Supermarkets Not Eating CE Stores' Supper — Yet

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At International CES back in January, TWICE, as it has done for the past decade, held our annual Retail Roundtable with 10 of the country's top CE merchants.

During the course of the discussion, which came on the heels of a particularly bruising holiday selling season, the subject of supermarkets and drug store chains came up — and not in the most flattering light.

The issue, as these CE specialists saw it, was that grocers' fourth quarter $35 DVD end-aisle specials were diverting sales and contributing to industry price erosion. What's more, CE offerings by supermarkets and corporate pharmacies were no longer just a seasonal phenomenon or one-shot buy, they argued, as VCRs, 13-inch TVs and other cash-and-carry products were becoming permanent fixtures alongside such traditional channel staples as fresh fruit and suntan lotion.

"Last year, we saw product not only in the traditional retailers, but also in the supermarkets and drug stores," observed roundtable panelist Tom Edwards, senior analyst with NPD Group. "Big places such as Walgreens, Longs Drugs on the West Coast, Albertsons and Acme had a wide variety for sale, and people bought them. They recognized the value of the consumer electronics product."

Bob Lawrence, executive director of the AVB/BrandSource buying group, noted that his member dealers were likely losing their single-unit sales to grocers and druggists, and that consumers were buying their CE offerings as impulse purchases. "It used to be gum was an impulse item," he opined. "Now it's a DVD player."

Added Jerry Throgmartin, CEO of H.H. Gregg, "If the consumer is willing to buy a DVD off the pegboard or at the end of the counter at the grocery store, then [alternative channels] become a bigger factor in those areas."

But just how big a factor — and threat — have the supermarkets and drug store chains actually become? According to the latest TWICE Top 100 CE Retailers rankings, which track electronics sales at Walgreens (48), CVS (53), Rite Aid (62), Eckerd (69) and Kroger subsidiary Fred Meyer (37), the food and drug channel remains one of the smallest venues for CE, although it is also one of the fastest growing.

Using market share as a measure, the four pharmacies combined lay claim to only a half percent of total Top 100 sales, placing them somewhere between the department store channel (0.3 percent) and New York metro area brown-and-white-goods chain P.C. Richard & Son (0.6 percent).

Meanwhile, Fred Meyer, a multiline merchant that predominantly sells groceries, equaled department stores in Top 100 market share with 0.3 percent of CE sales.

Nevertheless, the concerns raised by Roundtable participants are not unwarranted, particularly when considering the sector by sales growth. Last year, during a period of consumer and retail retrenchment, the four drug chains tracked by TWICE increased their cumulative CE sales by 25 percent, to $538 million — which would have landed them at the 28th position were they a single entity.

In the meantime, electronics specialty stores should also keep an eye trained on the supermarkets and pharmacies, which have apparently developed a taste for their products. As Tweeter CEO Jeff Stone noted last January, "[CE] is great for a Walgreens because $59 is a huge ticket compared to their average ticket of about $4.50."

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