The Association of News Retailing (ANR) has vowed to keep fighting for a review of the newspaper and magazine distribution industry following its
disappointment at last month’s news that the Office of Fair Trading (OFT) would not be referring the sector to the Competition Commission.
ANR managing director John Lennon warned retailers they needed to gain more control on crucial issues such as copy allocation and choice of supply.
The sector is dominated by John Menzies and Smiths News following the demise of rival Dawson News. The ANR which was set up in 2001 as the news and magazine arm of the Association of Convenience Stores (ACS) said it would hold the Office of Fair Trading (OFT) to its commitment to review the newspaper and magazine industry in two years’ time if significant changes were not made to the way the industry worked.
The OFT said a key reason for its proposed decision not to make a reference was the developments benefiting consumers that could come about from industry parties self-assessing their distribution agreements following OFT competition guidance.
It said that since the October 2008 consultation, many publishers had re-tendered their distribution arrangements and awarded new contracts. Following this, Dawson News, previously the third largest UK wholesaler, exited the sector.
The OFT said it had considered the impact of this tender round, among other issues raised in its consultation, and believed there remained a "reasonable prospect of further market changes which could benefit consumers".
In view of this, the OFT said it would not be feasible for the CC to obtain the evidence needed at that time to assess how the supply chains were likely to evolve in the short term, and therefore the impact and effectiveness of any remedies.
However, it stressed it had not given the sector a clean bill of health, adding there were "reasonable grounds for suspecting that some features of the newspaper and magazine distribution markets prevent, restrict or distort competition. It has identified examples of industry best-practice which, if adopted more widely, could further improve the effectiveness of competition. The OFT has specifically not ruled out the possibility of a further review of the sector in two years if it could bring further benefits for consumers".
ANR managing director John Lennon was pleased the OFT had recognised the ANR’s concerns but warned changes were needed to give retailers more control over their business. He said: "As long as the areas which have been highlighted are addressed then we won’t need a CC inquiry. But of course if the wholesalers and publishers ignore the advice of the OFT then we would reluctantly have to go back and ask for an inquiry."
Lennon said retailers needed to have more power over their own destiny. He said recent changes to allow passive selling in magazines where one retailer can supply another, or where a retailer can ask another wholesaler to supply them with magazines were a step in the right direction. But he said more needed to be done: "The two main wholesalers have their own geographical areas, and it is still not allowed for, say, Smiths to approach a retailer in what is seen as a Menzies area."
Lennon said John Menzies largely controlled the north of England and all of Scotland, with Smiths News controlling distribution in the south, but both had pockets of control in each other’s territory.
Another issue concerned copy allocation for magazines because currently retailers can get stuck with hundreds of magazines they cannot sell. He explained: "The whole magazine supply chain needs a big overhaul, as identified by the OFT. If a retailer has a standing order with a wholesaler for magazines the wholesaler could have a deal with a publisher who wants to promote something. And the retailer will then receive magazines they have not ordered and in many cases do not want. Plus of course the more magazines there are on the shelves the greater the risk of theft."
Lennon explained that because of the way the system worked, the retailer usually paid for the delivery about a week later, but they might not receive credit for those magazines for several weeks. "It can be a very time-consuming and expensive category to manage. The wholesalers are the customers of the publishers it’s the only category where the wholesaler works for the supplier and not for the retailer. We think if a retailer wants to be able to manage the business pro-actively and stop any magazines coming in, they should be able to. About 40% of monthly magazines are returned."
He added that newspapers were easier to manage, with returns picked up during the next delivery. But there were still the two main wholesalers with their own geographical areas, and News International has recently started doing its own distribution in some areas like the south east and Birmingham, adding another carriage charge for retailers.
He said there were a handful of independent distributors, including one in the south west and one in the south east (both working for News International), and others which operated in the Highlands and Islands, the Isle of Wight and the Channel Islands.
Lennon continued: "It is clear the OFT agree that those retailers who want to manage their own magazine supplies should be able to, and ANR will ensure that publishers and wholesalers respond to these retailers’ needs. It is our role to 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 OFT will have to mount a full inquiry into the industry this time bringing about real change to support retailers and consumers."
Miles Harvey, operations director at Top 50 Indies retailer Park Garage Group, agreed changes were needed, saying: "What other industry could run on such a monopoly situation? As a retailer you don’t have the choice of which wholesaler you use when we take on a new site we have to think about who services it in which parts of the category. We can have three different wholesalers at one site and they all charge carriage charges for each drop, so that can add up to about £50 per site per week for about £300 of newspapers and magazines.
"It doesn’t happen in any other sector. Everywhere else the supplier would have to compete for the business. But this is the way it is run. It’s very complex, with different wholesalers responsible for different publications as well as different geographical locations.
"There are some very important issues that really do need looking into."