Woolworths yesterday signeda new three-year contract to supply UK supermarket giant Tesco with CDs, DVDsand computer games in a deal that could be worth up to £40m in gross profitover the period to Woolworths.
Previous concerns thatTesco, whose former deal with Woolworths' wholesale subsidiary Entertainment UKexpired in February, was seeking a cheaper supplier were allayed as Woolworthsconfirmed the new deal would deliver it lower profit margins.
"There has been animprovement in terms [for Tesco]," confirmed Chris Rodgers, Woolworths' financedirector, "but hopefully by working closely together we can benefit bothbusinesses."
Rogers added the group hopedto boost the volume of entertainment products it supplied to Tesco tocompensate for the supermarket paying less for each item.
Tesco, which sells between£300m and £400m of home entertainment products each year, recently revealed itsDVD sales had boomed in recent months, rising by almost 50% over Christmasalone.
"When the business has grownso fast, Tesco weren't going to settle for the same terms and rations," hesaid, adding that the Woolworths Group would now "look at doing business" withother supermarket retailers. It presently supplies major UK stores Tesco,Waitrose and Safeway, but not Wm Morrison, J Sainsbury or ASDA.
Last year Entertainment UK,along with VCI - Woolworths' audio-visual publishing group - made £42.2m inoperating profits, accounting for almost half of the group's total.