Market Insight

Tesco UK trials disc on-demand kiosks

UK supermarket giant Tesco and technology partner Tribeka are trialling disc manufacturing-on-demand (MOD) kiosks at two Tesco Extra hypermarkes. The Tribeka vending machines enable Tesco customers to select predominantly back catalogue music, TV and movie content, as well as audio books and PC software titles from a digital catalogue. Titles are available to buy on CDs and DVDs as appropriate. Discs are manufactured in-store complete with original artwork and inlay sleeve; priced from £2.97 ($4.71) for music CDs and £5.97 ($9.48) for DVDs. Once ordered through the kiosk discs can be picked up by customers shortly after at the in-store counsumer electronics counter; enabling customers to collect their normal grocery shopping while waiting for the discs to be manufactured.

With the closure of many specialist audiovisual retailers in the UK in recent years, supermarkets have become important players in the UK's entertainment market. Tesco, the largest of the UK supermarkets in the home entertainment sector,  already offers a broad range of home entertainment products. In addition to the supermarket's in-store selection of primarily new or recent release and low cost promotional CDs, DVDs and Blu-ray Discs (BD), its online home entertainment store offers a broader range of titles on physical discs. Furthermore, the retailer has also recently launched its own digital locker scheme, via online partner Blinkbox (late 2011), and boasts a Tesco-branded online video rental subscription service powered by LoveFilm. The current move adds yet another element to the retailer's entertainment offering.

Tesco is not the first UK retailer to test MOD solutions, indeed a number have been tested in the UK including entertainment retailer HMV's in-store trial of MOD kiosks for games content in 2008. Tribeka already operates a number of on-demand in-store solutions, notably machines at Sony and Microsoft stores in the US, and it is currently operating similar machines to those currently being tested by Tesco at Carrefour stores in Belgium and in France. Tribeka has also previously tested a number of content on-demand solutions such as those providing pay-for download of content delivered on USB sticks.

The current Tesco trial is limited to two machines at two of the retailer's hypermarket stores, but the retailer has suggested that it is likely to expand the scheme to other stores shortly. Tesco has close to 3,000 UK stores, of which some 230 are categorised by the Extra hypermarket format. In focusing on low-cost back catalogue titles made available via MOD, Tesco is broadening its overall entertainment offering; ultimately substituting kiosks for valuable in-store shelf space. The defining factor for the current MOD trial will be the consumer cost per discs; the £3 price point for music CD, for example, is a very competitive offer, moreover one in keeping with Tesco's well known aggressive pricing strategies on entertainment product.

Though video rental self-service kiosks have proven particularly successful in the US, similar machines have failed to achieve any notable success in the UK. This is despite repeated trials in UK supermarkets and others retailers including Tesco's limited run of Movie Booth video rental kiosks. However, the recent proliferation of self-service check-out machines in UK supermarkets does suggest that consumers are increasingly willing to use such machines for daily grocery shopping. In this environment the right product mix and pricing strategy may build the potential for home entertainment self-service machines in the UK, as long as consumers perceive machines as convenient and easy to use. In the UK, retail store closures and the rolling back of shelf space for music and video have exaggerated the decline in physical video, however, there remains a sizeable majority of UK consumers who still wish to own physical music and video products.