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24 Feb, 2006 By: Erik Gruenwedel

Home video is attempting a comeback at the grocery store.

Studios and distributors agree the halcyon days of supermarkets devoting significant shelf space to video sales and rental are gone. The culprits: the shrinking rental business and sellthrough pricing pressures.

At most supermarkets that still carry home video, DVD has been marginalized to freestanding 20-unit displays made of corrugated cardboard and often haphazardly placed throughout stores.

“Supermarkets are very limited in space when it comes to something ancillary like video,” said Dan Gurlitz, VP of video at Koch Entertainment. “There's definitely been a decline for us as supermarkets exited the rental business. That certainly affects the sector.”

Supermarkets generate a little less than 7% of overall video unit sales, a figure that's held steady from 2005 through the first month of this year. Meanwhile, pricing has dropped.

Grocer space for new releases — once seen as impulse buys — has begun to erode due to downward pricing, which has store owners questioning whether it's worth the shelf space. Mass merchant loss leader pricing has made it hard for grocery stores to compete on the high-profile titles.

“When you are not fully focused on video, you are going to focus on one or the other [new release, catalog], and merchants who haven't made a full commitment to video focus on new release, which is the most competitive category,” said Don Jeffries, SVP of sales for 20th Century Fox Home Entertainment.

As supermarkets ceded prime video shelf space to mass merchants, including Wal-Mart and Target, 30-day point-of-purchase racks and so-called “speed displays” with single and multi-title genres emerged, often maintained by distributors.

Kirk Kirkpatrick, president of wholesaler WaxWorks, said grocery stores are opting for the relatively risk-free programs in which a selection of titles come in for about three weeks and then leave. He said niche product with relatively short windows of opportunity, such as fitness and lifestyle, could provide additional sales if offered at an impulse price less than $10. Other genres include children's, action-themed and budget.

“We create the unit packs with a sell sheet and POP [displays] and tell them what they can make and to return what they don't sell,” Kirkpatrick said. “It doesn't work for everybody. They have to be willing to put it on the floor and really merchandise it.”

At many supermarkets, however, POP displays often are relocated on a weekly basis from the front of the store, behind the counter, to the side of the store.

“Magazines, chewing gum, film, batteries are consistently placed in supermarkets every week,” Jeffries said. “Why should video be any different? Unfortunately, there is no guarantee [video] will be there every week.”

Faced with shrinking real estate at supermarkets, studios are encouraging stores to promote a blend of new releases and catalog titles. Already, catalog titles account for more than 50% of supermarket video sales, according to Kevin Sherwood, director of retail marketing at Fox.

With supermarkets, studios realize they have the ability to capitalize on a high volume of daily consumer traffic that ultimately lifts sales for the entire video category.

“I think a lot of chains are readdressing their status with video,” said Fox's Jeffries. “They all realize what video can do for them, from being an attractive traffic driver to increasing the average consumer ring [purchase].”

The Kroger Co., which owns Ralphs, King Sooper, Fry's, QFC and Pay Less Super Markets, among other chains, is in the process of expanding its home entertainment sections, according to several studios.

While Kroger wouldn't comment, sources say the company plans on rolling out shelf space sections as large as 24 feet in length in addition to new release racks by the register. “If this retailer gets it right, there will be a lot of other grocery retailers copying them,” said one studio executive.

Joel Goldman, VP of sales at Sony Pictures Home Entertainment, said a key to attracting the supermarket business is by “investing in their business.”

This investment includes supplying product racks, direct-selling titles and sending in merchandising experts who make sure the product is properly displayed. This frees up supermarkets to focus on other product categories.

“I think supermarkets are making a strong comeback and allowing progressive studios that are willing to give them a turnkey program to go in and manage the business for them,” Goldman said. “It is the only way to do business there.”

Another possible avenue for grocers to expand into video is with kiosks. The concept of video rental and sellthrough kiosks has been around for years, but it's been rarely considered by supermarkets until recently. The launch of Redbox video rental kiosks at McDonald's spurred a renewed interest in the concept, particularly in supermarkets where space constraints prohibit installing a full video-rental department. Coinstar, the company that places change machines in grocery stores, has taken a big stake in Redbox and is serving as the exclusive sales agent for Redbox in the United States for supermarkets.

Safeway last week announced it will begin test marketing vendor kiosks at select locations for assorted consumer electronics devices, including the popular iPod.

“Nothing replaces the revenue driven by personal attention given by a friendly associate, but video kiosks are an alternative way to offer entertainment product to the consumer,” said Leslie Baker, VP of sales, grocery and drug at Ingram Entertainment.

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