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HIVE EXCLUSIVE: DVD's Supermarket Sweep

28 Sep, 2001 By: Thomas K. Arnold

DVD may be putting supermarkets back into the video business. A studycommissioned by GoodTimes Entertainment finds that while grocers continue to exit VHS rental, they are casting a keen eye toward DVD.

An overwhelming majority of grocers surveyed said they plan to increase their DVD buys in the coming year — 85% of sellthrough grocers and82% of those who rent videos. Fourteen percent say they plan on cutting back on VHS rental inventories. In the last year, according tothe survey, 22% of supermarkets surveyed have exited the video business.

This doesn’t surprise analysts like Tom Adams of Adams Media Research. He notes VHS is on the decline across the board, as retailers of all classes of trade transition into DVD.But supermarkets, key players in VHS rental in the early years of the business, have grown increasingly frustrated with maintaining rentaldepartments.

“VHS rental is a labor-intensive business compared to what they typically do in supermarkets and, where there’s real strongcompetition from specialty chains, it’s just proven to be not all that profitable,” Adams says. The advent of copy-depth programs, he says, has aggravated this ill fit because it’s “made the buying side more complicated and strengthened their competition.”

DVD, however, is on such a surge that it’s hard not to make money, particularly since discs are available wholesale for about $17 and then sell or rent at the retailer’s discretion. “The margins are great and there’s a lot of sales momentum,” Adams says. “That’s the sort of thing grocers look for.”

Garry Brashear, manager of Sandy’s Grocery Store in Wilbur, Wash., says his VHS rental business is holding steady and DVD rentals and sales will join it in about a month. “We’re getting pressure to bring them in,”Brashear says, adding he’s concerned about the discs’ durability as a rental item, but no matter: “Everyone wants them.”

Mike Jurgensmeyer, v.p. of general merchandise for Schnuck Markets, a privately held chain of more than 90 supermarkets in the Midwest, says DVD “is clearly where the growth in the business is right now.” While the chain recently closed eight video rental departments and now rents videos in only about half its stores, DVD is rapidly being incorporated.

“To some extent, we began bringing in DVD two years ago,” he says. “But it really jumped right after last Christmas, when players becamereasonable.”

While many supermarkets plan on, or are already, selling DVDs to consumers, it is interesting to note they are drifting away from sellingVHS cassettes. Only 55% of supermarkets surveyed said they sell cassettes. Of the grocers who don’t, half had previously sold cassettesbut discontinued the practice, mostly in the last year.

The two areas of sellthrough in which grocers remain strong are budget VHS and special displays. The survey found 63% of cassettes soldat supermarkets are priced at $10 or less, while 67% of grocers say they merchandise videos outside designated video sections.

Bill Sondheim, president of GoodTimes, says he commissioned the studybecause he’s determined to make further inroads into a class of trade he believes is a perfect match for his company’s product. Sixty percent of GoodTimes’ product is priced below $10, he notes, and that plays rightinto the hands of the impulse buyer who tends to buy videos at the supermarket.

Sondheim also is encouraged by the fact that grocers like to merchandise videos outside designated sections. This holiday season, he says,GoodTimes is providing grocers with a special display for the recentRudolph the Red-Nosed Reindeer movie, and anticipates shipping 500,000units into the supermarket channel thanks to a national cross-promotion with Pepsi. “While video departments have slightly shrunk, the survey shows that supermarkets continue to have significant amounts ofmerchandise outside the video area,” he says.

Schnuck Markets’ Jurgensmeyer agrees, noting that while only about 50% of his supermarkets have video departments, “certain[sellthrough] titles we send out to all our stores.” These include Shrek, The Mummy Returns and “all the Disney titles,” he says.

Sondheim downplays the significance of grocers cutting back on VHSinventories, maintaining that the exodus is actually slower than that of other classes of trade. He notes the survey shows children’s and familytitles generate half of supermarkets’ overall video revenues. “These are the genres we repeatedly hear have not yet taken off in the DVD format, so we consider this an excellent channel to pursue,” he says.

The survey was conducted by Redhill Group Inc. of Irvine, Calif., which interviewed nearly 150 supermarket video buyers throughout the country in August.

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