Tills alive with sound of music

Supermarkets are selling more and more records, and may now have the clout to force the record companies to lower their prices.

The growing power of supermarket retailers in the music market could spell problems for record companies. In every other area the supermarkets have turned their attentions to – from fresh fruit and vegetables, to health and beauty products – a squeeze has been put on suppliers. The grocers’ instinctive partiality for price discounting could destroy the record companies’ ability to command high prices for CDs.

The 1994 inquiry into the high price of CDs by the Monopolies & Mergers Commission concluded there was little that could be done to drive the prices down. The inquiry was launched after claims that the major record labels and retailers had phased out vinyl to increase sales of the more profitable CD format. The industry was cleared of operating a sleazy cartel. But many consumers still feel the music industry is charging over the odds for CDs. The music-loving shopper would welcome the prospect of a price war over CDs – and this is a real possibility given the supermarkets’ increasing power in the market.

The latest report from Corporate Intelligence on Retailing says that supermarkets have bolstered their share of the UK music market to about 15 per cent.

Within five years, says Corporate Intelligence, this could be boosted to 25 per cent – and with control over a quarter of the market, the supermarkets would have sufficient clout to demand discounts from record companies.

The record executives have an advantage that other producers do not – and that is exclusivity. Michael Jackson albums are different from baked beans in that if retailers want to stock them they have to go to Sony, unlike beans where you can produce own labels or stock alternative brands. This means the companies do not need to offer bulk discounts on particular titles or artists.

But with sufficient market share, the supermarkets will be in a powerful enough position to demand discounts from the record companies for taking their range of CD titles.

Pre-recorded music sales are booming in the UK, which has the fourth largest music market in the world after the US, Japan and Germany. In 1995, the UK record industry passed the 1bn mark for the first time, and this increased by over six per cent in 1996. City analysts predict that this could grow by ten per cent this year, fuelled by sales of new artists such as the Spice Girls.

The public still feels that they are being overcharged for their favourite music. Discounting has become more widespread, and record companies are even using singles as loss leaders to promote album sales. But recent moves by supermarkets have raised the stakes in music discounting.

Last month Safeway and Tesco launched their price campaigns on chart CDs, with Safeway offering two for 20 – a discount of up to 6, while Tesco claimed its prices for five top-selling albums were 2 lower than Woolworths. By using comparative advertising, and straying into territory dominated by Asda, Tesco is tipping the balance of the music industry price structure, and making a price war more likely.

Asda is already the fifth largest music retailer in the country, and even has own-label music on offer. The chain has a history of price campaigns, including books and over-the-counter medicines. At the moment, any price discounting on CDs comes out of the retailers’ margins. But the retailers are clamouring to get the companies to invest some of their margins as well in cutting prices. Asda sells 2.5 per cent of its products in the entertainment field, and CD and video sales are worth over 150m. Other supermarkets probably sell about 275m worth of CDs combined.

Supermarkets pose their greatest threat to the CD sales of the variety stores – the likes of Woolworths, Boots, WH Smith and John Menzies. The problem for these retailers is that their product ranges are not wide enough to attract specialist music fans, and much of their sales are impulse purchases, as they are in supermarkets. But given that people visit supermarkets every week, the grocers have an advantage over the variety retailers.

These general retailers have their greatest strength with compilation albums, which have increased their share of the album market from 18 per cent in 1989 to over 28 per cent in 1995.

Corporate Intelligence believes the specialist music retailers such as Virgin, HMV and Tower Records will be protected from any price war with supermarkets because they offer in-depth ranges with which the supermarkets cannot compete.

But the Our Price chain could find itself in the same situation as some variety stores. Our Price operates from small stores, so has a limited range and is dependent on compilation album sales. But it is unable to compete with supermarkets on price or specialists on range.

The specialists have set the standard for music retailing in the UK, developing leisure style formats in megastores over 10,000 sq m. The supermarkets are copying many of these ideas in their own music and leisure areas.

The conditions are right for the price of CDs to come crashing down, and if so will confirm consumers’ suspicions that for the past ten years they have been paying too much for their CDs.

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