SUPERMARKET 4TH-QUARTER DVD SALES GROW SHARPLY: STUDY

Dan Alaimo

NEW YORK -- Supermarkets saw sales of DVD software units in the fourth quarter of 2002 almost double over the year before, according to the annual Holiday Market Snapshot study just released by Alexander & Associates, here.

The grocery channel was 2.2% of the total DVD sell-through market in units for the fourth quarter, Bob Alexander, president of the research firm, told SN last week. This is up from 1.2% in 2001, and 0.1% in both 2000 and 1999. Overall, brick-and-mortar retailers -- non-Internet outlets -- increased their share of DVD units from 81% to 91% from 1999 to 2002, he noted.

Recalling that supermarkets once had 10% to 12% of the video sell-through market, Alexander said that the upward sales trend indicates that they still have strong growth potential. "They are an important channel in the packaged goods entertainment business, although they don't have the share they used to have. But it looks like they have an opportunity to expand their share and become increasingly important in this market going forward," he said.

Supermarkets had a greater share of the DVD market among brick-and-mortar retailers in the top genres of hit theatrical product in the fourth quarter. For example, the grocery channel had 2.8% of the family live genre (in units), 2.9% of the family animated genre, and 2.4% of the comedy genre, Alexander said.

The grocery channel had 2.3% of the VHS sell-through units in the fourth quarter among brick-and-mortar retailers, he reported. The share of the top genres was even stronger for supermarkets in VHS with 3.5% for family live, 4.4% for family animated, and 3.2% for comedy, he said.

As supermarkets increase their DVD sales, "they are definitely growing faster than brick-and-mortar retailers on the DVD side and are essentially holding their own on the VHS side, showing a little bit of decline, but small," he said.

Overall, DVD spending has doubled every year since 1999, and Alexander estimates that DVD purchases were $8.4 billion for the full calendar year 2002.

"It's a dramatically increasing business, and it shows no signs of slowing down this year. In a time frame where you've got consumer confidence at the lowest point it has been in nine years, with surprising unemployment numbers and a lot of weakness in the economy, this is one piece that consumers are still spending money on," Alexander said. "Grocery stores are in a position where they could get into that."

Inflationary pressure on prices could end up helping supermarkets compete, as there might be fewer hit titles offered at the loss leader pricing that became so prevalent last year in other channels, he said. "I don't expect to see the kind of price cutting at the retail level, and at the supplier level, to be nearly as aggressive as it was last year. Maybe we'll even see some firming of prices," Alexander said. This is most likely to be the case with hit product. "That's the product you can demand the price for," he said.