SOFTWARE FINDS NICHE IN FOOD STORES

DAN ALAIMO

LAS VEGAS -- Computer software is finding a home in supermarkets. With computers now in nearly one-third of U.S. households, software sales in all retail channels are growing. In supermarkets, budget-priced software programs for less than $10 are doing especially well and low-priced CD-ROMs (compact disk-read only memory) at less than $20 are making inroads ahead of the computer industry's expectations, said suppliers interviewed during the Jan. 6-9 Winter Consumer Electronics Show here.

Many retailers are renting CD-ROM titles along with their videos and video games, said the suppliers. "I believe this will be the year when supermarkets go into the software business, because it's basic," said Kevin O'Leary, president of SoftKey International, Cambridge, Mass. "Up to a third of the people who walk into their stores have a PC at home." Recent market research bears out the suppliers' comments that computer software, including CD-ROM, is fast becoming a mass-market item. For example: -- Home computers are now in 31% of U.S. households, up from 27% last July, according to Odyssey LP of San Francisco. -- Of those, 30% have CD-ROM drives, up from 25% last July, reported Odyssey. -- CD software sales were up 282% during the first three quarters of 1994 over the same period in 1993, reaching $387.2 million, according to the Software Publishers Association, Washington. -- Games and other programs for home use are now the largest part of the software market, with sales of $35.9 million in the first three quarters of last year, up 201% over the previous year, noted SPA. -- Supermarkets, book stores and video stores as a group now represent 5% to 10% of software publishers' revenues, reported InfoTech, Woodstock, Vt. "As the prices have come down and usage goes up on computer products, there is a natural migration to nontraditional accounts, like supermarkets," said David Metzger, vice president of marketing for Memorex, Santa Clara, Calif. Brian Heberle, president of sales and marketing for Software USA Products, a division of Vertical Publishing, Canonsburg, Pa., agreed. "The future for supermarkets and software is limitless," he said. One company with experience selling low-priced computer software in supermarkets is Value Software Corp., Woodbridge, N.J. President Michael McGeeney, who formerly headed Grand Union's video program, cautioned that retailers need to grow this product area carefully. "It's becoming a category for supermarkets and they seem willing to go forward with it on a limited-growth basis, and that works best for us, too," he said.

Female shoppers, still the heart of supermarket demographics, are only now becoming aware of what is available in software products, a segment that formerly skewed toward males.

McGeeney predicts software will become a packaged goods item. "It is going to come to supermarkets because that is where the customer goes," he said. Helene Dashefsky, marketing coordinator for Micro Star, Carlsbad, Calif., said as computers become more of home items, they are going to consider buying them at the supermarket.

She said that while consumers may be reluctant to buy a $500 software application in a supermarket, "If it costs $4.99, and it's in the same price range as food products, it will work well mixed in with the food products."

As in any product on the supermarket sales floor, packaging and display are critical to computer software's success. Memorex, for example, recently came out with a special package and display unit designed especially for supermarkets and other channels that sell books and magazines, said Metzger. The company has a distribution deal with Warner Publisher Services, New York. The video rental department is the ideal location to merchandise computer software, said McGeeney of Value Software. "We've found the most success has come when the product is displayed in the video area, where the consumer is already thinking about games and video media," he said. In spite of the growth of home computers to date, Beverly Johnson, marketing manager for Cosmi Software, Rancho Dominguez, Calif., is not sure the category has reached mass market proportions yet.

"Computers are now in about a third of the households, and I think software needs to be available in a few more locations before the average consumer would be willing to buy software in the supermarket environment," she said. While CD-ROM sales will not take off in supermarkets right away, they will come soon, said Johnson.

Software in supermarkets will grow from the initial offerings of $4.99 to $9.99 shareware to the more interactive software products, said Jerry H. Pettus Sr., chairman of UAV Corp., Fort Mill, S.C. Shareware is a distribution method based on the honor system that allows consumers to try a software product for a low price and then register it with the publisher for a higher price. "I see it eventually going into CD-ROM, as well as to MPEG-1 CD-ROM in the future," said Pettus. "We see the 3.5-inch disk format gradually going away." MPEG-1 is a compression standard that enables full-motion video to be played from the 5-inch compact disks. Conrad Sprout, president of Hollywood Select Video, Chatsworth, Calif., said the industry it witnessing a growth of the entertainment center, the computing center and the home information processing center, which eventually will replace the typewriter and VCR. "As the volume and demand builds, we will see prices tumble [on the new technology disks]. Eventually, they will be comparable to paperback books," said Sprout, who is working with UAV on a line of MPEG-1 CD-ROM titles. What this means is that supermarkets carrying video and music CDs today are going to have an additional income structure that won't cut into their other business, said Sprout.

Some suppliers at Winter CES told SN that the CD-ROM segment in supermarkets is developing right now. O'Leary of SoftKey said his company was testing a low-priced CD-ROM line in supermarkets, but he would not reveal their names.

Currently, "nontraditional channels" -- the software industry considers supermarkets nontraditional -- are giving SoftKey about 2% of its business. "I am forecasting that is going to go up to over 10% by the end of the year. All of the tests that we have done in bookstores, video stores and convenience stores have resulted in fantastic numbers. From our tests, CD-ROM is moving. It is here to stay. It is being embraced by the consumer," said O'Leary. "The future of software in supermarkets in the year ahead is very strong," said Mike Rothstein, senior account manager for Sirius Publishing, Scottsdale, Ariz. "You will see a lot of CD-ROM software in the $9.99 to $19.99 range coming to the market. Once it hits that price point, it will become an impulse item for supermarkets." Sirius has tested a rack of $9.99 CD-ROM software in some Midwestern supermarkets, though Rothstein would not say where, "and the success rate was good. It is reaching the point where these CD-ROM products are becoming an item in supermarkets," he said. Value Software also has a line of CD-ROM products, but it has yet to take off in supermarkets.

Supermarkets may be starting out strong in the games category, "but eventually I think that, just like the office stores, it will start going into productivity and other consumer software," said Paul Gallagher, national accounts manager of 4Home Productions, Islandia, N.Y.