Deal starts April 2007, covers 700-plus stores.

Britain's market-leading mass-merchant retail chain Tesco is to take the distribution of its music and video product ranges in-house through a new arrangement with Handleman Company.

Under the deal, announced this week, Handleman's U.K. division will provide distribution, in-store merchandising and category management support across Tesco's 700-plus U.K. stores, with effect from April 2007.

Handleman will assume supply duties from British wholesale distributor Entertainment UK, a division of U.K. retail and entertainment giant Woolworths Group plc. EUK's contract will expire after Easter 2007, but an existing books deal has been extended to run until March 2008.

"We have leaned a lot from EUK over time but feel that we can further improve our service to customers by bringing the buying function in house," says Tesco in a statement.

In a separate release to the New York Stock Exchange, Handleman Company chairman/CEO Stephen Strome comments, "This opportunity aligns with our strategic focus of growing our business through providing services based on our core competencies, as well as accomplishing customer diversification."

Handleman says it expects to generate approximately $50 million in annual service revenue as a result of the deal, which is terminable by either party after four years.

Tesco has emerged as a powerful player in the U.K. music retail landscape, clinching more than 10% of total albums expenditure in 2004, according to the most recent figures published by labels body the British Phonographic Industry. Tesco is the first supermarket to achieve a double-digit share of albums since research firm TNS Audio Visual Trak began monitoring the market in 1999. Annual group revenues are estimated to exceed £37 billion ($65 billion).