Since 2008 the multiples have snatched at least £70m in sales from video game retailers. Now, with specialists against the wall, supermarkets are adding pre-owned games to their arsenal to take on online sites. Vince Bamford reports

Video games are no longer the exclusive, reclusive preserve of spotty teenage boys.

One in three Brits play video games today, according to games industry body UKIE. And every taste is catered for gamers can train their brains, tone their abs, tear around the streets in stolen cars and take part in horrific torture all in the name of digital entertainment.

It's big business and still growing last month games retailers enjoyed their biggest week ever, with an estimated £114m spent on Cold War shooter Call of Duty: Black Ops in its first week alone. Of this, £10m went to Tesco, says the supermarket's UK trading & commercial director Richard Brasher. "Call of Duty was released at midnight and by 8am we had already made £3m on it," he adds.

The all-out supermarket assault on the market has been marked by aggressive cut-price deals on the biggest, newest launches. And the casualties of the multiples' campaign on the £1.6bn games market [GFK-Chart Track, 52w/e 31 December 2009] have been specialist retailers. The latest interim results for HMV show sales down 14.9%, while Game's sales fell 10%. In this period, the supermarkets have upped their market share from 11.1% to 15.7% [Kantar Worldpanel 52w/e 3 October 2010].

Supermarkets took their first steps into video games about eight years ago following the success of the Sony PlayStation2 and Microsoft Xbox, and has grown up with the industry, in every sense.

The turning point for the multiples came with the collapse of Woolworths and Zavvi, which together accounted for about 15% of the games market, in 2008.

"When Woolworths collapsed, its distribution arm, Entertainment UK, also collapsed effectively removing the major wholesaler from the market," explains Kim Bayley, director general of the Entertainment Retailers Association.

"Since EUK had supplied many of the supermarket retailers they had to put into place new supply chain arrangements, and now often go directly to the publishers giving the games suppliers a more direct link with their customers."

Andrew Thompson, Asda's head of games, admits the change in the relationship has only been positive. "Over time this has had a significantly positive impact on our games business performance."

Though value sales of games fell 11% last year as the recession hit disposable income, by then the supermarkets were a formidable force in video games. When Call of Duty: Modern Warfare 2 was launched in November 2009, Sainsbury's and Morrisons sold it for £25.99 and £26 respectively, undercutting HMV and Game by £19. Tesco charged £25 when it was bought with another chart title. Asda's price was a permanent £32. On average supermarket prices were £8 below the specialists and £6 cheaper than internet retailers [Kantar Worldpanel].

"Grocers are very good at spike promotions on major DVD launches such as Avatar and Harry Potter, and this is being extended into games," says Kantar commercial director Jim Needell. "These drive footfall. Shoppers buy the game and may then go on to buy food."

It's a two-way street, with many gamers picking up their Halo fix while food shopping. Most agree convenience is as important to the success of the supermarkets in games, and offer appeal as gifts during a supermarket shop, according to the retailers.

"This area of the business is heavily shopped in the run up to Christmas and we have extended our offer in games," says Tesco's Brasher. Having sold a few major titles at cut prices, Tesco and Asda started rolling out game trade-in schemes nationwide in the first half of 2010. "This has been an important change in business for us in the last six months and will be important in Boxing Day and new year sales," adds Brasher.

With Asda valuing the pre-owned games market at £500m a year, the attractions for the supers are obvious. Offering trade-ins provides avid games with an outlet for completed games and provides cash-strapped parents with a means of getting hold of games for less, says Thompson.

In October Asda offered footie game Fifa 11 for 97p £29 below the normal selling price if shoppers traded in one of three recently launched games.

The industry is less than happy about this development, however. While retailers claim a pre-owned offer helps boost sales of new titles, many publishers are unhappy because they do not see a penny, some add that the multiples have completely queered the pitch as games can be traded against anything sold in store even food. So publishers are hitting back by offering downloadable content that's locked to a player's console and has to be purchased again by the new user of a pre-owned game.

"It is an interesting development and it will ultimately be the consumer that chooses if they are happy with it," says Thompson. "We have been really open and honest with publishers from the start of our trials. With Best Buy, Argos and Tesco all entering the pre-owned market before Asda this year, we have had to move to protect our long-term games business,."

Lego Star Wars 3:The Clone Wars
There's no denying that The Force is strong in this one. Giving the heroes and villains of the Star Wars universe a cutsie Lego makeover has proved a huge hit with kids (and their dads), with the previous games selling well over 20 million copies in total. There is no reason for retailers not to expect similar success from the upcoming second sequel, due to hit UK retailers in February next year.
Across the supermarkets, the promotional deals on the latest Call of Duty have been more sophisticated than the straight price cuts seen when its predecessor launched last November: Asda offered it for £4.97 with similar conditions to its Fifa deal, while Sainsbury's, Morrisons and Tesco all offered discounts based on other in-store purchases.

But the supermarkets are creeping further into the specialists' territory by turning launches of major new games into events in their own right. Midnight launches and exclusive merchandise are becoming common currency. 

"We have more than 200 stores that are open at midnight for launches of major games releases," says Thompson. "In September we launched Halo Reach with an exclusive hoodie and we launched Call of Duty: Black Ops with an exclusive premium pack that offered the game, a strategy guide and a t-shirt for £44.97."

Such activity has helped supermarkets carve out more of the market at the expense of the bricks and mortar retailers, which have seen their share slump from 62.7% to 48.9% in the past two years [Kantar]. But the target now appears to have moved to online outlets such as and Internet retailers which frequently offer the lowest prices according to Bayley hold 35.4% of the market, and are growing their share faster than supermarkets in the past two years.

This is now largely historic, however, she adds. "Supermarkets didn't move into gaming as quickly as online retailers, primarily because the range of gaming platforms makes it more complex than selling video or music. Also, games players tend to be PC-savvy, so they are very comfortable with shopping online. This has given online a head start over the supermarkets, but they are starting to gain ground."

Craig Armer, client executive at Kantar, agrees the advantage of online players has diminished. "The internet achieved huge growth in shoppers between 2008/09, boosted by a good Q4 performance that grew its market value and share. However, this year the grocers are outperforming the internet outlets and definitely have the current momentum in the games market."

Online sales, currently a small proportion of Asda's games business, will also be a major focus for the retailer in 2011, adds Thompson. "We will be improving our solution and proposition for music, video and games online to enable us to compete with the likes of Amazon, Play and HMV."

At this point in the cycle two or three years following the launch of the latest hardware generation the dust is still settling on the supermarkets' assault, but new developments look sure to stir things up further. While there are no major hardware launches on the horizon a 3D handheld device from Nintendo, expected to launch before March, certainly has Thompson hot and bothered.

"It is a truly groundbreaking product," he says. Game on!

The next level
With hardcore gamers completing a game in as little as a month or even a week in extreme cases video gaming is a market very much fuelled by the 'next big thing'. We asked the experts what upcoming products they were excited about and what they thought the next year would bring.

"I am very excited about the potential launch of the 3DS console from Nintendo in the first quarter of 2011. It is a truly groundbreaking product that allows handheld gaming in full 3D without glasses"
Andrew Thompson, head of games, Asda

"There are some big hitters coming early next year in games, including The Legend of Zelda: Skyward Sword, Ghost Recon Future Soldier, the next Gears of War game and Lego Star Wars 3"
Nick Arran, senior games buyer, Sainsbury's

"In terms of consoles, I don't imagine we'll be seeing any major launches until the manufacturers have something really new to show us"
Kim Bayley, director general, Entertainment Retailers Association

Games spend
(52 w/e 05 Oct 08)
Internet: 25.8%
Grocers: 11.5%
Other: 62.7%

(52 w/e 3 Oct 10)
Internet: 35.4%
Grocers: 15.7%
Other: 48.9%

Source: Kantar Worldpanel