Videos priced from 99 cents to $3 are making their way into supermarkets at an alarmingly quick rate, while distribution continues to overflow the dollar-store channel's banks.
Taking advantage of the trend means placing some merchandising and promotional muscle behind this fast-paced impulse product, said distributors interviewed by SN. Supermarket executives are increasingly realizing that low-priced videos add strong incremental dollars to their bottom lines, but as with so many other impulse products, placement is key, the distributors said.
"Nobody ever walked into a supermarket to buy DVDs," said Gary Delfiner, chief operating officer of Global Multimedia Corp., Philadelphia. "It is the optimal impulse item because the price is so right. In our case, the titles are very recognizable, and the combination is just turning the industry on its ear -- so much so, by the way, that even the video trade publications are doing specials on this segment of the business. They've never even talked about it before."
Operators doing best with low-priced DVDs are those that sell them at the entrance, in high-profile aisles or at the checkout line. A variety of shelf-display options are also available.
"They're hotter than the blazes in supermarkets," said Andrew Miller, director, Supermarket Division, Rentrak Corp., Portland, Ore. "They sell very, very well due to the low retail price points."
Miller believes videos' presence in supermarkets "will continue to grow," but some in the industry see a downward spiral ahead.
"Budget DVD product has been a viable product category for the last 18 months," said Leslie Baker, vice president of sales, Grocery & Drug for Ingram Entertainment, LaVergne, Tenn. "We have seen steady growth in this area due to the number of titles being offered at these low prices." She warns, however, that "the trend is expected to level off."
The category got its start in dollar stores because they were the only outlet, Delfiner said.
"I don't even focus on the dollar stores anymore," he said. "I'm focusing on supermarkets, groceries and drug."
Those in the video industry say the trend is nothing new, and it isn't showing signs of slowing.
"Is it booming? For us, yes," said Greg Rediske, president of Video Management Co., Tacoma, Wash. "This is a major part of our sell-through business [and] has been for a couple years. It is expanding all the time."
The category is "excellent for supermarkets, because it's not an area that is well marketed or merchandised by most of the other classes of trade," he added. "It has good margins, and is a good impulse item."
Many of the DVDs in this price category are royalty-free. Still, there appears to be no shortage of such titles. Mainstream titles have fared best, while distributors have learned the hard way that pushing obscure titles -- believing price alone would sell them -- doesn't work.
"With the selection available today, there are so many wonderful titles to choose from," said Karen Burk, spokeswoman for Wal-Mart Stores, Bentonville, Ark. "There are older movies and even television shows and animated series' that are value-priced and great for family viewing. We simply try to put the titles on our shelves that our customers want at the best value."
The selections that appear to sell well at these low retail price points, Baker agreed, are black-and-white classic movies and older TV classics. The key to a successful budget program, she said, is to closely evaluate the quality of the product, both content and box art, and to make sure the quality is "at the level a supermarket retailer would want to offer their consumer. This will ensure the consumer has a good experience with the product, and will return for future purchases." If a retailer offers low-quality product, and the consumer has a poor experience, "they may no longer consider that supermarket a destination point for video products."
Baker suggests supermarkets take advantage of these offerings on what she calls a selective basis.
"A strong video program requires a good core assortment of new-release titles and value-priced, high-profile catalog titles. Budget programs (at $1 to $3 retail price points) should be added to the mix on a quarterly basis to round out the overall offering."
Denis Oldani, director of video services for Schnuck Markets in St. Louis, believes video sales in supermarkets are at their pinnacle.
"At those prices, any kind of video will work," he said. "These titles have higher profit margins than 'hit' titles. It's great for our supermarkets."
The key for Delfiner's company has been making DVDs bilingual, with Spanish subtitles.
"The Latino population is the fastest-growing population in the country, especially in Texas, Arizona, California, Florida, New York City and now the Midwest," he said.
Among Global's top sellers are cartoons, classic comedies like "Our Gang" and fare from comedy team Dean Martin and Jerry Lewis, "The House on Haunted Hill," "Tarzan" and "The Three Stooges."
"It's also product that brings people back," Delfiner said. "We have a lot of consumers who buy it because it's nostalgic, but then turn their kids on to it. Now we have a new generation of buyers."
Though Rediske doesn't know how much bigger the value DVD category will get, "we haven't seen a drop in same-store sales for some time. We've had a number of stores with speed-table setups for over a year. For the first quarter of this year, [sales of] our $4.95 retail price point VHS were 70% over the first quarter of last year." Regular movies sell best, Rediske said, but children's movies are also very strong.
"The bigger the exposure and size of display, the better the return," Rediske said. "It is an excellent impulse item, so the better the placement for that purpose -- up front -- the better."
Brian Frey, marketing assistant, corporate communications and sports marketing for Giant Eagle in Pittsburgh, said there is "a great opportunity for sell-through in the children's video category, where parents and caregivers are more willing to purchase a movie in order to save the time and money associated with repeatedly renting the same title. Children tend to want to watch the same movie multiple times."
Giant Eagle offers previewed videos at a "competitive value to meet customer demand for a high-quality alternative to purchasing the product new and at full retail at other locations. We explore various price points based on factors such as customer demand, space management and quantity."
The key to the industry's success, Delfiner said, is the education of the retailer.
"It's having buyers understand that video, DVD will sell anywhere there are bodies," he said. "If there is any challenge we have, it is to educate retailers that this product is appropriate for their stores because it's not for any particular type of buyer."
More Than Price Points
While some retailers may think low price is enough to sell value-budget home entertainment titles, distributors say there are other considerations retailers should think about in merchandising this segment.
- Consider the entire assortment of new releases, value-priced and catalog titles. Add budget to the mix on a quarterly basis.