10 YEARS IN RETROSPECT

With supermarket video looking ahead to uncertain times as it enters a new decade, it's instructive to look back at the industry changes wrought in the last one."Many factors came up during that period," said Bill Glaseman, video specialist, Bashas', Chandler, Ariz., "including the growth of Blockbuster, Hollywood and the bankrupt Video Update. In addition, the growth of the Internet and computer

With supermarket video looking ahead to uncertain times as it enters a new decade, it's instructive to look back at the industry changes wrought in the last one.

"Many factors came up during that period," said Bill Glaseman, video specialist, Bashas', Chandler, Ariz., "including the growth of Blockbuster, Hollywood and the bankrupt Video Update. In addition, the growth of the Internet and computer games dug into the overall volume."

The 1990s saw entrances and exits among all market segments by players large and small. New entertainment formats came; some went. And supermarkets adapted to increased competition from mass merchandisers, video rental chains, alternate video distribution streams and alternative media.

These adaptations came throughout the decade, though lately they have seemed to increase geometrically. "There has been more change in the last two years than in the previous 10 years," said Robert Feinstein, president, Supermarket Video, Los Angeles.

Industry participants differed as to just what major developments sparked these adaptations, but all agreed that supermarkets have evolved out of necessity.

"As the rental business has matured, supermarket video operators have become more aggressive in promoting their departments," said Bill Bryant, vice president of sales, grocery and drug, Ingram Entertainment, La Vergne, Tenn. "A few chains elected to scale back the number of departments, while the majority toughened their stance and changed programs to be more competitive with the large video specialty chains."

Many operators saw video chains as having a primary influence on the industry, at least after their growth accelerated. "It's different now because of revenue sharing, but 10 years ago we didn't consider video chains to be competition for grocery stores," said Greg Rediske, president, Video Management Co., Tacoma, Wash. "They were completely different animals, and didn't seem to affect us all that much."

A turning point came when Blockbuster, Dallas, followed Hollywood Video, Portland, Ore., into the revenue-sharing business model. "Blockbuster first tested revenue sharing on a John Travolta movie in six markets in the fourth quarter of 1997," said Andrew Miller, manager, supermarket division, Rentrak Corp., Portland, Ore. "The foundations for change in this whole industry were laid on that exact day with that title."

"Revenue sharing has undoubtedly done more to change the face of the video rental business than any other factor," said Feinstein. "Prior to revenue sharing, we would bring in 8 to 15 copies of new releases and the nearby Blockbuster would bring in 20 to 30 copies. After revenue sharing, that same Blockbuster would bring in 200 to 300 copies."

In retaliation some supermarkets have followed suit. "For many, revenue sharing and other types of copy-depth programs have become part of the business plan to compete in today's market," said Bryant.

But others have resisted. "Even today not enough supermarkets are fighting fire with fire -- and the fight is Rentrak," said Miller.

That resistance for some has been driven by profitability concerns. "Revenue sharing isn't a long-term strategy in my opinion, it's a promotional strategy," said Rediske. "You're better off buying properly and making more money."

Those who have adopted other copy-depth programs have had to deal with other ramifications. "There has been a downturn in the number of supermarkets that really make a contribution to video because studio programs have made buying too complicated," said Kirk Kirkpatrick, vice president of marketing, WaxWorks/VideoWorks, Owensboro, Ky.

As a result of these and other factors, observers agreed, the contrast between the 1990 rental market and today's has become extreme. "Then was easy, now it isn't," said Mark Fisher, vice president of membership, Video Software Dealers Association, Encino, Calif., who was director of video sales and operations for Stop & Shop, Quincy, Mass., from 1985 to 1996. "Then it was a much less competitive marketplace. When a supermarket added video to its product mix it was truly offering a service that the customer had a difficult time finding conveniently elsewhere."

That service had a promising early appeal for supermarkets. "The initial grocery entry into video, which was in the rental category, was looked at more as a way to build traffic," said John Quinn, senior vice president of sales, Warner Home Video, Burbank, Calif. "It evolved into a category that not only drove traffic as anticipated, but was also very profitable."

Consequently that category was quick to build on all levels. "Things were booming in 1990," said Rediske. "There was a bandwagon effect at that time."

"National and regional supermarket chains entered the video category at approximately the same time," said Bryant. "They knew that video was an excellent way to add to the 'one-stop shopping' concept."

VHS rentals were soon joined by a developing sell-through market. "We started moving into sell-through very early on," said Fisher. "Mass merchants were very weakly into it at that point."

Several supermarket chains built early rental and sell-through programs, with some becoming particularly successful. "H.E. Butt of San Antonio was probably the single strongest supermarket chain in those days," said Miller. "They ran an unbelievable operation, with several free-standing stores as well, which they eventually sold to Hollywood Video."

"Randall's in Houston was an early success in video, but they didn't own their movies," said Rediske. "They were being racked."

"The most dominant, aggressive chains back in those days were Wegman's, H.E. Butt and Giant Eagle," said Fisher.

"Stop & Shop, Pathmark, Kroger and Randall's were all major players, along with some Safeway divisions," said Miller. "Strong medium-sized chains included Dierbergs and Schnuck Markets."

As video's market penetration increased, however, it became a less attractive option for supermarkets. "Video wasn't a unique benefit any more; everybody had it," said Kirkpatrick. "And it became less profitable as they had to make major investments to do it right."

For those still committed to video "the game remains the same," Rediske said. "It's just a matter of continuing to work at it and not be complacent about it. The pendulum is going to start to swing back to some sort of normalcy. Video will end up being much more profitable for those who have survived. The business is going up thanks to DVD."