KROGER GETS BACK INTO VIDEO RENTAL

DAN ALAIMO

HOUSTON -- Kroger Co.'s Southwest division has put video rental departments into 16 former Albertson's stores it purchased recently, almost all in this metropolitan area.

The departments have about 2,000 rental units in 225 to 335 square feet, said Dwight Mason, chairman, B&M Video, New Braunfels, Texas, which racks the sections on a shared-revenue basis. The first section opened in mid-May and the last one, in Sulphur, La. -- the only one not in the Houston area -- opened in mid-June, he said.

B&M also racks 204 departments for Albertson's, Boise, Idaho, and based on his experience with new rental operations, the Kroger sections are "doing very well, way beyond my expectations," Mason said. "They are way above average compared to other new stores we have opened. They are always busy. The best hours are from 9 in the morning until 10 at night."

The new sections could indicate a strategic about-face for the nation's second largest grocery retailer, at least for stores operating under its Kroger banner, which have mostly abandoned video rental in the last few years, said industry observers. Kroger, based in Cincinnati, declined comment.

However, during this time, some of Kroger's other banners, like King Soopers, City Market, Dillon and Smith's Food & Drug Centers, have maintained their video rental departments and done well with them, the observers said. All Kroger divisions have continuously offered sell-through video, they said.

"The success of these 16 Kroger rental departments may be the beginning of a new commitment to video rental within the Kroger Co.," said Bill Bryant, vice president, sales, Ingram Entertainment, La Vergne, Tenn. Ingram is B&M's video distributor.

"There is a possibility of expanding the number of Kroger stores," Mason said, although he would not comment further on that topic.

B&M is now negotiating with "several" supermarket chains about putting in video departments, Mason said, declining to identify these companies. "We have been swamped with requests to come into other stores," he said.

The Kroger departments are located adjacent to a customer service desk and compete well with video specialty stores like Blockbuster and Hollywood, which are usually located near the supermarkets hosting the rental sections, Mason said. One reason for this is lower pricing -- new releases are $1.99 for two nights and library titles are as low as 49 cents for two nights, SN found by calling stores -- and another is customer convenience, Mason said.

"You must have virtually all the new releases or you will lose your customer very fast. If you try to get by on older new releases or library titles, you are not going to make it," Mason said.

In the Kroger stores, B&M supplies the rental inventory only. Kroger handles its own sell-through product, he said. "We have games and everything that a Blockbuster would have, except not as much inventory," he said.

B&M puts a big emphasis on DVD in the Kroger rental departments, going with a 50-50 mix at a time when many other supermarket departments carry 30% DVDs and 70% VHS tapes. The reason other retailers don't buy more of the less expensive and more profitable DVDs is they are misreading their customers, Mason said.

Shoppers will pick up the DVD version of new releases first and then take the VHS tape when DVD is not available. Nearly all owners of DVD players also have VHS machines, and not many have the home theater equipment that takes full advantage of DVD's capabilities, Mason said. "So we never got any complaints about being out of DVDs as long as we had VHS copies in stock," he said. He said he ran a test to find out what really was going on.