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    Supermarket NONFOODS Business: A vision for video

    Recordable DVDs are gaining market share in most retail channels. With prices dropping, many predict they'll find their way into grocery this year.

    If retail sales in non-grocery channels are any indication, recordable DVDs will be turning up on supermarket shelves soon—possibly as early as fall—and will quickly become the dominant form of recordable media on grocers' shelves.

    According to NPDTechworld, retail sales of blank digital video discs soared from 500,000 in 2001 to more than five million in the first 10 months of 2002. "Just like recordable compact discs, when the price points for recordable DVD media drop enough and the drives become ubiquitous, they will be sold everywhere," says NPD director of IT research Stephen Baker.

    This may happen soon, judging by the numbers. The NPDTechworld study shows that the before-rebate cost of blank DVDs dropped to $6.29 last year from $15.89 in 2001. Prices of DVD recorders—the machines that can record from television, as opposed to those built into PCs—fell to the $700 range this past holiday season.

    Secaucus, N.J.-based Panasonic, which has garnered roughly 50 percent of the market for these devices, according to the NPD study, released its DMR-E30 DVD recorder last August at a retail price of $699.95. "Consumers understand the value of recording on DVDs rather than videotape from the standpoint of convenience, ease of use, instant access, and extended lifetime of the media," says Panasonic's Entertainment Group v.p. Reid Sullivan.

    What is unique about recordable DVDs is that they combine the functionality of all the other recordable media in one simple unit. They offer huge storage capacity—approximately 4.7 gigabytes—and the ability to record and play back audio and video at a much higher quality than any other media.

    Add to this the household penetration of DVD players, and it is clear how well the format is accepted. "By the end of 2003, 40 percent of all households will own a DVD player," says Don Patrican, e.v.p. at Fair Lawn, N.J.-based Maxell. "What this does for the format is that you have 40 percent of the households across all demographic groups who really understand the quality difference in sound and video in DVD like no other format. They understand the features and quality benefits versus CD-R and tape. So when the recordable hardware becomes more affordable—and I would say the strike price is $499 or lower—there will be a mass exodus from VHS to DVD, and that will start to happen next fall. And when that happens, this will spread across all trade classes immediately."

    Some manufacturers set the date even sooner. "My opinion is that they will reach the grocery industry by the first quarter of 2003," says Rich Martino, product manager for data and optical media at TDK in Garden City, N.Y.

    According to Martino, recordable DVD sales are already following the same migration pattern as CD sales did, only at a much faster rate. "Several years ago, when CD recorders first came out, those drives were $50,000, and they were only 1x speed," he says. "Now you can buy a much faster machine—up to 48x—for $49 after rebate. Recordable media also dropped significantly, from something like $25 per disc to the 10-cent prices we see today. When the price drops like this, distribution expands to other channels, from specialty store to department store, then the mass, wholesale club, and finally to drug and grocery.

    A historical cue

    "TDK had to aggressively approach the grocery channel to drive interest in CDs," says Martino. "Now, however, TDK customers already carrying CDs, such as Wakefern, Safeway, and Fred Meyer, are already approaching us about the potential of DVD recordable media."

    If CD sales history is any indication, Martino may be right in his predictions. According to ACNielsen Strategic Planner, equivalized volume of recordable compact discs at U.S. food stores excluding supercenters rose from 451,789 units in 1999 to 12,551,251 for the 52 weeks ended Nov. 2. During the period blank audio product volume dropped from 11,736,381 units to 6,705,420, and blank video product volume from 32,463,758 units to 25,502,687. Floppy disc sales remained relatively flat.

    Indeed, recordable compact discs quickly became the media of choice for digital music files among teenagers, whose parents do the family shopping—most frequently at supermarkets. The highest index for recordable compact disc sales in the ACNielsen Homescan Consumer Facts 2001 report was found among households of three to four members and the established family lifestage—families including one or more children in the household, all over 12 years old.

    Storage capabilities also make blank CDs attractive to business users. "The vast majority of end users are your home audience," says Ron Hanafin, CD product marketing manager at Verbatim in Charlotte, N.C. "Sixty to 70 percent of CDs sold through retail channels are used for the recording of music. The remainder are used for storing images, transferring files, backing up files and information."

    Three formats vie

    Competition over standard formats may help accelerate the drop in price points for recordable DVDs. Currently, there are three different formats: One group of manufacturers, the DVD Forum, which created the recordable DVD format, markets the DVD-R (write once) and DVD-RW (rewriteable) formats. Some manufacturers, rather than licensing these formats, joined together to develop their own, marketed as DVD+R and DVD+RW. The third format, DVD-RAM, which was the original blank DVD and was created by the DVD Forum, is also available.

    Although it is too early to tell which will become standard, most new DVD recorders are being developed to support all formats. The winner of this competition, however, is the retailer. "Having the two standards fighting it out for market dominance helps to further erode the price, and the retailer ultimately reaps the greatest benefit," says TDK's Martino.

    Although sales growth of recordable compact discs has slowed over the past year, they are not done for—at least not yet. "The killer app for CDs is music," says Verbatim's Hanafin. "If you want to put music on a disc you have to put it on a CD, because even though you can save them on DVDs, there is no DVD player in your car or in audio systems or portable players. They will coexist with blank DVDs for a while."

    However, once DVD players become as widespread as portable CD players, that may all change. If this happens, retailers may find blank CDs going the way of the 5-1/2 inch floppy.

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