Tape price increases move fast forward as materials costs rise

Drug Store News,  Feb 6, 1995  by Lisa Casey-Weiss

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Making video and audio tapes is going to get more expensive soon, but retailers aren't convinced the costs to consumers will rise.

Rising raw material costs, particularly in plastic resins, are forcing many video and audio tape manufacturers to consider passing on price increases to retailers.

Fuji Photo Film USA Inc. has announced plans to raise prices in the video tape segment between 5 percent and 7.5 percent, effective Feb. 15.

"The cost of raw material has skyrocketed, and we have absorbed as much as we can," said Stan Bauer, vice president and general manager of Fuji's magnetic markets division. "Everyone is facing the same problem. It is hard to believe anyone can absorb those increases completely."

Claude Guerlain, product manager for BASF Magnetics Corp., said that the price increases were "inevitable," but as of press time BASF had not yet made a decision on the amount of the increase or when it would be implemented in the U.S.

In December, Memorex announced its intent to increase prices of video tapes. Said David Metzger, vice president of marketing for Memorex: "We have not established the percentage of increase at this time. We are working for the implementation of that."

Price increase is certain

According to Lee Kennedy, marketing director of the 3M audio and video markets division, the company will have to pass increases on to retailers during the first half of the year, however it has not yet determined the percentage of increase. "A price increase is certain," Kennedy said. "What the retailers choose to do is their choice."

The jury is still out, however, on what impact those increases might have on retail. Manufacturers have been unable in recent years to raise price points in this category. As a result, some drug store retailers wonder if those increases will ever be passed on to them.

"My biggest issue is that I'm not sure price changes will happen," said the buyer for a combo chain. "The category is so price-sensitive. Manufacturers have tried to raise prices in the past, and it was extremely difficult to do. Even though raw material prices are rising, I think vendors may absorb those costs themselves."

Guerlain acknowledged that some manufacturers have tried to increase prices in the past, but could not. Retailers have always been able to shop around and find lower prices from other vendors. Now, she said, that may not happen since raw material costs are affecting everyone. "Even the biggest brands are finding they can't afford these price increases," she said.

Consumers will have to pay, maybe

If faced with a price increase, Longs would probably have to pass that increase on to the consumer. "I don't think a price increase would affect the audio category significantly," said Mark Holz, category manager for Longs, adding that a price increase would probably have some effect on the video category, but not to a great degree.

Morry Friedman, buyer for Pharmhouse Corp., said he suspected many retailers might absorb price increases rather than pass them on to the consumer. "Resins have increased, but video is such a price-sensitive market and so competitive," he said.

But a price increase might not be detrimental to video and audio tape sales. In fact, some manufacturers are hopeful a price increase might enable them to bring price points back up to the levels of a few years ago.

Retailers want increases

"The industry is desirous to raise prices to add profitability back," Metzger said. "The obvious question is how receptive retailers will be. I personally don't think video tape is so price-sensitive to the consumers that they would balk at a slight increase."

"I don't think a price increase will hurt the video business," said the buyer for a regional drug chain. "I think people buying high grade will trade down when prices rise. They will go from a high grade down to a standard type if they are recording something like a soap opera or a football game."

For the retailer, the video and audio tape categories are still strong traffic builders, even though dollar sales of video and audio tapes were flat in 1994. The Electronics Industries Association (EIA) estimated unit sales for audio tape in 1994 rose 2 million units to 429 million, while video tape units rose 22 million units to 399 million units.

"Blank video has had a tremendous year for us," said the Western drug chain buyer. "It's a draw to our stores."

"Video is a nice traffic builder," added Pharmhouse's Friedman. "It has been one of our better categories."

Industry sources say drug store retailers accounted for between 11 and 13 percent of all video tape sales and between 13 and 18 percent of all audio tape sales. Both categories turn, on the average, between 8 and 11 times a year.

The audio category has remained stable throughout the past few years. Although a smaller category than video tape in terms of dollar sales, audio generally produces better margins, somewhere between 20 and 45 percentage points.