Supermarkets are winning the battle to boost CD sales, despite continued growth in downloading and piracy, as well as price deflation, ­according to trade groups.

Figures from the Official UK Charts Company show volume share of CD album sales in supermarkets rose from 23.6% to 26.4% between the end of 2004 and the end of last year. The organisation says supermarkets' value share of album sales grew from 23.1% to 25.9%, despite a drop of 6% in the value of the album and singles market, which stood at £1.7bn by 31 December 2005.

The British Association of Record Dealers says grocery retailers recognise the need to concentrate on pushing more than just the top-selling albums. "Tesco, Asda and Sainsbury are stepping up their entertainment offerings, moving from the top 40 towards the top 100 sellers," says Kim Bayley, secretary general of BARD.

Reflecting this trend, Sainsbury is trialling touch-screen facilities in its largest stores, allowing shoppers to choose and listen to tracks from the top 100 albums and singles charts.

But despite increased interest in widening their offer, the supermarkets' threat to specialist music retailers such as HMV and Virgin may have been exaggerated, according to Bayley.

She says it is the high street multiples, including Woolworths and WHSmith, that sell music alongside unrelated products, such as stationery and books, that are being hardest hit. Tesco, Asda and Sainsbury have all contributed to the heavy downward pressure on prices by pursuing cut-price promotions and money-off multiple purchases in an effort to drive impulse sales.

BARD says that the average price of CDs fell from £10.26 at the end of 2003 to £9.74 at the end of 2005. "It is now usual to see even new release artist albums on sale for less than £10," says the organisation in its latest yearbook.

The market is not only having to contend with continuous deflationary pressure, but also with the effects of downloading and piracy on physical CD sales.

Most authorities admit that the activity in legitimate downloading probably barely scratches the surface of the market for illegitimate downloads, including pirate CDs, which is extremely difficult to measure.

As Richard Pearson, general manager for music, video and games at Asda, says: "It's a huge issue and one that everybody in the industry has to face up to. Not enough people feel that it's wrong to get into these things."

BARD claims the proportion of CD albums legitimately bought online doubled during the past three years. The group predicts that the value of the online music market will have more than doubled by the end of this year, to reach £69m. And it also expects similar growth in portable MP3 players.

The music industry showed the respect it now pays to the download market in April, when a new UK singles chart was born incorporating both physical and digital sales.

Earlier this year, history was made when Gnarls Barkley became the first band to reach pole position in the album charts based on digital download sales figures alone.

All of this represents an opportunity that only Tesco, among the major super­markets, has so far seized upon, with the launch of its own music downloading service via its web site in November 2004.

V?ideo Demise of VHS leaves vacuum

Grocery retailers will find it harder to grow video sales this year as piracy, deflation and the demise of VHS hit home, although new formats could refresh the £2.5bn sector.

"The DVD market is struggling," says Richard Pearson, general manager for music, video and games at Asda. "This is a newer trend, partly because of increased saturation of the market but also because of trade in pirate copies."

Norman Dinesen, corporate communications manager at the British Video Association, says that piracy is a growing issue for the DVD industry. "Piracy is a major concern for us," he says. "Up to a third of legitimate sales are believed to be lost on pirate copies."

Meanwhile, the British Association of Record Dealers cites deflation as a key concern, claiming the average price of DVDs overall has fallen 12% during the past two years.

However, that's set against supermarkets' growth in DVD volume share, from 30.1% to the end of May last year to 33.6% to the end of May this year.

Indeed, the signs for supermarkets are positive, with the latest data showing that they are virtually the only retail channel to be experiencing growth in DVD value sales - of 8.3% [TNS Worldpanel Entertainment, 52 w/e 30 April].

Crucially, the other major channel is the internet. These two avenues alone are ensuring continued value growth in total DVD sales, according to TNS.

As yet, the market for film downloads is embryonic, because the technology is still in its infancy, but many believe this will be a core area of opportunity in the next few years.

Dinesen says: "The two main legitimate sources of film downloading open to the public are operated by Lovefilm, in conjunction with Warner, and Universal. They could offer a bespoke service to supermarkets with online sales facilities, but we're in very early days."

As DVD value sales increase, so VHS is in its death throes, despite the popularity of the format for children's videos and some continued demand in the rental market. "Last year, 95% of all videos sold were on DVD," says Dinesen. "Only 5% were on VHS, although it will probably be at least three years before it disappears completely."

However, piracy, deflation and the death of VHS notwithstanding, the development of high definition and blue-ray formats, bringing improved picture quality, should boost DVD value sales in the next few years, he says. "High definition will be more expensive than traditional DVDs for a while. They are priced at $20-30 in the US, where they have just been released."

One of the first HD DVDs to hit the UK will be The Da Vinci Code in the autumn. Retailers are eager to see what the take-up will be like.

However, experts believe consumers will be confused over whether they prefer HD or blue-ray, and the different benefits of each. That could cause headaches as retailers attempt to satisfy everyone. Pearson asks: "Where are we going to put all this stuff? I'm not sure we could execute merchandising in store in view of all the other formats already out there."

Hardware HD hardware hits the shelves

The first examples of hardware for the latest DVD formats are beginning to ­appear on UK shelves.

High definition TV has already hit shops. The first Toshiba HD DVD players were released in the US in April and are due to be available in the UK by the end of the year. Sony's PlayStation 3, which uses blue-ray technology, is scheduled for launch on 17 November.

According to Tesco, HD TV is the biggest thing to happen in the electricals market for years and the retailer has expanded its range accordingly.

Tesco has been working on in-store merchandising to help consumers navigate the fixture. A spokesman says: "We have improved our display fixtures for MP3, digital camera and portable DVD players so that customers can interact with the product and ensure that the right product is purchased to meet their needs.

"Layouts have changed to create more space for our ranges, fixtures have been improved, and staff training programmes are in place to help with consumers' questions. The opportunities for change are endless. We have to be flexible in this dynamic market."

Retailers also say they will update their ranges with new technology to keep pace with the high street. "The technology in the market continues to advance and we will introduce the products into our ranges to ensure that we meet customers' needs," says the Tesco spokesman. n