Year of Pandemic

Supermarkets needed to step up to the plate if they were to compete against mass merchandisers in nonfood sales during the recession. Shoppers were looking for bargains wherever they could find them, especially on commodity nonfood products. Supermarkets looked for creative ways to provide value. Some resorted to fuel and food perks to drive traffic into their stores. Giant Eagle and others tied their

Supermarkets needed to step up to the plate if they were to compete against mass merchandisers in nonfood sales during the recession. Shoppers were looking for bargains wherever they could find them, especially on commodity nonfood products.

Supermarkets looked for creative ways to provide value. Some resorted to fuel and food perks to drive traffic into their stores. Giant Eagle and others tied their fuel perks to gift card purchases to stimulate sales, especially during the fourth quarter.

Probably the biggest news that dominated the media headlines during most of the year impacting supermarket pharmacy was the spread of the H1N1 (swine flu) virus. As part of a coordinated effort with the Food Marketing Institute, supermarkets were ready to help protect their staff and shoppers by providing valuable information and being well stocked with flu-related items. However, an abrupt halt to the regular seasonal flu vaccine caught many retailers and consumers by surprise as drug manufacturers ramped up to make the H1N1 flu vaccine and stopped production of the seasonal vaccine.

Nothing proved more disruptive to nonfood space at supermarkets than stoppage of magazine distribution by two wholesalers that represented 50% of magazine distribution in the U.S. Big retailers like Wal-Mart, Kroger and Safeway were left with bare slots on their racks for nearly a month before the publishing industry could resume normal distribution.

The $1 DVD movie rental experience appears to have taken off and is expanding in supermarkets under Redbox and Blockbuster Express. Movie studios, trying to protect their revenue, are examining how the $1 rental has cannibalized DVD sell-through.

Pandemic Threats Give New Twist to Seasonal Flu

THE COUGH/COLD/flu season, coupled with the H1N1 (swine flu) virus, roared in like a lion. As the 2009 flu season runs its course into May 2010, it remains to be seen whether it goes out like a lamb. Recent reports indicated the number of confirmed cases of H1N1 is on the decline and vaccines have become more widely available.

H1N1, which dominated news headlines most of the year, resulted in a complicated and challenging flu season for the food industry. It involved a coordinated effort among government and industry groups, early preparation at retail for the fall flu season and controversy over various promotional and marketing tactics employed by retailers and manufacturers.

With H1N1 spreading in Mexico and heeding threats of a potential crisis in the U.S., Food Marketing Institute canceled its inaugural Future Connect leadership conference, which was to take place in May in Dallas. FMI held the event in October instead.

During the January to March time frame, a number of supermarket pharmacies such as Wegmans, Stop & Shop, Giant Food, United Markets and Safeway launched free antibiotic programs as promotional wellness initiatives that were related to the winter cough/cold season.

However, such promotions drew criticism. The Infectious Diseases Society of America warned retailers of antibiotic resistance to bacteria and that antibiotics have no effect on viral illnesses.

The spread of H1N1 and drug manufacturers' struggle to develop and supply an H1N1 vaccine significantly tasked the distribution of the regular seasonal flu vaccine. Seasonal flu supplies ran out abruptly, leaving some pharmacies having to close scheduled clinics and latecomers not getting inoculations.

On the manufacturing front, there was good news and not so good. Sales of everything related to the cold/flu season were up. Retailers struggled to keep hand sanitizers and face masks in stock. Vitamins and nutritional supplements that help keep the immune system strong jumped. Cough and cold sales, meanwhile, also rose with reports of the spread of H1N1 in all 50 states.

However, some suppliers attempted to take advantage of dire flu warnings with false labeling claims, and have received warning letters from U.S. government agencies.

Retailers Face Empty Magazine Racks

AS SPORTS ILLUSTRATED was about to release its Feb. 13 sellout swimsuit issue, supermarkets and Wal-Mart Stores faced empty racks where the issue was to be slotted due to a breakdown in the wholesale distribution network.

Two wholesalers — Anderson News and Source Interlink Cos. — attempted to levy a 7-cent surcharge on single copies of magazines delivered to retailers to try to improve the profitability of their business. The wholesalers combined represented 50% of all magazine distribution.

Magazine publishers, confronted with the recession, losses in ad revenues and subscription sales as well as rising costs, refused to pay the surcharge and withheld shipments of issues to the wholesalers. Consequently, retailers around the country faced a disruption in delivery of magazine titles from publishers for nearly a month.

Several lawsuits and counter-lawsuits followed. Anderson News went out of business. Source filed for bankruptcy protection and emerged as a private company. Publishers faced revenue shortfalls.

Supermarkets, which have a 37% market share stake in single-copy sales of magazines, had to ride out the disruption with a loss in high-margin items and at the risk of disappointing customers looking for favorite titles.

Distribution has now settled down in time for the release of SI's next swimsuit issue. Audit Bureau of Circulations' report on preliminary numbers for the first half of 2009 shows that subscription sales were flat and single-copy sales fell 12%.

Movie Rental Kiosks Steamroll Retail Landscape

ALMOST OVERNIGHT, $1 DVD rental kiosks have become pervasive fixtures at food chains around the country. Redbox Automated Retail, a division of Coinstar, Bellevue, Wash., continued its rapid expansion into grocery chains.

Five years ago, the Oakbrook Terrace, Ill.-based Redbox started with 12 kiosks in Denver and has expanded to a network of over 22,000 kiosk locations this year. The company, which generated $389 million in revenue last year, expects to double that this year. Redbox went national in more than 2,600 Kroger stores this year and signed on with 248 Albertsons LLC stores. While the rental operator celebrated its half-billionth rental in August, the company was also deep in antitrust litigation with several movie studios that challenged the company's distribution terms.

Meanwhile, Blockbuster licensed its name to NCR, Duluth, Ga., last year to roll out Blockbuster Express $1 DVD rental kiosks. This year, Blockbuster Express has pursued aggressive expansion through acquisitions such as TNR Holdings Corp., the second largest DVD kiosk operator in North America, and DVDPlay, which operates approximately 1,300 kiosks in the U.S. and Canada.

Blockbuster Express rolled out or expanded into Big Y Foods, Publix Super Markets, Safeway and Tedeschi Food Shops, a 188-store convenience chain in New England, as well as more than 200 locations of the Duane Reade drug store chain in New York.

NCR projected operating approximately 3,800 kiosks by the end of the year.

Retailers are waiting to see how the digital delivery of movies impacts the rental business. Tesco, London, recently announced a collaboration with Microsoft on a next-generation home-video-viewing model.

Added Value Offered With Fuel and Gift Cards

THE $4 A GALLON gasoline became a bad memory for shoppers in 2009 as the recession took center stage and prices for a regular gallon of gasoline averaged just over $2.50 by mid-year. However, the popularity of fuel perks did not fade with lower gas prices. Nielsen reported that one-quarter of U.S. households sought gas at locations because of incentives tied to spending levels at a grocery store where they shop.

Retailers that rolled out fuel incentive programs included Winn-Dixie Stores, Bi-Lo, Redner's Markets, Shop ‘n Save and Bigg's.

By the end of the year, some retailers decided to couple their fuel incentives with gift cards, which began experiencing a slump in sales last year.

Giant Eagle began offering a 20-cent-per-gallon fuel discount with every $50 spent on qualifying retailer gift cards. Supervalu's Shop ‘n Save did the same at participating Sunoco, BP and Shop ‘n Save Express Fueling locations.

On Black Friday, Kroger began a two-week offer of $10 off the grocery bill with every $100 spent on selective gift cards. The offer was good with the Kroger loyalty card. Others tied gift cards in with the purchase of bigger ticket items.