Markets get dedicated to category

SUPERMARKET CHANNEL GUIDE: Grocers see opportunity, chance for sales

-- Video Business, 5/1/2006

Video industry executives are finding more and more opportunity as they walk down America’s supermarket aisles.

Video sales are increasing as chain and independent grocers alike grow more sophisticated in their approach to category management, merchandising, promotions and security. Product assortments are broadening to include a wider range of price points, and shoppers are showing a willingness to consider new product choices.

As supermarket executives ramp up their commitment to the category, so must studios and distributors, insist supermarket executives who turn to them for promotional and merchandising support.

Supermarket video sales in the peak fourth quarter of 2005 totaled 2.8 million units, up 8% from 2004’s 2.6 million, according to Russ Crupnick, president of research firm NPD Music & Movies. Market share for the grocery channel was unchanged at 0.9% for all new DVD sales.

“Supermarkets continue to increase focus on the DVD category and are reaping the benefits from the excitement and sales that it generates,” notes Bill Bryant, VP of sales for Ingram Entertainment, a main distributor of DVD to supermarkets. More grocers are dedicating space to DVD, and many are adding permanent racks and/or in-line sections. “Supermarkets that carry DVD product have a competitive advantage over other retailers that only carry it occasionally,” Bryant says.

“For us, [the supermarket channel] is a huge deal,” says Joel Goldman, VP of sales for Sony Pictures Home Entertainment. “We have a dedicated program for grocery that everybody knows about. We’re direct with 80% of the grocery business,” including Safeway, Kroger, parts of Albertson’s, Wegman’s, Shop Rite, Wakefern and Pathmark.

Supermarket video sales have grown by about 30% in the last couple years, says Goldman. A lot of that has to do with the fact that it was the last class of trade to get involved in selling DVDs, “so their growth came a lot later than the rest of the market’s,” he adds. Grocery was late to the party largely because it historically focused on kids and family product, which was mainly a VHS business until a few years ago when the inevitable evolution to DVD began gaining momentum.

Interestingly, Goldman maintains that supermarkets by and large do not do a good job with video because so many lack a dedicated department. “They don’t devote dedicated human resources and systems like a mass merchant such as Wal-Mart does,” Goldman says.

Don Jeffries, a senior VP at 20th Century Fox Home Entertainment, believes supermarkets have the “most potential” of any retail channel. “Unlike a number of mass merchant chains that use video as a way to drive traffic into their stores on new release day or weekends, supermarkets have the built-in traffic. They simply need to capitalize on [it].”

More eclectic selection

What are shoppers buying? According to Rentrak’s Retail Essentials report, children’s titles garnered 22.1% of market share in grocery during the first quarter of 2006, followed by comedy (21.3%), drama (13.7%) and TV DVD (12.3%).

The supermarket channel accounted for 6% of the overall video business in the quarter, according to Rentrak, which tracks data from more than 3,000 supermarket locations in the U.S. on a weekly basis.

Heading the list of top children’s titles sold through supermarkets for the quarter were Chicken Little, Lady and the Tramp, Bambi II, Wallace & Gromit: The Curse of the Were-Rabbit and Barbie Fairytopia: Mermaidia.

At the same time, however, shoppers’ choices also are maturing. Although family and kids’ titles have always done well in supermarkets, Jeffries and others are seeing growing popularity among more adult titles. “We have had instances where some sci-fi, R-rated films have done well, which is kind of counter-intuitive to what you think would be a home run at grocery,” Jeffries says.

It remains difficult for supermarkets to compete in the new release arena, because they don’t advertise consistently, and without national advertising vehicles, supermarkets don’t compete well on price with such national chains as Target, Wal-Mart, Best Buy and Circuit City.

“Several years ago, most supermarkets only carried new release DVD product,” says Ingram’s Bryant. As prices of catalog product dropped, however, they seized this opportunity to merchandise and sell lower-priced catalog, which is less price sensitive and commands higher retailer margins. “Most supermarkets continue to stock new release DVD, and many have installed permanent sections, which drives sales and margins,” Bryant says.

Leslie Baker, Ingram’s VP of sales for grocery and drug, calls catalog DVD “a win-win for the supermarket retailer: lower prices drive sales, higher margins drive revenue.”

“Everybody is bound to put some low-budget catalog product in, so they can hit price points and make a few dollars,” agrees Ray Wolsieffer, video specialist with the Basha’s Supermarkets chain in Chandler, Ariz.

Sales of budget items are growing all the time, reports Greg Rediske, president of grocery consultant and budget product marketer Video Management Co. in Tacoma, Wash.