Supermarket retailers are looking forward to a strengthened video rental market for 1996, following a nationwide drop in revenues this year.
According to industry sources, the overall video rental market fell about 5% this year. Many retailers attribute this to a weak selection of new releases and increased emphasis on sell-through titles.
Though most chains polled by SN said they have not been negatively affected by the drop-off, they are eagerly awaiting "event" titles, such as the already released "Apollo 13" and "Batman Forever." Such releases, said industry watchers, could help overall rentals pick up in 1996.
Other strong titles include tomorrow's debut of "Judge Dredd," starring Sylvester Stallone, and the forthcoming "First Knight," with Richard Gere and Sean Connery; "Die Hard With A Vengeance," featuring Bruce Willis; "Virtuosity," with Denzel Washington; and "Waterworld," starring Kevin Costner. Meanwhile, the children's movie "Toy Story," now in theaters, also is expected to be a hot item when released next year.
"The rental market has fallen a lot," said Shirley Decker, video buyer at Goff Food Stores, Haslett, Mich. "But I think we may be able to make up to where we were last year. We may break even."
Already, business is starting to pick up, Decker said. For the last three weeks in November, she said, "I am about even with this time last year. Our rentals are coming back a little now because of the videos released this fourth quarter."
Despite this year's weakness in rentals, Decker said the video department is still turning a good profit.
"We are up, profitwise, for rental and sell-through. We are trying to do better buying. We are watching how much we spend on the A titles, which drives up your profit," she said.
The cost of rental tapes to the retailer can go as high as $74 apiece, Decker said. Even with a discount offered by the distributor, the cost is still about $65.
"For instance, I bought 17 copies of 'Forget Paris,' and even with the discount, it cost $1,100. It has been my experience if you don't turn those in the first eight or nine weeks, you never will," Decker said.
Meanwhile, the chain's rental rates have stayed the same.
"We have not increased our rental prices at all. We charge $2.49 for a new release, which stays on the list for four months," Decker said. "The catalog titles are priced at $1.99 for a two-day rental."
Bill Bryant, assistant vice president of the grocery division at Ingram Entertainment, La Vergne, Tenn., a national distributor, said he has seen a "mixed bag" in terms of rental results among supermarkets this year.
"Some retailers have shown an increase. And some have shown slight decreases," Bryant said. "The number of strong rental titles was down for the fall this year, and that did affect some retailers' performances."
But, he said, "we are expecting a strong lineup for 1996 and business should improve."
While popular titles play a role, a supermarket's commitment to the video section also has a lot to do with the department's success, Bryant said.
"If there is an employee dedicated to the department, rather than a shared employee or no employee at all, especially during peak rental periods, it usually shows," Bryant said. Dick Kelly, president of Cambridge Associates, Stamford, Conn., a consultant to the television and video industry, also doesn't expect next year's rental market to see the falloff it did this year. Kelly also attributed the softening to fewer "blockbuster" hits and also the limited, yet significant, growth of satellite systems.
"There is a dramatic reduction in rentals by those households," Kelly said. "While they only number some 1.5 million, representing maybe 1% to 2% of the marketplace, they were probably active rental households." Tom Hembree, vice president of operations at K-VA-T Food Stores, Grundy, Va., said his stores' rentals "really weren't down in 1995."
He added, "And I expect for 1996 as good a year as last year." To maintain its high rental numbers, K-VA-T has launched several promotions. One, for example, offered five movies for five days for $5, Hembree said, "which really has helped with the older titles."
The chain also ran a "rent one, get one free," campaign. Additionally, Hembree said, "we are buying heavily on the new releases. They [consumers] know they can find what they want at our stores. We make a commitment to have the new releases. It drives the business."
Hembree said K-VA-T probably will continue all of the promotional programs it used in 1995, and possibly add a few more.
While there have been significant increases in sell-through video nationwide, rental still accounts for the greatest share of K-VA-T's video business, Hembree said.
"It accounts for around 80% of video dollars," Hembree said.
The video buyer for a chain in the Deep South, who asked not to be named, said rentals in her stores did well in 1995, despite the national trend.
And while the chain's sell-through section is doing well and is growing, rentals are still the department's dominant revenue source. She predicts "Waterworld," which will be released on Jan. 23, 1996, will be a rental hit next year.
Rentals at Scolari's Food & Drug Co., Sparks, Nev., also were strong in 1995.
"How well rentals do all depends on what is out for rent," said Ronnie Leach, the video department manager of one of the company's units.
"We promote the department probably two or three times a year. But we also promote our new releases, which bring people in. Our promotions usually consist of a newspaper advertisement or a coupon drop," Leach said.
Leach said she expects
rentals in 1996 to continue to do well. "I keep hearing that VCR movies are not going to be the 'in thing' anymore. But I keep seeing my rentals grow and grow," she said.
Tom Wangerine, video buyer-supervisor at T&C Market, Brillion, Mich., said his company's video rentals stabilized, but had been somewhat shaken by a new video store chain that opened in the area.
"I don't believe we were that far off on the video rental dollars, but we had competition come into the area," he said. "I have a separate whole department, and it is a pretty good size for being in a grocery store. So it dug into me and it hurt me for a while, but I had built up the business, and I didn't see a real falloff in sales."
Overall, Wangerine said, "rentals are still pretty strong in our area. But we don't have a lot of people with pay per view, such as in the cities and urban areas where there is more accessibility. So that is not cutting in."
Meanwhile, supermarket video rental rates have been able to hold their own. None of the retailers polled said they have been forced to lower rates to match their competition, although one said it is under consideration.
"Rental rates have come up for most supermarkets," said Bryant of Ingram. "The chains are realizing that they are a destination for the video rental consumer. Therefore, particularly for new releases, they can get a much higher price than in the past, when they were considered a secondary source." He said the nation's supermarket rental rate average is about $2.50, with a typical range of $1.99 to $2.99 on new releases. "Our rental price is $2.49 on new releases. We don't keep new releases for very long, about four months, and then it goes to catalog, which goes for 99 cents for a one-day rental," said K-VA-T's Hembree. "The price on the rentals could change, and it would be a decrease. We are seeing more competition for rentals in our area, and their price on new releases is $1.99. But we are only looking at possibly reducing prices in selective markets."
As for supermarket video, "I think the other grocery stores have been more of a competition to us than the video stores," Hembree said.
Proper pricing is tricky, noted Decker at Goff. With new releases coming out so quickly, it is necessary to rent them fast and move them in and out.
"You only have an eight- to 12-week window. So if you go too deep, you won't make up the cost of the tape," she said. "We have had to adjust our buying to make sure we make our profit."
For example, in the past one of Goff's stores would get seven or eight copies of an A title rental tape. Now, however, it only gets four or five, Decker said. Scolari's prices rentals at $1.99 for new releases, which are kept on the new list for only 90 days, and 99 cents for catalog films. All tapes must be in by 10 p.m. the next day, regardless of the time they were rented the day before, said Leach.
"We also give a lot of stuff away," said Wangerine of T&C Market. "Our children's movies are given away free for one day. After that they are charged for late returns. Our rentals are due back by 11 p.m. the next night. They used to have to be back by 6 p.m., but because our competition was allowing 11 p.m., we had to do the same thing."
Rentals are still an important part of the business, representing close to 80%, with sell-through at about 20% of the chain's video dollars, he said.
However, most retailers and others said the sell-through market could be a main reason for a fall-off in rentals.
"People can rent, but for a price of $14.95 they might just as well buy it," said Kelly of Cambridge Associates. "More of that is going on. Last year, for example, 'Miracle on 34th Street' came out for $14.95, and some retailers discounted it to $12.95." Kelly said he expects the sell-through market to continue to grow. Studios, he said, "realized they can make more money if they do price-to-sell, rather than the two-step process of rental and then sell."
Decker said many "big-event" titles, such as "Batman Forever" and "Apollo 13," are available as rentals and sell-through.
"But with the sell-through prices, I got the people buying them instead of renting them," said Decker. "I think the trend is that people are adding to their libraries. They have also found out that some of these titles are not going to be available for a long time," and they buy them. It has been announced that the Star Wars Trilogy, once its current run is over, will not be released again for a long while, Decker said. "I've had to reorder that twice," she added.
"When 'Home Alone' came out a few years ago, we guaranteed we would have 50 copies per store, so it would always be available. If it wasn't, we would give customers a free rental," Decker said. Wangerine of Econo Foods said, especially now in the third and fourth quarters,"we are doing more with sell-through." Some hot Christmas titles, he said, include "The Santa Clause" and "Casper."