The video category had a bumpy ride in 1996, but it remains a solid and growing contributor to supermarket traffic, sales and profits.
The news about supermarkets getting out of the rental business continues to make headlines and fuel the widespread image of a dying product segment. But quietly, many prominent chains, such as Albertson's, Boise, Idaho; Giant Eagle, Pittsburgh; and Wegmans Food Markets, Rochester, N.Y., continue to build their rental and sell-through businesses with more and better products, departments, merchandising and promotion, agreed several video distribution executives.
Kash n' Karry Food Stores, Tampa, Fla., a chain that exited rentals last year, is about to get back in, and several other companies, like Gooding's Supermarkets, Apopka, Fla., and Finast Friendly Markets, Maple Heights, Ohio, have added video rentals. When the smoke cleared, the gains outweighed the losses, the video distributors said.
The result, according to SN's sixth annual State of the Industry Report on Supermarket Video, is a total increase in video revenues of 7.6% to $2.54 billion in 1996, up from $2.36 billion the year before. SN projects another 8.3% increase this year to $2.75 billion. The video industry comprises two principal segments: rental, which rose 2% to $1.53 billion from $1.5 billion in 1995, and sell-through, which increased 18% to $1.01 billion in 1996. SN projects a 1% increase in rental this year, to $1.55 billion, and a 19% rise in sell-through, to $1.2 billion. Most retailers responding to SN's survey confirmed modest increases in the mature rental market and robust gains in sell-through. However, as the sell-through gains were based on price-sensitive "event" titles like "Independence Day" and "Toy Story," margins took a significant downturn.
"We have never had a decrease in video," said Bob Gettner, video buyer/coordinator at B&R Stores, Lincoln, Neb. "Overall, video was up around 13% for our company, which I think is a good number," he said.
Boogaarts, Concordia, Kan., retail division of Fleming Cos., Oklahoma City, has long been an aggressive player in video rentals and sell-through, but recently has felt pressure from satellite programming delivery systems in its rural locations, said Matt Dillon, video director. Even so, video remained strong.
"Sell-through was up a little bit, mainly because there was a little more product out there, and rentals hung right in there. We haven't experienced much decline in the business," said Dillon.
"Last year, we were very pleased with the increases in sell-through," said Denise Darnell, video supervisor for Southeast Foods, Monroe, La. "Rentals have been really good," she added.
"The bottom line is that supermarkets have established themselves as major players in video," said Tom Adams, president of Adams Media Research, Carmel Valley, Calif.
"We still see supermarkets as the sleeping giant of the video business," said Ron McMillin, vice president of sales for the Western Region at Sight & Sound Distributors, St. Louis. Based in Salt Lake City, McMillin is in charge of the company's supermarket program. While the survey results indicated some slowing of the steep growth trend of supermarket video over the last few years, there was ample evidence that the category is still making progress. For example:
Supermarket market share of the video business has remained constant in the face of stiff competition from specialty stores in rental, and mass merchants in sell-through. Rental share held at 16.6% from 1995 to 1996, and is projected to dip slightly to 16.4% in 1997. Sell-through share increased from 13.7% in 1995 to 13.8% in 1996, and is projected to hit 14% in 1997.
Recognizing the impulse nature of videos, the percentage of retailers displaying sell-through in the main part of the store rose from 64.7% in last year's survey to 88.1% this year.
Cross-merchandising activity was down, but interest in cross promoting video with home-meal replacement programs is strong. More than half of the survey respondents said they are either planning or actively considering such tie-ins.
New releases continue to be a strong and growing part of rental inventory, increasing from 33.1% in 1995 to 36.8% in 1996, and projected to grow to 39.8% in 1997.
Retailers are getting into the new game systems for rental, with 46.8% carrying still-hard-to-get Nintendo 64, 59.6% stocking Sony PlayStation, and 21.3% handling Sega Saturn.
The survey was conducted and tabulated by SN's Market Research Department in New York. The confidential questionnaire was faxed in February and March to supermarket chains, independents, video rack jobbers and wholesalers across the country. Additional interviews with prominent suppliers familiar with the field were used to determine sales and market share information.
Survey respondents included 47 companies representing 6,285 stores in 1996. The survey results are based only on responses from companies now active in home video. The results reflect video rentals at 1,322 supermarkets and sell-through activity at 2,842 stores. Total annual dollar volume for retailers responding to the survey exceeded $60 billion in 1996.
As in supermarkets, growth in the wider video industry is being driven by sell-through. According to Adams Media Research, video was a $16.56 billion category in 1996, up from $15.34 billion in 1995 and projected to grow to $18.02 billion in 1997. Rental was $9.22 billion in 1996, up from $9.06 billion in 1995, with growth to $9.46 billion expected in 1997. Sell-through was $7.34 billion in 1996, up from $6.28 billion in 1995, increasing to $8.56 billion in 1997.
Some of the results in this year's survey may have been colored by a sample with more smaller rental departments than in past years. For example, 56.7% of the departments of this year's respondents have inventories of less than 1,000 tapes, compared with 27.7% last year.
Small departments like these hold up less well than larger ones when faced with the increasing competition from specialty stores. Consequently, the survey showed same-store revenues for respondents dropping an average of 6% in 1996 and 7% in 1997.
On the other side of the business, same-store sell-through sales for these retailers are increasing dramatically: 32% in 1996 and a projected 88% in 1997. In revenues per store, independent supermarket companies tended to do better on rentals than the chains, while the chains were stronger on sell-through.
The number of rental departments operated by respondents in the survey dipped 4% in 1996, but is projected to rise 12% in 1997. The number of stores handling sell-through increased 12% in 1996 and will rise another 6% in 1997.
Supermarket Share of Revenues
Supermarkets have established themselves as a solid presence in the video business, both in rental and sell-through, keeping pace with the growth of other classes of trade. Specialty stores are the main competition for rental, while mass merchants, like Wal-Mart, are regarded by nearly all as the biggest competitive threat in sell-through.
Share of Total Video Industry Sales
1995 1996 1997
Rental 16.6% 16.6% 16.4%
Sell-Through 13.7% 13.8% 14.0%
Total 15.4% 15.3% 15.3%
Source: SN estimates based on video industry numbers from Adams Media Research, Carmel Valley, Calif.