Porter, director, Iggle Entertainment and Video, Giant Eagle, in an exclusive interview.

"There seems to be a shift to the sell-through business driven by DVD and driven by what the studios are doing with the pricing," he said. "In the past, we didn't look at the Wal-Marts and Best Buys of the world as our competition, but we are looking at them as our competition now."

The retailer's success in video is due to the company's dedication to the category, the support of upper management, and "our willingness to change," Porter said. "It is not a static category. You constantly have to review it and make whatever changes are appropriate to drive your business."

This is well-recognized in the supplier community. "We have great respect for Giant Eagle's total commitment to the rental category, and this is reflected throughout their entertainment departments," said Bill Bryant, vice president, sales, Ingram Entertainment, La Vergne, Tenn. "Giant Eagle is undoubtedly one of the top VHS and DVD retailers in the country, commanding great respect within the industry," he said.

"There's nobody in their league. There's nobody even close to being in their league," said Andrew Miller, director, supermarket division, Rentrak Corp., Portland, Ore. "They've been ahead of the curves; they've been innovative. They have been very professional about their approach to the business. They are just the number one supermarket video account."

Giant Eagle began its video program with the price-oriented, non-live departments that were common to supermarkets in the 1980s and evolved them into attractive, well-merchandised, 2,500-square-foot, store-within-a-store departments with separate entrances.

The retailer now has 86 of the newer-format, store-within-a-store departments and 16 of the older non-live sections, which continue to do good business, he said. Giant Eagle services a total of 212 corporate and independent stores in Pennsylvania, Ohio, West Virginia and Maryland.

Along the way, the retailer has experimented with much larger stores -- some almost twice the size of the current prototype -- and a wide variety of entertainment products, including games, audio books, music, computer software and sales of hardware like game systems and DVD players.

Some, like the video games, have become an integral part of the operation. Game rentals now comprise 10% to 11% of overall rental revenues, similar to the video specialty chains, Porter said. Audio books continue as a convenience offering where there is demand, while music and computer software have fallen by the wayside, he said.

The move to live inventory departments in the late '80s and early '90s was a turning point for Giant Eagle's program. "We saw a major bump in our video volume. We also saw a corresponding bump in our store volume. We took that concept and decided that's the business we wanted to be in," Porter said.

Like other retailers, Giant Eagle saw its rental business begin to decline in 1998 when Blockbuster shifted strategies and brought in huge quantities of new releases through shared-revenue programs negotiated with the studios. Some retailers got out of the business entirely, and Giant Eagle closed many of its non-live inventory departments, he said.

"We decided that we wanted to be what Blockbuster and Hollywood were in terms of copy depth and variety, and the smaller departments wouldn't allow us to do that," he said. "At that time, we entered into some agreements with studios for revenue-sharing and copy-depth programs, which we found to be extremely good for our sales volume. We saw an immediate bump," he said.

"Around that time, we talked to all the studios about doing more and more deals. We started participating in most of the studio programs that were available to us. We pushed a number of studios to develop programs," Porter said. Ingram, the retailer's primary video distributor, facilitated many of these discussions, he added.

But that was also a time when Giant Eagle was cautious about where it placed departments, avoiding locations with big specialty stores in the immediate vicinity. That has changed, and the only new stores where the retailer won't place video departments today are those without the space needed for an Iggle Video department, Porter said.

"Now we are going in regardless of whether Blockbuster or Hollywood are there or not. I think we can compete with the chains that are out there," he said.

Giant Eagle's new-release copy depth, DVD and game inventory is similar to the big chains, he said. "Our strategy is to be comparable to them in everything except catalog." DVD is now slightly over 30% of the overall rental inventory, and 40% of new releases, he said. "We are bringing in more DVD catalog because [the video chains] have gotten ahead of us slightly, and we are addressing that."

But the rise of DVD has shifted some customers' shopping patterns from renting to purchasing, and Giant Eagle is responding with more sell-through product, Porter said. "We hope to grow the sell-through business dramatically. That will be our focus in the coming year," he said.

The retailer has always merchandised the hit sell-through titles on the main sales floor of the store, but is now experimenting with DVDs there. "I believe we are going to get the sales results, but I don't have any idea what the shrink results will be," he said. Giant Eagle also plans to sell some lower-priced, under-$10 VHS product in the main part of the store.

SUPERMARKET VIDEO ALL-STARS

Many large, medium and small supermarket chains have vibrant video-rental programs deserving of recognition, according to suppliers and other industry experts contacted by SN.

Among the bigger chains are Albertson's, Boise, Idaho, which has had a long and consistent track record in video; several divisions of the Kroger Co., Cincinnati, including King Soopers, City Market, Dillon and Smith's; and the division of Safeway, Pleasanton, Calif., based in Bellevue, Wash., which has enjoyed sustained success.

Mid-sized chains with respected video programs include Wegmans Food Markets, Rochester, N.H.; Schnuck Markets, St. Louis; Hy-Vee, West Des Moines, Iowa; Price Chopper Supermarkets, Schenectady, N.Y.; Ingles Supermarkets, Asheville, N.C.; Shop 'n Save, Kirkwood, Mo.; Bashas', Chandler, Ariz.; and K-VA-T Food Stores, Abingdon, Va.

Many smaller chains are recognized by suppliers as having exemplary programs. Among them are Coborn's, St. Cloud, Minn.; Dierbergs Markets, Chesterfield, Mo.; C&K Markets, Brookings, Ore.; Harp's Food Stores, Springdale, Ark.; Reasor's, Tahlequah, Okla.; and Felpausch Food Centers, Hastings, Mich.