Sainsbury's goes into the video rental business

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Sainsbury's has joined forces with Blockbuster to become the first major supermarket chain to provide video rental in its stores. The country's second largest supermarket group will announce the deal this week. The agreement is the latest salvo in Sainsbury's war for customers with Tesco, Asda and Safeway.

Initially, Blockbuster will open five video stores in Sainsbury's supermarkets this summer. But Alex Sparks, the managing director of Blockbuster UK, said that eventually he plans to open hundreds of video shops within Sainsbury's portfolio of 460 supermarkets. "Once we have learnt the best way to manage the project our intention is to roll out Blockbuster stores in as many Sainsbury's supermarkets as can take it," he said.

Britain's big four supermarket groups are turning to selling non-food items, such as clothes and household goods, in an attempt to attract customers and increase their margins.

As part of its deal with Blockbuster, Sainsbury's will devote around 500 sq ft for the video stores in exchange for a share of the revenues generated by renting videos, DVDs and computer games.

In Britain, the video-rental market is booming, with more people opting to stay in rather than having a night out on the town. As a result, Blockbuster enjoyed a 16 per cent increase in sales last year, and the British video rental market is now worth £500m.

But analysts believe that this year could break records, with a crop of cinema hits due to be released for rental. These include Harry Potter and the Philosopher's Stone in May, Gosford Park in July, Lord of the Rings in August and Monsters Inc in September.

For Blockbuster, the deal with Sainsbury's will increase its grip on the British market. Part of the giant media group US Viacom, which also owns MTV and Paramount Pictures, Blockbuster has a 33 per cent share of the British market. Operating 679 stores in Britain, Blockbuster has five million members, and its deal with Sainsbury's could take this to six million. In addition, Blockbuster plans to open another 42 stores this year, creating 400 new jobs.

Blockbuster is experi- menting with different retail formats. It has recently installed 80 video and DVD vending machines across the country, and it plans another 50 this year in locations such as petrol stations. Mr Sparks said that the company is focusing on what its customers want: "A good video, food and drink." He said that Blockbuster plans to trail the sale of alcohol in about 20 of its branches later this year.