Infuriated by OFT intransigence, small retailers are going to the Competition Appeals Tribunal. Are they fighting a lost cause?
C-stores welcome probe into news distribution.” That was The Grocer’s lead story almost exactly 20 years ago when the OFT asked the Monopolies and Mergers Commission to investigate the wholesale distribution of national newspapers.
Fast forward two decades, and a further five investigations, and retailers are demanding another. In March, newsagents were left seething when the OFT revealed it would not review the sector again. “After carefully considering views from across the sector, we have decided further investigation would not be justified as, among other matters, it is unlikely to lead to significant benefits for consumers on the whole,” said Louis Christofides, director in the OFT Goods and Consumer Group.
So, what happens next? Can anything be done to achieve progress? And given the newstrade is in terminal decline, is there any point bothering?
On 28 September, the Competition Appeals Tribunal will hear a case brought by the Association of Convenience Stores (ACS) and National Federation of Retail Newsagents (NFRN). The two retail associations launched a joint legal challenge against the OFT’s decision earlier this year.
“Of real concern to both the NFRN and the ACS is the fact the OFT has accepted wrong and misleading evidence from publishers and wholesalers that supports an argument not to have an investigation,” explains NFRN national president Alan Smith. “As publishers and wholesalers still exert unfair control over the market, driving independents and small businesses out of business and thus limiting consumer choice yet further, we had no option but to mount a joint legal challenge.”
“There are too many interests invested in and profiting from the status quo”
Shane Brennan, ACS
ACS public affairs manager Shane Brennan adds: “There are too many interests invested in and profiting from the status quo. Even drastic declines in sales have not proved enough to bring about the radical shake-up that is needed.”
Against the challenge is the Press Distribution Forum, set up two years ago to self-regulate the industry. It counts the Association of Newspaper & Magazine Wholesalers, the Newspaper Publishers Association, and the Professional Publishers Association, as well as newstrade’s two wholesalers Smiths News and Menzies Distribution as members - but not the NFRN or the ACS.
“We were disappointed and surprised by the legal challenge because it is not as if the sector hasn’t been well looked at over many years,” says PDF chairman Mike Newman. “We are all under pressure, but many of the common issues raised can be looked at together, rather than through government intervention.”
Lawyers rate the case’s chance of success at 50%. And if that looks promising odds, the bigger picture is actually bleaker, as newstrade sales continue their apparently inevitable decline.
Last month, John Menzies, owners of Menzies Distribution, revealed newspaper sales down 3.9% in the six months to 30 June. Magazine sales fared even worse - monthly titles fell 4.4%, while sales of weekly titles fell 8.4%. In June, rival Smiths News reported a 4.1% fall in like-for-like sales for the 44 weeks to 7 July.
But for indies, newstrade remains crucial to encourage footfall and incremental sales. The NFRN estimates indies are responsible for 60% of all newspaper sales and 40% of all magazine sales.
And according to Him’s 2012 Convenience Tracking Programme, newspapers are the number one category purchased in a c-store, bought by 25% of shoppers. They are also the number one reason shoppers visit a c-store, with 16% stating ‘to buy a newspaper or magazine’ as their main reason for visiting a store.
Shoppers who buy newspapers also buy more. Newspaper shoppers visit more times a week (4.5 times) than those who don’t buy a newspaper (3.5 times), and crucially, 71% of newspaper buyers make other purchases.
Publishers want to get their products into as many stores as possible and sell as many copies as possible. And wholesalers want to get these products from its depots to stores as quickly and cost-effectively as possible.
But retailers argue that just because only two wholesalers operate in the sector, they can’t choose where they get their newspapers and magazines from. This means that if carriage charges are increased, if deliveries are late, or if they get sent allocations they don’t want or can’t sell, they simply have to put up with them.
“We continue to fail to have the right products in the right quantities in the right locations. This is particularly a problem in magazines,” argues Brennan. “If all parties work more closely, sharing data and pooling ideas, they can make a marked difference to the category.”
Smith agrees: “We all want to sell as many newspapers and magazines as we can, as profitably as we can. This will never truly be achieved when the balance of power is vested at one end of the market.”
There are tentative signs of co-operation, however. Smiths News and Menzies Distribution hold regular retailer open days. The PDF has been sending drafts of the Code of Practice, which it is reviewing, to both the ACS and NFRN.
And newsagents have also openly praised publishers for their handling of the London 2012 opening ceremony. Although deadlines were pushed back, copies arrived on time at stores the next morning.
But right now, everyone is waiting for 28 September. “If the OFT decision is upheld, it will be a relatively benign result, but if the decision is overturned, we’re back in the legal melting pot we have spent the last decade in,” says Newman. “It’s a distraction the industry simply doesn’t need.”