Tesco Remains Bullish on Packaged Media

10 Jun, 2014 By: Erik Gruenwedel

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U.K. supermarket behemoth eyes discs as link to connected technology

In an age of digital media and smart technology, U.K. supermarket giant Tesco is using old-school physical discs as a means of introducing consumers to Internet-connected devices such as Blu-ray Disc players, tablets and mobile phones.

It’s a retail strategy domestic retailers could easily adopt.

Hertfordshire-based Tesco operates 3,300 stores in the UK employing 310,000 people, representing about half of its global retail footprint. With the bulk of the United Kingdom’s £1.6 billion packaged video market generated at supermarkets, Tesco remains the No. 1 home entertainment retailer.

With plans to launch 650 new Tesco stores, in addition to refurbishing 200 other locations in the U.K. this year, the retailer is eying packaged media as a crossover appeal with consumers familiar with discs; yet intrigued by digital distribution.

“We are selling more and more consoles with Blu-ray, so our focus has been to push them as home entertainment units and bundle them with Blu-ray discs,” Stephen Owusu, home entertainment category buying manager at Tesco, told Cue Entertainment.

While video games and movie discs each generate about 40% in revenue, followed by 20% in music CDs, Owusu says focus groups indicate strong consumer demand for packaged media.

Indeed, ongoing consumer demand for packaged media in the U.K. resulted in satellite TV operator BSkyB earlier this year launching an online movie store that includes a disc in the mail with each digital purchase.

Tesco in 2011 was the first British retailer to embrace cloud-based storage of movies and TV shows — ahead of UltraViolet. Dubbed “Online Movies at blinkbox,” the platform enables consumers to access in-store DVD and Blu-ray Disc purchases online via the PC, tablets, PlayStation 3, and select connected LG and Samsung TVs.

With an 80% ownership stake in blinkbox, Tesco now sells and rents digital movies, including new and catalog titles, starting at 99 pence.

Owusu said that while Tesco is attuned to rapidly evolving changes in digital distribution, including marketing a branded “Hudl” tablet, related apps, and soon a branded smartphone — doing so at the expense of physical media is not an option.

Tesco stores now combine physical media with digital in a “connected technology department,” staffed by personnel versed on both sides of the digital divide.

“Our customers don’t think in terms of digital and physical, they just want content, however and whenever they want it. We don’t want to push customers in one direction, so we will not ram digital down customers’ throats when they go into shops but we will make sure we are ready. So, however customers want to consume content, we will be there,” Owusu said.

The executive said that in addition to major new releases, direct-to-video titles continue to outperform at retail. A major selling point is packaging, including box art. Tesco has seen double-digit growth in sales of direct-to-video titles.

“With mid-tier titles most people browse the range and because it will be the first time they come into contact with the product, the packaging is fundamental to their choice,” Owusu said.

“There is not a strategy to go in and take physical products out and replace them with digital or reduce the store space. We are working at 100mph to get the digital proposition right but physical product remains a vitally important part of the mix.”

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