DALLAS -- The biggest challenge facing supermarket video executives is the promotion of video rentals within their own companies, said Des Walsh, vice president and general manager of SuperComm here.
Video executives must keep senior management informed about the strength of the rental market, while keeping store-level personnel motivated and excited about the category, Walsh added.
"The greatest threat that we face in the industry today is senior management's perception about the uncertainty of the video rental business," he said at a recent seminar on supermarket video. "Despite whatever they may read, video rental is not going away. It is going to remain a strong category in the supermarket business."
Besides basic decisions about the existence of video programs, senior management determines the amount of operational support these departments receive, said Walsh. This support, particularly in the area of labor hours, is "a key factor in the success of video rentals.
"If there is a perception in your chain that video may not be long-term, then you will find that store managers will turn their focus away from the category. You will end up with declining labor hours being devoted to video rental. You will end up with a greater focus on the cost of video rental and you will end up with that question about rental's future being asked," Walsh noted. "The best merchandising in the world without strong operational support will be for naught. Merchandising without operational support is like having Laurel without Hardy or Fred Astaire without Ginger Rogers. It simply is a strategy that seriously inhibits the prospects of success."
As a result, "the reality today is that the No. 1 rule of video rental is to promote internally, rather than to promote externally," he said.
Overall, the video rental category is a $10 billion business, but "most CEOs are unaware of its size." Also, "supermarkets are the second-largest retail channel for video rental, with a 10% to 16% market share, depending on whose numbers you credit," he said.
Video rental accounts for as much as 40% to 50% of studios' revenues, a "critical" fact that the industry needs to promote, said Walsh.
The average movie costs $45 to $50 million to produce, advertise and promote, but the average box office gross is only $30 million, he said. "So, if you are a studio executive, a key issue is where do you make up the balance of that $20 million to bring your movies to a break-even point? The answer is video rental," he said.
From the studios' perspective, "maintaining the longevity and the profitability of the video rental category is absolutely critical to their long-term health and survival. To the extent that video rental in supermarkets represents 10% to 16% of that business, then you can clearly see why the studios are now committed and will remain committed to preserving this category," Walsh said.
Shared-transaction-fee programs, like SuperComm, are one strategy that studios use to ensure the long-term prosperity of the business, he said. (SuperComm is a Disney subsidiary. Another shared-transaction-fee supplier is Rentrak Corp., Portland, Ore.) With these programs, retailers pay a fee of $10 or less to acquire a tape, and then share the revenues about 50-50 with the supplier.
Another element that video executives can promote internally is the related sales made to video rental customers. For example, research has shown that for every dollar spent on video rental in food or convenience stores, more than a dollar is spent on other products.
Video can directly contribute to the entertaining atmosphere desired by many retailers today.
"In supermarkets the goal is to make the shopping experience a more vivid one," Walsh said. "But the reality is, you can't make it an entertaining shopping experience without entertainment. I don't care how much you promote it, you are never going to get me totally enthused about the entertainment value of buttered broccoli or sweet peas."
Besides senior management, video executives should also include store managers, video department managers and other personnel in their efforts. "You've got to be enthusiastic about video rental all the time. That means you have to promote constantly and tirelessly," he said.