Tesco: The supermarket that wants to entertain us
Through Hudl and Blinkbox, Tesco is shifting its strategy to the digital aisles
You might think that, for a retailer, a week that includes having to withdraw a “gay best friend” product from your website can only be followed by better times. But not so in the case of Tesco, which, five days after its inflatable doll apology, was obliged yesterday to report earnings for the first half of 2013 that show a 23.5 per cent drop in pre-tax profits. Tesco’s financial performance could do with an air pump of its own.
Happily, another Tesco product has hit the headlines recently, one that is of more strategic importance to the supermarket than any novelty blow-up toy.
“It’s colourful, it’s accessible, it’s affordable,” says chief executive Philip Clarke of Hudl, the Tesco tablet computer that retails for £119 and may eventually be rolled out beyond the UK market, depending on demand.
“It’s an increasingly digital world,” says Clarke. “We want more of our customers to be able to access the benefits of tablets.”
Retail, just like the media sector, is an industry at the sharp end of the transition from the physical to the digital.
Not too long ago, Tesco’s mission was to lead a “space race” in building giant out-of-town hypermarkets with vast floor areas of non-food items – including sparsely populated electrical goods aisles – and edible goods stuffed in almost as an afterthought.
But in 2013, Tesco aspires to be a different beast – a “food first” retailer more likely to open a Click and Collect depot for online shopping than it is to cut the ribbon on more Tesco Extras.
Tesco wants its online shopping base to grow in tandem with Hudl sales. And yet there is a risk of a cannibalising effect. Non-food items have been Tesco’s weakness of late, which may be due to cash-strapped consumers cutting back on discretionary general merchandise before they go hungry.
But sales of some product categories on the Tesco shelves – books, DVDs and music – are obviously vulnerable because of consumers’ ever-strengthening preference for digital.
In July, Tesco became the second-biggest entertainment retailer in Britain, albeit by default. The supermarket chain, according to data from Kantar Worldpanel, leapfrogged the previous second-placed retailer, HMV, which slid all the way down to fifth place as it went into administration and closed a number of stores.
Tesco’s share of the UK entertainment market rose to 13.2 per cent, where it is sandwiched between two digital competitors: iTunes, in third place with an 11.3 per cent share, and Amazon, out in front with a massive 23.4 per cent share.
However, both Amazon and iTunes are growing their slices of the market faster than Tesco, reflecting the supermarket’s exposure to the unfashionable business of trying to flog physical products.
Yesterday morning, Clarke was forced to defend, as best he could, allegations put to him on Sky News that Tesco is “the nasty supermarket”.
After a period of dominance in the British grocery market, Tesco’s “nastiness” relative to other retailers is a not-uncommon accusation. But so far, notwithstanding its recent dip in fortunes, no-one is labelling Tesco “the stupid supermarket”, or the one that is asleep at the digital wheel.
Bosses at the retail giant have worked out that if they want to stay in the entertainment products game, they will be in a much stronger position if they can control the platform, as Amazon and Apple do through Kindle and the iPad.
Hudl, which is available to buy for £60 through its Clubcard loyalty programme, is not the first sign that Tesco intends to compete seriously in the digital entertainment space. It also operates Blinkbox, a pay-as-you-go film library it acquired in 2011, to which it has now added music streaming, with Blinkbox Books set to launch later this year.
“Be first in line for the throne,” Tesco’s advertisements for Blinkbox ran in Britain this summer, setting out its stall: “Watch Game of Thrones season three in HD on Blinkbox. Not available on Netflix, [Amazon-owned] Lovefilm Instant or iTunes.”
Even with an existing grocery shopping customer base lured by till displays and the incentive of Clubcard points, it will be a tricky task to get to the top of the home entertainment provider queue, with tech giants like Amazon and Apple to challenge and other large retailers to elbow out of contention too. But Tesco is at least trying, and every little innovation helps.