Apple Deal is Music to Tesco’s Ears

By Fergus Sheppard Media Correspondent

SUPERMARKET giant Tesco is continuing its advance into consumer electronics with a trial to hand over part of its store space to Apple, the computer company behind the iPod.

The retailer has struck a deal with California-based Apple to use part of its flagship Milton Keynes store as a dedicated area for the Apple products. It is the first time Tesco has given over a dedicated part of a store to a single, non-food brand.

Managers at the supermarket chain are now considering rolling out the Apple area to other stores following positive reports from the Milton Keynes trial, which launched last month.

A spokesman for Tesco said: “It is early days at the moment, but so far it has gone very well.

“We will continue to look at how the trial performs before deciding whether to roll it out.”

The trial comes at a time when Tesco is increasingly moving into the consumer electronics market. Last week, the group announced plans to sell a mass-market broadband phone for under GBP 20 in a market which has previously been dominated by high-technology companies such as Skype.

A 120-foot area of the Milton Keynes store has been given over to Apple stocks, including iPods, Mac computers and accessories.

Apple is reported to be keen to expand its retail space following the opening of its flagship London store in Regent Street. The latest Apple store opens this Saturday at Brent Cross shopping centre in north London.

John Ryan, from trade magazine Retail Week, said: “This is a very clever deal for Tesco and a surprising one for Apple.

“Tesco is used to selling cheap consumer electronics and Apple aren’t likely to discount their products.

“However, Apple products are beautiful pieces of design, so it will certainly add an element of pizzazz to the shops.”

Tesco’s strategy revolves around being as strong in what it terms “non-food” as in food sales. Aside from the weekly shop, the supermarket generates more than GBP 6 billion a year in non-food areas, including electronics, home entertainment – for example DVDs and computer games – clothing and health and beauty. In consumer electronics, it has even started marketing an own-brand microwave.

The iconic iPod is likely to prove one of the most profitable sellers from the supermarket’s tie-up with Apple.

Ironically, Tesco’s first entry into digital music placed it into direct competition with iTunes and Apple.

In November 2004, Tesco launched a digital download services for music fans which allowed them to download tracks for 79p each.

However, the songs were in the Windows Media format made by Microsoft and were not compatible with iTunes or the iPod.