VIDEO AT A CROSSROADS

DAN ALAIMO

Participants in this year's state-of-the-industry video roundtable are:

Laura Fisher, video coordinator/merchandising associate at Martin's Super Markets, South Bend, Ind. Martin's video operation consists of 12 rental departments in 17 stores.

Bob Gettner, video buyer/coordinator for B&R Stores, Lincoln, Neb. There are 11 video-rental departments in 13 stores.

Bill Glaseman, video specialist of Bashas' Markets, Chandler, Ariz. Within the 94-store chain, there are 42 video-rental departments.

Darlene Kiefer, services coordinator at Seaway Food Town, Maumee, Ohio. Seaway has 46 video-rental departments out of a total of 75 stores.

LOS ANGELES -- Video rental in supermarkets is at a crossroads.

As supermarket video executives travel here this week for the annual Video Software Dealers Association convention and National Video Week, they bring with them an agenda of deep concerns.

Participants in SN's seventh annual state-of-the-industry video roundtable said the market-share move by large video specialty chains like Blockbuster, Dallas, and Hollywood Entertainment, Portland, Ore., has cut into rental revenues. So far, the copy-depth programs offered by the studios have been mostly unsatisfactory to this class of trade, the retailers said in the roundtable, which was conducted by phone in the weeks leading up to the VSDA show.

"The biggest challenge is the copy depth at Blockbuster and Hollywood, plus the very high prices from the studios and their unrealistic buying programs," said Bill Glaseman, video specialist for Bashas' Markets, Chandler, Ariz. "Perhaps these are OK for large stores, but not in the limited space allotted to us."

At the show, the retailers are bringing a message to the studios: they need help or else their rental programs will be in jeopardy. "I hope the studios see that the grocers don't want to go out of the video business," said Bob Gettner, video buyer/coordinator at B&R Stores, Lincoln, Neb.

"It has been quite a year," said Darlene Kiefer, services coordinator for Seaway Food Town, Maumee, Ohio, who recently completed her first year as the chain's video buyer. Kiefer reported that the buying programs have become more flexible because "we have to put movies on the shelves at the right cost because we have to make a good gross profit and return on our investment, or we can't continue."

Kiefer called for increased cooperation between studios and supermarkets. "We both need to make money. We should see it more as a partnership to deliver the product to the customer and to make the customer happy," she said.

"We would like the studios to get rid of the programs and reduce the price," said Laura Fisher, video coordinator/merchandising associate at Martin's Super Markets, South Bend, Ind. "We don't want to get rid of our video rental departments. We really want to keep them, it's the fun part of the grocery store." But with the complicated buying programs and the heavy competition from the specialty chains, "it's hard for a grocery store to compete," she said.

But there are bright spots. Sell-through is doing well and, as the result of growing catalog-based programs in permanent sections, it is more profitable than ever. Many supermarkets have found DVD a valuable addition to their rental programs and they are looking forward to sales opportunities. Generally, supermarkets have moved more aggressively into DVD rentals than the leading specialty chain, Blockbuster.

The roundtable begins with a discussion of the biggest challenges facing supermarket video programs. Here is what the retailers had to say:

SN: What is the biggest challenge facing supermarket video-rental programs today?

GLASEMAN: I would say the biggest challenge is the copy depth at Blockbuster and Hollywood, plus the very high prices from the studios and their unrealistic buying programs. Perhaps these are OK for large stores, but not in the limited space allotted to us.

GETTNER: Copy depth continues to be our big, big issue. The Blockbusters, Hollywoods and Video Updates have such depth of copy, and get such a good deal as a result of their close ties with the movie studios. Whereas most of us grocery people still go through distributors and can't come close to those kinds of deals even if we went with a shared-revenue operation like Rentrak.

FISHER: The biggest challenge video departments face in supermarkets is space and the labor cost for occupying that space. Management figures out how many dollars you are making per square foot, and it is now very, very low for video. That's very important. So, when it comes to copy depth, we don't have the space to carry the product. You still want to give your customers variety, but yet you want to have enough copies of the good new titles, so it's a matter of finding a happy medium.

KIEFER: The biggest challenge is probably trying to find ways to compete with Hollywood, Blockbuster and, in our area, Family Video, and still be able to make a decent return on investment. Family Video is very aggressive. They are giving away a lot of free rentals, and they locate right on top of our very best stores.

SN: What happens then?

KIEFER: We really have a fight. We have been racking our brains to come up with a way to fight them.

It has been quite a year. This was my first year as a video buyer and it's just been quite an experience. I am happy to see that some of the studio programs have become more flexible and easier to participate in, because we know the more copies we have on the shelves, the more customers we can satisfy. But we have to put them on the shelves at the right cost because we have to make a good gross profit and return on our investment, or we can't continue. We both need to make money. We should see it more as a partnership to deliver the product to the customer and to make the customer happy.

SN: Do you believe there is a level playing field between the big specialty-store chains and other retailers?

KIEFER: No. Within the past year, year-and-a-half, Blockbuster and Hollywood have been given special deals that have hurt the whole industry really -- the revenue-sharing deals.

GLASEMAN: No. I think all programs are aimed at the bigger stores, but they are offered to everyone, I really think, to avoid legal complications.

FISHER: I believe that most of the programs are designed for big chains and not for supermarkets. They don't work for us.

GETTNER: The playing field is far from level, whether the studios say it is level or not. I can understand how the Blockbusters and others can get a better deal because they have more locations, but to get some of the deals that they are getting is just ludicrous. That type of stuff is not even offered to bigger supermarket chains. I keep hearing from the studios that they don't want to see the grocery stores go out of the video-rental business, but they need to react. The grocers don't want to go out. I'm hoping that our voices are heard through the VSDA and through the convention. But unless there's some money to be made, and soon, the grocers are going to go out of the video business.

SN: What would you like to be done about the playing field?

FISHER: Instead of the copy depth and all the other programs that they have out there, I wish they would reduce the price of the videos. That would make it easy for everyone.

KIEFER: I would like everybody to be given the same offer. If they are getting special prices on titles, it just makes sense to offer it to the whole industry.

GETTNER: The studios need to get back to the basics on either reducing price or just offer a very simple buy-one, get-one-free, buy-two, get-one-free type of program instead of all these goals you got to hit with different titles.

FISHER: We would like the studios to get rid of the programs and reduce the price. That way you can buy it, rent it and sell it.

We don't want to get rid of our video-rental departments. We really want to keep them, it's the fun part of the grocery store. But it depends on what is going to happen out there in the industry. If the Blockbusters and Hollywoods of the world can bring in 50 copies of a movie, guarantee it to be in and rent it for five days, it's hard for a grocery store to compete.

GLASEMAN: This may sound simplistic, but to have a true level playing field there needs to be one realistic price for all.

SN: You haven't mentioned revenue sharing. What do you think of that?

GLASEMAN: I don't think revenue sharing is viable. The different rental prices we have in our stores would not allow us to guarantee a set price per transaction for rental, like Rentrak requires. There are times when we have to go into a competitive situation and have a lower price for a while, and it would be lower than what we'd expect to share with the Rentrak program. At this point, I don't think the arrangements they have would work with us.