Bagging the mags Will the Tesco/WH Smith distribution deal prove bad news for many small retailers? John Wood reports This week the row over Tesco's national deal for magazine supplies intensified when the Newspaper Publishers' Association weighed in. It published a report from Professor Paul Dobson of Loughborough University assessing the impact the deal would have on the magazine and newspaper markets. It was a historic moment for the news industry, but not for the reasons intended by the Newspaper Publishers Association. For the first time it was the publishers and the wholesalers who were doing the squirming as they sensed their dominance of the market waning away. Thousands of independent retailers, who have been subjected to years of appalling service from the news supply chain, would have relished the scene. For years the publishers have acted like a bunch of playground bullies, slashing wholesalers' margins, and for long periods refusing to even talk to retailer representatives about supply chain problems. The wholesalers didn't complain too much. They knew they could still recoup costs from the retailers. They had a monopoly and the retailers had a stark choice ­ pay up or get out. But retailers far bigger than any of the traditional players are now selling magazines, and no one pushes them around. Tesco has torn up the magazine supply rule book. As with any other product it handles, it's the customer who calls the shots, and the supplier should be pleased just to get the business. In exchange for a lucrative national distribution deal with Tesco, WH Smith News has agreed to provide the multiple with a single point of contact. At present the retailer has to deal with wholesalers on a depot by depot basis, with each company using a different system, and many still relying on pen and paper. WH Smith will also link into Tesco tills, so each magazine sold will be recorded. This should enable it to top up supplies on shelves to ensure each magazine remains on sale for its entire lifespan. But while this efficient system will benefit Tesco ­ and the other big players who will inevitably strike similar national distribution deals ­ the publishers are warning it could lead to wholesale slaughter of smaller stores. The Dobson report claims: "The highly efficient present wholesaling system is likely to be severely undermined." With more duplication of wholesalers serving the same area, the overall cost of distribution will rise ­ Dobson estimates it will add £20m to the national bill. In addition, the major multiples are going to drive a hard bargain and the wholesalers will find their margins squeezed. He predicts wholesalers will pass on the cost to smaller retailers in the form of higher carriage charges or worse terms. According to Dobson this will force up to 8,000 small retail outlets out of the market. He suggests that if the national distribution model were extended to newspapers, the figure could be as high as 12,000. Putting that into a newspaper context, Mike Newman of the NPA said this would lead to a loss of sales of 650,000 papers per day. National Federation of Retail Newsagents director David Daniel said his organisation had presented similar findings about the threat to shops to the Office of Fair Trading five years ago ­ but the cause highlighted by the NFRN was the inefficiency of the supply system. He added: "Rural stores are already going out of business. We are losing an average of 700 to 800 members a year directly as a result of bankruptcy and business losses." Dobson insisted the present system was efficient and suggested there was competition between wholesalers, because they had to bid for publishers' business. But Daniel replied: "The idea of competition is laughable. The wholesalers know they can screw retailers for any carriage charge they like." And Daniel said he feared national distribution and unfettered competition would damage independents, with wholesalers cherrypicking lucrative accounts and leaving small retailers with an expensive service ­ or none at all. He said the NFRN was in talks with the publishers, WH Smith and the organisers of Project Falcon, another national distribution scheme being put together by WH Smith's rival news wholesalers. In order to gain the NFRN's support, publishers would have to make a number of major concessions on issues ­ such as terms and insertion allowances ­ they have often refused to discuss in the past. Meanwhile WH Smith and Tesco were trying to reassure independents that competition would benefit them. A Tesco spokesman said: "This system will be available to all retailers. We cover virtually the whole country so it will be available nationwide. We are subsidising the set up of this national distribution system and competition between wholesalers will force down charges to retailers." He also attacked the publishers for suggesting newspapers would become involved in the system, saying this was never part of the plan. He said the new distribution system was scheduled to begin operation in October. However, some magazine publishers have contracts with distributors extending into next year. These would have to be completed before those magazines would be supplied. There is frantic activity going on behind the scenes, with negotiations going on between the parties involved. Whether the outcome will affect the newspaper market is open to question, but one thing is sure, the magazine supply chain is never going to be the same again. {{NEWS }}