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Monsters. Extra-terrestrials. Creatures from Middle Earth. Talking mice. Just another weekend at home for most American families. When home video segued from tapes to DVDs three years ago, it not only gave filmmakers a chance to expand on their theatrical releases, it also gave retailers a second chance to jump on the bandwagon. For supermarkets, the second chance came just in time.
After largely ignoring the video explosion the first time, the supermarket channel has taken halting steps toward becoming a player in the DVD market. Supermarkets bring with them two advantages: a reputation as a family-friendly place and skill at cross-merchandising. Both will come in handy as retailers attack the mass market pricing strategies, but few doubt that, with a concerted effort, they can succeed.
"We're looking at the business again," says George Fiscus, v.p. of general merchandise for Bashas' Inc. in Chandler, Ariz. "We still supported VHS, but if you look at the return on investment against things like one-hour photo, it wasn't there. But now DVD is a whole new game. We're re-devoting ourselves to the category."
Even with that renewed interest, though, many retailers continue to step cautiously into these waters. Some remember the problems when supermarkets entered the video rental business in the early 1990s, then abruptly pulled out. Others worry about shrink from leaving product exposed to customers. Others believe the category has already been won by the mass channel. But the sales numbers generated by DVDs have retailers taking a new, hard look at what's possible, especially with the approaching holiday season.
DVDs now dominate the home video market because of their unique quality as a viewer-friendly medium. Movie producers looking to expand on their original theatrical releases can add special short features, director commentary, subtitles, foreign language dubbing, and a variety of interactive extras that allow the DVD to be a CD-ROM disk, as well.
Most of the successful titles have been family movies that have done great box office business. Shrek did $157 million in DVD sales in 2001 alone, pushing the total U.S. receipts to more than $400 million. That mark will easily be eclipsed this year as consumers get more comfortable with the format and studios and retailers get more imaginative with their marketing.
Already on the street are Harry Potter and the Sorcerer's Stone, The Lord of the Rings, and Monsters, Inc., each with enhanced movies and special effects. The movies slated for release during the holiday season are many and varied, but most of the major buzz will involve family-oriented films and anniversary re-releases. For example, the director's cut of E.T. will mark 20 years since Steven Spielberg's classic was first released. Its first DVD appearance is expected to generate additional attention.
Disney is re-releasing an enhanced version of the Oscar-nominated Beauty and the Beast, while the Beatles' classic A Hard Day's Night also comes to DVD this winter.
The big films are the big box office hits—Spider-Man, Star Wars: Attack of the Clones, Men in Black II, Stuart Little 2, Lilo & Stitch, and Ice Age. Each comes with its own DVD package of goodies that allow filmmakers to have some fun with the audience and turn the DVD into an interactive, multimedia three-ring circus.
One of the more daring releases of the holidays is the expanded version of The Lord of the Rings, to be released on Nov. 12, just three months after the original release hit the shelves. The difference is the inclusion of an additional 30 minutes of footage from the original film that will push this version to an R rating.
The special edition will also create a unique tie-in with a National Geographic documentary on the making of the film, with unreleased featurettes and additional interactive content.
It also provides a look ahead to the release of the next Lord of the Rings film,The Two Towers. That teaser will build business for New Line Productions and generate the kind of momentum needed for repeat business. This is, after all, just the first part of the Lord of the Rings trilogy, and shoppers will be coming back for more, as evidenced by the $300 million in box office sales for the theatrical release.
Supermarket retailers will have the opportunity to put the product out front as part of a concerted store-wide merchandising effort, and with the kind of in-store incentives usually only seen for special events and holidays.
When Harry Potter and the Sorcerer's Stone was released last spring, many retailers took advantage of the opportunity to create in-store events. Since the DVD sales started May 28, stores took the date literally and had themed parties the night before the date, then started selling the videos at 12:01 a.m.
Bashas' has worked to tie in Halloween-themed videos to store displays by challenging store managers to create the most effective in-store merchandising displays, with prizes for the best efforts. In doing this, the chain has created a sense that such displays can drive point-of-purchase sales and in-store excitement among shoppers.
One of the biggest difficulties for retailers is to generate the sense among shoppers that they are a video destination—a challenge in the age of Wal-Mart and Best Buy, but one that can be overcome. "I don't think we've lost the business, but we've put it on the back burner," Fiscus says. "As the VHS numbers started to decline, maybe we didn't emphasize it enough. But we've seen huge increases in DVD sales since last Christmas."
That is witnessed by a report from Wendy Liebmann, president of WSL Strategic Retail, that was presented at the GMDC conference in Orlando in September. "Consumers are focused more and more on convenience," Liebmann says. "It doesn't mean that price is not important, it means the consumers already know where to get the best prices."
That's why companies such as Bashas' have succeeded with an equation in which value is a function of price and convenience. Bashas' has succeeded in cross-merchandising DVDs with DVD players, which have come down dramatically in price to less than $100. "We've done several special-priced DVD players with DVDs as part of the display, and the return on that has been phenomenal," Fiscus says.
More than 50 percent of all video sales go to DVDs, and that share is expected to climb dramatically in the coming years. Still, the VHS format remains viable, and both the players and the price points for classic movies and new releases are significantly lower than those for DVD. That gives certain markets an opportunity to reintroduce video to their customers, and gives price-conscious consumers a chance to find their niche in the video market.
Pulling out the stops
The studios have made the process work as well. Having made back their production costs on the theatrical releases, studios pull out all the stops when the video release dates are announced. For example, the promotional angles for the Stuart Little 2 release on Dec. 10 include product tie-ins with Denny's Restaurants, Bruce Foods, Casa Fiesta Family Dinners, Land O'Frost lunchmeats, and Eukanuba pet food. Denny's will sponsor a Stuart Little-themed kids' menu, with activity books and a special offer for a free DVD from Columbia TriStar's home entertainment division.
The holiday season's biggest video release is expected to be Spider-Man, the summer's top-grossing film and the best example of merchandising tie-in. From cereals to soda, retailers will have an opportunity to cross-brand the video release with other products in the store, creating merchandising opportunities and a new sense that supermarkets can be the superheroes of the video business.
For example, Dr Pepper has a pro-motional tie-in with the Spider-Man video release, with customers who purchase Dr Pepper able to instantly win Sony Dream systems, Spider-Man DVDs, and Dr Pepper products.
"The success of our summer movie release promotion exceeded our expectations in terms of both consumer and retailer excitement," says Cindi Clark, Dr Pepper's s.v.p. of marketing. "The upcoming Spider-Man DVD release will be a big attention-grabber for Dr Pepper's 12- to 34-year-old target audience."
Spider-Man has grossed more than $400 million in domestic release and more than $750 million worldwide. That kind of popularity can be taken to the bank, and retailers need to recognize the potential of DVDs to drive incremental business. But that business has to be out front and in reach of customers. Many supermarkets have been reluctant to put videos where they're readily accessible for fear of shrink, but with successful mass retailers putting them within easy reach, supermarkets must do the same.
"The new releases will be amazing," Fiscus says. "The key for us has been new-release displays to better serve our video customer."