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ANR E Newsletter

Welcome to ANR’s autumn newsletter.

In this issue of our newsletter:  


 

The Removal of Dawson News from the supply chain

The beginning of August saw the end of Dawson News, removed from the supply chain by publishers; largely as a desire to restrict, as much as they can, the ability of retailers to seek magazines from an alternative wholesaler. Seeking supplies outside a wholesaler’s monopolistic area is known as ‘passing selling’.

Passive selling means that wholesalers can respond to a request from a retailer to provide them with magazines outside their exclusive territory, but they cannot actively canvass for business outside their area.

Sub-wholesaling (also known as sub-retailing) can also take place across territories, and is where a retailer gets supplies of magazines to one shop but then transfers/sells them to another outlet in either the existing wholesalers territory or across into another wholesalers territory.

The OFT stated in its Opinion that as magazines were not time sensitive that there may be a better way to market than through the existing wholesalers:

“…the longer timescales may also make it feasible for new entrants to join the wholesaling market, or for new methods of wholesaling to develop. This means that there is more likely to be scope for ‘competition in the market’ to develop for magazine wholesaling in the absence of ATP “ (Absolute Territorial Protection).

The OFT also highlighted potential consumer benefits if the ridged restraints of the wholesalers monopoly were loosened to allow greater competition in magazine distribution “the incentives for publishers to pass a fair share of any such benefits on to consumers may be weaker” if ATP, or wholesale monopolies were allowed to remain.

It was this potential lack of control of the supply chain that magazine publishers in particular did not want to see and as a result Dawson News was removed from the supply chain.

 


No clean bill of health for the news industry

The Office of Fair Trading (OFT) has confirmed its decision not to referrer the industry to the Competition Commission, but in doing so stated that it “had not given the industry a clean bill of health.” 

In confirming their decision not to refer in their document “Newspaper and Magazine Distribution in the United Kingdom, Decision not to make a market investigation reference to the Competition Commission” the OFT state that they will “not give the sector a clean bill of health – it [OFT] has found that there are reasonable grounds for suspecting that some features of the newspaper and magazine distribution markets prevent, restrict or distort competition”.

The report goes on to state that if these concerns are not addressed the OFT would “consider, after a period of two years following this decision, whether to undertake a short update review of the newspaper and magazine distribution sector in relation to the features examined in the this decision”.

The concerns highlighted by the OFT include:

  • The negative effect that publisher control was having on the supply chain and in particular the detrimental effect it was having on retailers’ ability to serve the consumer: “the OFT considers that there is significant scope, in the absence of such a high degree of publisher control over the distribution process, for retailers to differentiate their magazine offers and for wholesalers to respond to more individualised retailer demands…”
  • Poor copy allocation and the need for greater retailer influence over the allocation process: “publisher copy allocation limits the degree to which a retailer can differentiate its offer from other retailers… and competition between local retailers can be restricted”.
  • The relationship between magazine publishers and wholesalers which operates against the interest of retailers, it was, “not clear that an ordering system managed by wholesalers could result in more effective retailer influence over copy allocation”. The OFT recognised that wholesalers play an important part in the supply chain but state that “this need not be at the expense of the retailers influence over the range and number of titles they stock”.
  • The encouragement of greater competition in magazines distribution including passive sales: the success of, “alternative supply via passive sales and/or national models of distribution will be particularly relevant in the context of any assessment of copy allocation and [magazine] publisher-led distribution” in two years time.
  • More frequent tendering for wholesale areas – “ideally more frequent than every five years” which is the current norm – with greater retail involvement “consulting retailers before future tender rounds, would enable retailers’ comments and concerns to be taken into account…”. Publishers should also make greater use of parallel tenders as it “would enable competing wholesalers to bid for a sufficient number of contracts at once to overcome any incumbency advantage held by another wholesaler”.
  • Carriage Service Charges – the OFT state publishers should be “more readily aware of changes in CSC’s” as high CSC’s could lead to retailers exiting the market.
  • The need for a self regulatory process “including mechanisms for redress” that “address the features of the market which fall within the statutory test for a reference to the CC”
  • Industry best practice being adopted that “could enable the newspaper and magazine supply chains to work more effectively into the future. In addition, the wider adoption of this best practice could address some of the concerns raised by certain retailers.”

Although the OFT has decided not to refer the industry to the CC it is good to see that they recognise many of the areas of concern that we raised with them.

Over the next few months ANR will make sure that the whole industry responds to the very clear message being sent by the OFT about why, how, and how quickly the industry has to change.

If in two years time this change has not taken place, the industry will face the real possibility of an OFT referral to the CC for a full market investigation reference.

ANR wants to see meaningful change in the supply chain not an MIR, but if in the next two year the industry does not respond to the changes highlighted by the OFT, there may, unfortunately, be no alternative.


Selling Local and Regional Press

John Barn, Newsagency manager at the Co-op, provides some tops tips for handling regional and local newspapers which are often overlooked by news retailers despite the fact that they are typically the highest selling title for any store. Distribution arrangements vary widely and coupled with huge variances in copy management processes there are many pitfalls to be avoided but also huge sales rewards if managed effectively.

Sales
The key difference between local newspapers and National press is that there is a much greater likelihood of customers buying a local newspaper despite not planning to purchase a newspaper on their shopping visit. This is obviously driven by the headline of the day and the local news interest which means sales can be highly volatile. To capitalise on this it is best to dual site local newspapers.

Local press should be displayed within the main newspaper display so that customers planning to purchase a newspaper see them as part of the range on offer (this can also encourage multi-purchases). To capitalise on the impulse sales opportunities local press should also be displayed in a high foot-flow area away from the newspaper fixture. Where this has been done sales can increase by 10 - 20%.

Promotions
It is advantageous to build close relationships with local press representatives. They are often quite receptive to supporting in store promotional activity and can also assist with point of sale materials and display equipment. Don't under estimate your value to them as individual stores can sometimes account for 10% or more of local weekly newspaper circulations so there are strong grounds to develop a mutually beneficial relationship.

Terms
Over the years many local newspapers have introduced variable profit terms. It is worth checking if these exist in your area and, if so, the criteria they have used to base your terms on.

There are huge variances but typically higher terms are offered for news retailers that support the local press by maintaining good availability, displaying point of sale material, offering additional facings and/or locations in store, supporting home news delivery (HND), etc.

Some publishers' criteria are set in stone others are more receptive to negotiation - e.g. you may not offer HND but there may be other criteria that qualify for higher terms that you can substitute (point of sale opportunities, etc), so it's worth asking!

* A note of caution on HND. Some higher terms are provided if retailers offer free home delivery. It is extremely unlikely that the extra pence per copy can compensate for the loss of delivery charge income so ensure you calculate the benefits before signing up!

Copy Management & Unsolds
There are many different copy management processes in operation by local press. Some are very basic and simply agree a supply quantity with the retailer and any changes to supply are mutually agreed. However, not all local press are fully sale or return (SoR) as many have a returns allowance and retailers can incur heavy waste if poorly controlled.

Most local press will encourage retailers to accept 'box outs'. This is where additional copies are added to your supplies typically because there is a big local news story or a promotion. In some cases these extras are added for one issue only (box outs should always be SoR) but they are sometimes automatically added to future supplies and become your normal standing order. If you have high unsolds of these future issues it may exceed your returns allowance and result in waste. It is essential that you have a clear understanding of the supply processes employed by your local press (get a copy in writing) and challenge them if you believe they have failed to act in accordance with their own rules.

Ensure you follow the returns procedure for claiming credit. Quite often the process simply requires the retailer to bundle up the previous issue's unsolds and attach a label recording your details - in some cases only the mastheads are returned in an envelope. The problem with these processes is that retailers often fail to keep a record of the copies returned and/or fail to complete all their details on the returns label/envelope. When they receive their invoice there is no credit for unsolds and the retailer has no idea what was returned and inevitably loses out.

Delivery
Many local press have their own delivery vehicles. Delivery times to stores will undoubtedly vary but it is important that you discuss your requirements with them. You know your customers best and for some stores there is a critical time which, if not achieved, will result in significant lost sales. Don't be afraid to challenge your delivery time if you believe there are more sales to be had from an earlier delivery and most local press will be receptive if there's a strong argument. Keep a record of your agreed delivery times because if you receive a late delivery it could adversely affect your sales for that issue resulting in high unsolds. You should not lose credit if you've exceeded your returns allowance due to circumstances outside of your control. The same rules apply if the deliveries are handled by your main news wholesaler.

Overall, local newspapers represent a huge sales opportunity for retailers if managed properly!


Menzies carriage service charge increase is unwelcome and unnecessary.

Retailers continue to face unacceptable carriage service charge increases. After facing unprecedented increases in CSC’s last year Menzies Distribution has increased their charges to retailers by a further 2%.

ANR is calling for publishers to prevent these profiteering increases and do what the OFT ask when they state that publishers should be “more readily aware of changes in CSC’s” as high CSC’s could, and undoubtedly will, lead to retailers exiting the market.

Menzies state that they use the Freight Transport Association and John Hall Associates (fuel price) tables. ANR has looked at these tables and they show that the year to July 2009 cost actually fell by 6.5%.


Cost fluctuations in 12 months to 1 July 2009
3.5 ton van
Drivers’ wages n/a
VED 0.0%
Insurance 2.3
Depreciation 9.5%
Bulk contract diesel -19.4%
Tyres 6.6%
Maintenance 0.1%
Transport overheads 1.3%
Total vehicle operating costs -6.5%

Summary of wage awards January – July 2009
Basic pay
Reduction 14.6%
No change 78.2%
Increase up to 2% 5.4%
Increase between 2% and 3% 1.8%
Increase between 3% and 4% 0.0%
Increase between 4% and 6% 0.0%
Increase of more than 6% 0.0%
100%
Average change (where changes took place) -2.7%


Effect of falling diesel prices on vehicle operating costs in 12 months to July 2009
3.5 ton van
Percentage change in annual vehicle cost attributable to fuel costs decreases -8.6%
Source: FTA Manager’s Guide to Distribution Costs; John Hall Associates (fuel prices)

On top of this the Retail Price Index (RPI) measure of inflation shows a fall of -1.2% to July this year. How is it, then that Menzies felt justified to increase their charges by a further 2%.

Menzies have stated that they are to freeze CSC’s for 12 months why is that? Is it perhaps that if they did their annual calculation in January, for implementation in March, that Menzies would have to reduce their charges to retailers for the year?

The time has come for a serious look at these unacceptable charges, and the questions needs to be asked such as:

  •  What exactly are retailers paying Smiths News and Menzies Distribution circa £80 million for?
  •  What are the publishers paying Smiths News and Menzies Distribution to do, are they being paid to wholesale to retailers, if so 
  • Why the double charge?

 

ANR Survey Results

As outlined above we have recently seen the removal of Dawson News from the supply chain. A result that is disappointing to retailers as our survey results show. When asked “How do you rate the overall service level provided by your wholesaler?” for the second year running Dawson News came top.

ANR received replies from 1890 store owners and managers answering 46 questions split into 9 areas:
1. Wholesaler Service
2. Call Centre Performance
3. Supply Management
4. Delivery
5. Late Supply
6. HND
7. Invoicing
8. Industry Restitution
9. Business Development

Of the 34 wholesale service questions Dawson outperformed the others, coming top more often and bottom half as often as the other two. (Half value is where the position was shared)

Top Bottom
Dawson News 13.5 7
Menzies Distribution 10.5 13.5
Smiths News 10 13.5
Total 34 34


When asked “how do you rate the overall service level provided by your wholesaler?” Dawson News scored 7.02 which for the second year running was the highest scoring wholesaler

 When retailers were asked about business development Menzies Distribution came bottom in all five questions asked.

With Dawson News coming top more often than either Smiths News or Menzies Distribution and bottom less often, it is hard to see how their removal from the supply chain could have been on retailer service issues.

 

Why are some newsagents’ being denied full credit as result of Dawson News’ demise?

It appears that some retailers, those that sold their shops at the time when Dawson News slipped into administration, may not be entitled to full credit for the returns that they sent back in good faith. Read more…

ANR understands that there may be about 400 retailers who have been denied credit in the usual way and are to become un-secured creditors. These retailers’ are waiting for credit ranging from £1 to £3,000, with most being owed less than £100.

We are trying to persuade the industry to honour these credits as they have done – and should be applauded for doing – for all other news retailers.

Many of these retailers are retiring after giving years of service to the industry and should not have this money denied to them because they sold their businesses at the wrong time, affected by a decision that they had no influence or control over.

I remain optimistic that publishers and wholesalers will recognise that the decision to deny credit to these retailers is not only unjust but plain wrong.

 

The industry reviews JIG and ISSA

As a result of industry changes, including the OFT’s Opinion and the removal of the newspaper Code, coupled with the removal of Dawson News, the industry is in discussion around the future of JIG, which includes a major debate asking, what should replace ISSA?

ANR and the BRC have put together a draft retail charter that we feel better represents and protects retailers trading needs than the existing ISSA process, which has not been updated since 2002 and is seen by many as being weak and ineffective.

The charter is necessary to guarantee retailers protection from two monopoly wholesalers who have been granted exclusive regional monopolies by publishers.

This move has been given added support from the OFT. They clearly expect to see the industry solve the problems identified in their recent market investigation reference (MIR) decision (outlined above). They state that “steps towards self-regulation that address the features of the market which fall within the statutory test for a reference to the CC, or otherwise address any further issues in the supply chains, would be welcome.” They also highlight the need for the inclusion of “mechanisms for redress” whilst addressing retailers issues in any industry code of conduct.

If you would like a copy of the draft charter please contact ANR.

If you have any comments or questions regarding anything in this newsletter please feel free to contact me admin@anr.org.uk.