Blu Skies Ahead

JIM KAROLEFSKI

As a successor to the DVD format, Blu-ray is still in its infancy at supermarkets.

When Blu-ray first hit store shelves, the buzz surrounding the format's undeniably sharper picture and sound quality superseded consumer acceptance, at least in the grocery channel. That's not to say sales have been poor. But with a format that is still largely confined to mass merchants and electronics stores, supermarkets are largely approaching Blu-ray with caution, relying on tried-and-true blockbuster movies — surefire sellers — to test the waters.

For now. The general consensus is that Blu-ray rentals and sales will climb significantly in 2009, and supermarkets have a substantial stake in the game, according to the industry analysts, video executives, retailers and kiosk operators interviewed by SN.

“Some supermarket chains with dedicated space for DVD have committed to Blu-ray and are pleased with the sales results,” said Bill Bryant of Ingram Entertainment, La Vergne, Tenn. “The new format will continue to pick up momentum, and we expect to see far more supermarkets carrying Blu-ray by the fourth quarter of 2009.”

“Blu-ray titles for rental as well as sell-through are in demand from our customers at Food City supermarkets,” said Chris Smith, director of video/general merchandise for Abingdon, Va.-based K-VA-T, parent company of Food City. “We began first selling Blu-ray in 2007 and we've been renting the format since Q1 of 2008.”

While Food City's focus remains largely on new releases, the chain does carry a select amount of catalog titles.

Smith added that the continued drop in hardware prices will result in an increase in Blu-ray disc title availability going into the new year.

Indeed, hardware is the linchpin of Blu-ray penetration in households. Tom Adams, president and senior analyst for Carmel, Calif.-based Adams Media Research, projects 3 million Blu-ray players and 8 million Blu-ray-capable PlayStation 3 systems. “That's 10 million homes that will be able to play Blu-ray discs — the point where it becomes of increased interest to supermarkets,” he said.

Adams observed that a good portion of the American television audience views programming through a high-definition TV, and it will be very cheap to add a Blu-ray player to the mix next year as prices are expected to drop even further from their current low of $150 in some retail outlets.

Kroger Co. first began piloting sell-through Blu-ray discs at 10 of its 250 stores in its Southwest division in early 2008, according to Gary Huddleston, director of consumer affairs for the Cincinnati-based chain. “More stores in the chain are now carrying the format, and premium-priced titles are usually placed near the customer-service sections.”

Huddleston explained that locking the Blu-ray discs inside glass cases might keep them out of view of customers, even though this method would prevent theft on the premises. Where they are stocked now, he said, customer-service personnel can help explain to shoppers what Blu-ray actually is and what it can do.

Meijer, Grand Rapids, Mich., was one of the first mass-market retailers to offer a low-cost $150 Blu-ray player during the weekend following Thanksgiving. Meijer offers three models of players, with the high-end version retailing for about $300. The company also rolled back prices drastically on Blu-ray titles, marking them as low as $9.99.

Chuck Porter, director of video and entertainment, Giant Eagle, Pittsburgh, said that his company views the new format as a vehicle for growth as well as a way to get new business into stores. An advantage Giant Eagle holds over many mass-merchant competitors, Porter contends, is through the chain's fuelperks! program, whereby a customer who spends $50 in-store (on most anything, including Blu-ray) receives 10 cents off each gallon of fuel at any GetGo station.

INDEPENDENT THINKING

Among smaller supermarket chains and independents, embracing Blu-ray titles may not yet be the best move. For example, at Harp's Food Stores, Springdale, Ark., video specialist Kathy Magner said that the operator carried only one Blu-ray title, and it “didn't go over too well” with customers.

Meanwhile, McShans IGA in Brady, Texas, hasn't carried any titles in the new format at all. A member of the management team told SN that McShans will bring in Blu-ray “when the demand is there.”

Commenting on smaller operators, Greg Rediske, president, Video Management Co., Tacoma, Wash., said he sees “almost no interest” in Blu-ray right now, but thinks perhaps there will be more desire on their part after Christmas. More people owning high definition will also have a positive impact on Blu-ray, he said.

“The few stores I've seen that do carry them have only had marginal success at best because Blu-ray is still a techie format and hasn't become the new DVD yet,” he said.

KIOSK FACTOR

The movie rental kiosk industry is on a sharp uptick as rental chains are closing down stores and the economy has forced consumers to cut entertainment expenditures. It is estimated that consumers will spend $800 million at kiosks by 2010 — triple the amount spent last year — according to a report by Convergence Consulting Group, Toronto.

This is good news for grocers, who not only share in the profits of such kiosks when housed in-store, but also gain the benefits of extra customer traffic.

In November 2008, the No. 1 movie rental kiosk company in terms of sales — Redbox — began stocking some of its machines with Blu-ray titles at Wal-Mart Stores and other retail outlets. The company boasts 29 million unique customers to date and more than 12,000 kiosks.

“Redbox is currently testing Blu-ray title rentals at select locations in a limited number of markets nationwide,” Gary Lancina, vice president of marketing, told SN. “Each kiosk holds approximately 700 DVDs, and the number of Blu-ray titles available in each kiosk varies by location.”

In Lacina's opinion, Blu-ray has extended the relevance and viability of the DVD market, allowing the most robust at-home movie experience in a medium consumers prefer: DVDs. Redbox will be evaluating its Blu-ray test markets and extend availability if consumer demand warrants, he added.

DVDPlay, Campbell, Calif., the movie rental kiosk operator holding down the third-place position in the U.S. in terms of revenue, was the first to carry Blu-ray titles, in about 60 of its locations during a pilot in mid-2008. They can be found in select DVDPlay locations nationwide. The company currently has over 1,400 kiosks in a variety of major grocery retailers such as Safeway, Kroger and Albertsons LLC.

“Both the customer and industry feedback to our Blu-ray pilot has been positive,” said Melissa Moore, senior vice president of sales and marketing for DVDPlay.

MERCHANDISING

Analysts agree that Blu-ray purchases in supermarkets are strictly a convenience buy.

“Customers are going to the grocery store to buy their food, and they are going to see a Blu-ray disc on an endcap and realize that they do indeed want that movie,” said Ryan Kluger, president of Burbank, Calif.-based DVA, a company that buys and sells surplus video and audio inventory through retail. “There is a convenience for them to just buy it there as opposed to driving to another store just to save a few dollars.”

“The best place to put POP materials is near the front of the store where customers are waiting in line and can see the Blu-ray and DVD comparison,” said Paul Erickson, director of DVD and HD market research for DisplaySearch, an NPD Group company. “Also, there could be small screens in the cashier section, which would create a captive audience.”

If such a setup is not feasible, Erickson suggests one or two significant displays with larger screens where there is heavy foot traffic and everyone has to pass by it. To maximize Blu-ray sales, he added, grocers must educate customers as to the true visual quality of the format.