RENTAL RISES IN SEATTLE SUPERMARKETS

SEATTLE -- Supermarket video rental programs in the Pacific Northwest are still growing after all these years. Seattle and the surrounding area has long been a stronghold of supermarket video. Now as chains consolidate, grow and remodel, rental departments are an expected component of the product and service mix. Among the big hitters, only the huge combination stores of Fred Meyer Inc., Portland,

SEATTLE -- Supermarket video rental programs in the Pacific Northwest are still growing after all these years. Seattle and the surrounding area has long been a stronghold of supermarket video. Now as chains consolidate, grow and remodel, rental departments are an expected component of the product and service mix. Among the big hitters, only the huge combination stores of Fred Meyer Inc., Portland, Ore., do not have video rental. Nearly all the stores of the Safeway and Albertson's divisions have up-front rental departments, and fast-growing Quality Food Centers is adding and remodeling video sections as it assimilates its many recent acquisitions. QFC and the Safeway and Albertson's divisions are based in Bellevue, Wash. Of the smaller players, Haggen, Bellingham, Wash., has put state-of-the-art live inventory departments into its newest stores. Another chain from north of the city, Thrifty Foods, Burlington, Wash., is enhancing its video program as it adds stores. Even Larry's Markets, Seattle, has substantial video rental sections in two of its upscale, gourmet-oriented stores. "The Northwest has had a higher percentage of grocery stores in rental than most other parts of the country for many years," said a distribution executive in the Pacific Northwest, who asked not to be identified. "It is still growing, but it has slowed down somewhat because the penetration of grocery stores with video is significant at this point." Increasing competition from large specialty operator Hollywood Video, Portland, Ore., is forcing many supermarkets in the Seattle area to hone their video rental programs, noted Des Walsh, vice president and general manager, SuperComm, Dallas, a Disney subsidiary. When faced with this kind of competition, supermarkets typically do one of three things, he said:

-- They do nothing and business gradually deteriorates.

-- They give up on renting videos.

-- They perceive a strong consumer demand for video and work harder to meet it. In Seattle, "supermarkets are rising to the challenge by installing bigger and better video departments. We are seeing this phenomenon in Seattle more so than in other parts of the country, but we are seeing it in other major markets as well," he said. A major force in supermarket video in the Pacific Northwest is Video Management Company, Tacoma, Wash. Video Management provides buying, merchandising and inventory management services for QFC, Haggen, Larry's and a number of smaller retailers in the area. The company also works with some chains in California, including Longs Drug Stores, Walnut Creek, Calif. Departments serviced by the company are owned and operated by the retailers. "Right now video seems very strong in Seattle," said Bob Hanft, vice president, Video Management. "There are a lot of stores calling us looking to put video rentals in." Seattle-area supermarkets are becoming more aggressive with their video programs, said Hanft's partner Greg Rediske, Video Management's president. "Therefore, they are having greater success," he said. The retailers are moving forward with video. "Rare is the situation where they will pull back or pull out. In general, it is: 'remodel' and 'add to' -- and continue to be more aggressive," said Rediske. Supermarket video in the Seattle area is two years or more

ahead of the areas in California the company operates in, said Hanft. For example, when he attends a trade show in California, supermarkets have little interest in video. "But when I go to a show here in Washington, it seems like everybody knows that video is doing really well. Everybody knows that Top (a Haggen format), QFC and the bigger chains are all in video," he said. In surveying the market, SN found little difference in new release rental rates in Seattle, with most supermarket departments charging $2.49 for a one-night rental. The two big specialty chains, Blockbuster and Hollywood, were the highest priced at around $3 a night. Meanwhile, the two most upscale supermarket chains, Larry's and QFC, had the lowest rate at $1.99 per night. There is considerable interest in shared-revenue, pay-per-transaction (also known as pay-per-rental) systems in the Seattle area. With these programs, retailers pay a $7 to $12 fee to acquire a tape, and then share the revenues 50-50 with the supplier. Otherwise retailers pay about $60 to $70 for a new release tape they would own. Safeway was among the earliest chains known to be testing SuperComm, and Haggen is using SuperComm in all its stores. Video Management is looking closely at a one-store test of the program from Rentrak Corp., Portland, Ore., with an eye toward using it for its other customers. "I am initially pleased with the test," said Rediske. "But it hasn't been a long-enough exposure at this point to be 100% positive about it," he said. Rediske said he prefers the Rentrak program to SuperComm because it offers a greater breadth of titles. Haggen has established itself as the leader in design and merchandising, with its two new video rental departments in Kent and Stanwood, Wash. The company has live inventory sections, where the actual tapes are displayed on the racks, protected by a security system. Its two newest departments, which opened in February and March, were 1,300 square feet and 1,600 square feet, respectively, with 3,500 and 4,000 units of rental inventory. The retailer also goes very deep on new release titles, aggressively using the SuperComm program, SN found in store visits. All of the other stores SN visited had secured inventory departments, where the tapes were kept behind the service counter. While not state-of-the-art, these departments have the advantage of being open to traffic from all directions, like other areas in a supermarket, commented a knowledgeable distribution source. "There's a downside to live departments: they don't flow," said the source. "Not everybody can have a 1,000-square-foot department."

Retailers can do well with non-live departments. "But like anything else, it comes down to execution," he said. The Safeway video departments in the Seattle area are a prime example of the right way to do non-live video, the source said. "For the 'old-fashioned' way of doing it, Safeway does it as well as you can do it. That's no small accomplishment. "The signage is current. The light bulbs aren't burned out. The departments are staffed. The new releases are organized. They are marketing the departments within the store," said the source. "I was fairly impressed with the way that Safeway runs their rental program."

Many of the retailers SN visited in the Seattle area used a three movies for three days for $3 program to push catalog titles on an ongoing basis. Hanft said this accomplishes two goals: it helps move catalog titles and it boosts the average cash register ring. "At least it's worth making the transaction," he said. "The program is just going gangbusters. The more you rent, the more money you make. Since you don't pay as much for your catalog tapes as you do for your new releases, this really helps your bottom line," said Hanft.