Yet, with the OFT’s consultation closing on June 17, concerns remain, particularly over whether the proposals will only benefit larger retailers with the clout necessary to negotiate better arrangements. Clearly, the likes of Tesco should do well, but so should others. As a spokeswoman for Costcutter says: “Symbol groups are in a better position to make decisions on service and contracts on behalf of retailers. Costcutter is in a position to go to the publishers and negotiate better terms. That’s our next step.”
Depending who you talk to, the OFT’s recommendations on magazine distribution, published last week, could either trigger a breakthrough for independent retailers - or consign them to oblivion.
According to the OFT’s draft advisory opinion, which followed a six-month assessment of how newstrade distribution squares up to competition rules, newspaper supply should remain unchanged. But vertical agreements for magazines should be scrapped to allow retailers to approach whichever wholesaler they wish to supply their magazines, irrespective of territory.
The OFT’s take is clear: “If absolute territorial restrictions are lifted for magazines, retailers will be free to seek better terms from wholesalers. We’ve been hearing from retailers who don’t get enough of the magazines they want and get too many publications they don’t want. So there will be scope for greater efficiencies and standards of service.”
There’s no denying the frustrations felt by retailers, of all sizes, about the headaches they suffer under the current arrangements.
Major gripes include the agreements between publishers and wholesalers that force them to accept unrealistic quanitities of publications they will never sell. Retailers also want to see the abolition of graded delivery fees (or carriage charges) for publications; after all, they argue, we don’t have to pay delivery costs for any other staple products such as milk or bread. And some also want to develop better electronic ordering and tracking of newstrade sales.
But there’s one massive benefit of vertical newstrade agreements: when it comes to guaranteeing magazine supplies, they ensure everybody is treated much the same, irrespective of their size or purchasing clout.
Remove these agreements and the effects could be disastrous for the independent trade, claim trade bodies the Periodical Publishers’ Association, the Newspaper Publishers’ Association and the Association of Newspaper & Magazine Wholesalers.
They point to research from Professor Paul Dobson who argues that opening up magazine distribution to more competition would mean retailers losing that guaranteed supply. Larger retailers could monopolise wholesalers and get the best terms, driving smaller retailers out of business.
However, the Association of News Retailing is one of the retail bodies that has welcomed the OFT’s proposals, claiming that, if implemented, the proposals would actually give independent retailers more bargaining power and improve service.
Managing director John Lennon says the OFT is clear about wanting to maintain guaranteed supply for magazines, so wholesalers will be obliged to supply even the smallest retailer. He says: “There are opportunities to develop magazine distribution. Retailers on the border of wholesalers’ territories have the potential to ask another wholesaler to supply their magazines. We will work to use the opportunities this decision offers.”
His comments echo those made by the independents surveyed by The Grocer in March. Of those quizzed, 92% were unhappy with the service they got from their news and magazine wholesaler - and 96% would consider switching if they could.
Nigel Mills, MD of Mills Group, says small retailers may be able to afford single drops of magazines from one wholesaler. But the bargaining powers they get through the ability to canvass wholesalers for magazine supply would be outweighed by the costs involved in plural contracts. “There are no clear winners out of this. It’s a bit of a non-decision,” he says.
What the industry thinks
>>a move that would only benefit the big multiples?Dylan Jones, editor of GQ, and chairman of the British Society of Magazine Editors
The BSME lobbied the PM before the general election about the OFT’s provisional recommendations. We followed this up with a document expressing our concerns.
We received a letter this week saying he was going to look into the issue and we now want him to come good on his promise.
The decision to open up magazine distribution to passive selling will be potentially hazardous for retailers, because it is going to change the entire process. It would allow greater control by the larger wholesalers. The industry as a whole is opposed to these suggestions.
Peter Wagg, national president, the National Federation of Retail Newsagents
While we broadly support the OFT’s draft, we are concerned about the arguments.
It has only been able to act on the narrow brief it was originally given and makes no proposals to address inefficiencies, restrictive practices or retailer complaints. We will be making the case for a new industry code of practice that incorporates and replaces the current wholesaler code, qualifies the OFT’s review, makes proposals for improved efficiency and self-regulation and addresses some remedies we proposed last December.
Nigel Mills, MD, The Grocer Top 50 chain Mills Group
On the face of it, it doesn’t help the independent retail trade. It is not as economic to deliver newspapers and magazines separately, as could happen if independents negotiated alternative contracts.
Where’s the economic sense in switching from single deliveries to multiple deliveries from several wholesalers? Even for symbol groups, the effort and costs involved would probably not make it viable. Only the major
multiples could potentially take advantage of the changes, because they could take magazine deliveries through their central warehouses. And as far as the issue of sub-wholesaling is concerned, why would even the major multiples want to go down that route? There’s no margin in selling magazines on.
Kevin Hawkins, DG, the British Retail Consortium
The BRC welcomes the paper from the OFT as a step towards improving the existing distribution arrangements for retailers. Any changes in the supply chain that bring about benefits for consumers will also be positive for retailers.
The provisional changes, which will improve the availability of titles to the consumer, are to be commended. We appreciate there are other industry groups who may feel potentially disadvantaged by the OFT recommendations, but they will have the opportunity to make their case in coming weeks.
Ian Locks, Periodical Publishers’ Association
Allowing retailers to source magazines from suppliers outside their particular territories, would undermine the economics of such territories for magazine and newspaper distribution, making the OFT’s approval for the latter of limited value.
We are disappointed that the OFT has not recognised the immense damage we think will be caused to newspapers and magazines through increased costs, reduced sales and loss of choice for the consumer.
The OFT’s position would seriously distort competition between publishers.
We are optimistic that, before issuing any final opinion, the OFT will accept that the unravelling of the retail supply chain would be of benefit to only the giant supermarkets.