VHS KEEPS ON PLAYING

DAN ALAIMO / Additional Reporting: Stephanie Loughran

Lost in all of the excitement generated by the rapid growth of DVD is the continuing importance of prerecorded VHS tapes, especially in supermarkets.

Many industry experts predict a rapid demise for VHS, but history indicates otherwise. For example, although long given up for dead, Sony officially discontinued the Betamax videotape format only this year. Meanwhile, audio cassettes continue to have their adherents despite being eclipsed by compact discs years ago, and even have a stronghold in the audio book category.

Recorded entertainment formats have a way of hanging on, and with the still-increasing 94 million households with VHS players, compared to the rapidly growing 33 million households with DVD, the tape format has a strong present and a durable future, according to retailers and suppliers polled by SN.

And as other retailers abandon or cut back VHS, supermarkets have an opportunity to become a destination for the many customers who still cling to videotape.

"It's becoming difficult in our area for people to find VHS, and we've become a destination for it," said Brad Migneron, director of video operations, Dierbergs Markets, Chesterfield, Mo.

Harp's Food Stores, Springdale, Ark., has found that in some market areas, major competitors have eliminated VHS in favor of DVD, said Craig Hill, video specialist. Harp's even advertises, "If you've still got your VCR, we've still got the tapes," he said.

"We've capitalized on that in a couple of locations, and our VHS sales are still strong," Hill said. "I wish Wal-Mart would go strictly DVD. That would help us out quite a bit."

But Hill is realistic about where the video market is headed. "VHS will be strong for another year-and-a-half to two years, but after that I see a real surge in DVD," he said.

"Grocery has the opportunity to pick up big business that they previously had to fight for," said Kelly Sooter, head of domestic home entertainment, DreamWorks, Glendale, Calif. "Some retailers are a little quick to get out of VHS, and while consumers have been quick to embrace DVD, they're not quick to let go of VHS."

Most DVD households still have their VHS players, she said. "With strategic focus... VHS can be seen as a commodity at grocery. When strong family movies are in the $10 range within 6-12 months after initial release, that's a large, untapped business." Mass merchants and other channels are focusing on DVD, she said. "In grocery, you have displays near the front register. Consumers are not seeing that at other places where they shop," Sooter said.

"The new format doesn't mean the demise of the old format, but a sharing of formats," said Tim Gorman, president, Gorman Group, coordinator of the VHS Coalition of the International Recording Media Association, Princeton, N.J. "For every DVD disc sold, it's not a sale lost for VHS units."

Many executives polled by SN pointed out that the children's video market will continue to thrive on VHS for years to come.

While theatrical product is trending to DVD, preschool product is still 75% to 80% VHS, said Alan Fergurson, vice president, video sales, Sony Music, New York. "Mom and dad are watching DVD theatrical titles while the VCR is in the kids' playroom. However, there is starting to be a good transition of preschool titles to DVD," he said.

Retailers that cater to DVD "early adapters" like electronic superstores and mass merchandisers' supercenters have more children's DVD offerings, but "moms shopping with their kids at Kroger are still shopping for VHS," Fergurson said.

"For the family business, particularly, VHS is still a viable format that has considerable sales," said Ken Graffeo, executive vice president, marketing, Universal Studios Home Video, Universal City, Calif. "That should bode very well for supermarkets... it could be an opportunity for them. If it is becoming harder and harder to find VHS product, those who want it, particularly the families that are supermarkets' core customer base, will pick it up on impulse," he said.

"If all retailers go straight to DVD, they'd lose a lot of money on children's and niche home video products," said Pat Moran, analyst, Alexander & Associates, New York. Special interest titles, like how-to's and documentaries, will still have life on VHS, he added

"VHS sales will eventually decrease, but not as fast as people think they will," he said.

While DVD's growth remains impressive, VHS is still a viable and strong format, said Carrie Dieterich, vice president, marketing and industry relations, Video Software Dealers Association, Encino, Calif. She cited research from Kagan World Media, Carmel, Calif., that shows VHS hardware penetration rising from 92 million households in 2001 to 94 million by the end of 2002.

"Supermarkets [or any other retailer] need to make their product decisions based on what their customers want. Certainly, if an area isn't meeting consumer demand for VHS product, a supermarket could fill that gap," Dieterich said.

With VCRs still selling and with most U.S. homes having two or more of the videotape players, "there will be a market for VHS cassettes for years to come," said Bill Bryant, vice president, sales, Ingram Entertainment, La Vergne, Tenn. Fifteen years ago, "the music industry experienced a similar migration from cassettes to compact discs, and cassettes still exist today," he said.

For sell-through, "many mass merchants have removed VHS sections, and this creates additional VHS sell-through opportunities for other classes of trade," Bryant said. The ratio of VHS to DVD sales varies depending on whether a title is animated or live action. "VHS is still very strong for secondary animated titles."

Meanwhile, top hit animated movies are approaching 50% in DVD sales, while live action hit theatrical movies will soon surpass the 60% mark. "Many consumers are purchasing DVDs for movies that they collect in their libraries, while they are opting for VHS on the secondary or budget-priced releases," Bryant said.

Brad Kanne, vice president, sales and marketing, E.T. Video, Coon Rapids, Iowa, confirmed that consumers will buy the major titles they expect to keep a long time on DVD. But when it comes to low-priced catalog or previously viewed tapes, they will pick them up on impulse. "People are not going to go out and buy all DVDs if their home catalog is mostly VHS," he said.

"I don't think VHS can go away. There are too many VHS players out there," said a nonfood executive with a Texas retailer, one of several retailers interviewed on the topic during a recent conference of the General Merchandise Distributors Council, Colorado Springs, Colo. "But I think it is going to slow down, and I can see why Circuit City and other retailers have discontinued VHS. DVD is going to be where it's at, but VHS is going to be around for a while," he said.

"I think VHS will probably continue to have a slow decline, although I don't see it going away in a hurry," said Larry Ishii, general manager, GM/HBC, Unified Western Grocers, Commerce, Calif., also during the GMDC event. "Look at what happened to Beta. How many years did it take for Beta to finally go away? VHS might take an even longer time because it is so prevalent," he said.

"We still have a large demand for VHS in our area," said Richard King, director of category management, K-VA-T Food Stores, Abingdon, Va. "We will continue to follow the trends. We will continue to have VHS. But we are trying to offer both DVD and VHS at this point in time. As the sales ratio continues to go toward DVD, we will probably cut down some on the numbers of copies of VHS that we have," he said.

"DVD is growing a lot, and we are trying to grow with it," said Dan Spears, HBC/nonfood merchandiser, Ingles Markets, Asheville, N.C. But as new releases come out, the sales mix of VHS and DVD is changing, he said.

"We will still have some of the VHS and it will continue for the next few years, but I think it is definitely on the way down," said Charles Yahn, vice president, nonfoods, Associated Wholesalers, York, Pa.

"In Bashas' stores, DVD really defines the growth," said George Fiscus, vice president, general merchandise, for the Chandler, Ariz.-based retailer. "We are going to focus on DVD as we move forward. We are not ready at this point to say we are eliminating VHS, but if you look at the mix, it continues to move more and more toward DVD," he said.

DVD Keeps On Rolling

LOS ANGELES -- The DVD Entertainment Group here has again reported record quarterly sales for DVD software shipped to retail. In the third quarter, 153.3 million units were shipped, more than double the shipments of the same period a year ago.

Cumulatively, DVD movies and music-video shipments are now at 1.1 billion units since the format was unveiled in 1997, according to numbers compiled by Ernst & Young, New York, for the DVD group. Meanwhile, as the industry goes into the holiday selling season, the number of DVD players sold to consumers has reached 43.7 million, which the DVD Entertainment Group said, adjusted for multi-player households, means nearly 33 million U.S. homes now have DVD.

"The relevance to supermarkets is that DVD has now gone mainstream and DVD has now gone family," said Bob Chapek, president, DVD Entertainment Group, and president, Buena Vista Home Entertainment, Burbank, Calif. Two or three years ago, DVD was an "early adopter business" with appeal primarily to film buffs and cinephiles, he said.

"That has come full circle as DVD is now the fastest-growing consumer technology ever, and we are in the mainstream across America to all households. As a result, supermarkets are a perfect place now for this business to be leveraged," Chapek told SN.