While news and magazines are a great footfall driver for forecourts, the category is notoriously difficult to manage. Vertical supply agreements mean retailers have little control over what they sell and which wholesaler they source from – not to mention costly carriage charges. But this could all change next year – albeit not before a hard slog by the industry.
As Forecourt Trader went to press, the Association of News Retailing (ANR) and other retail groups showed a united front and rejected further talks aimed at achieving special status for the news and magazine industry under the forthcoming realignment of the Competition Act.
Existing supply agreements in the news trade have been under review by the Government, and on January 16, the Department of Trade and Industry (DTI) announced that it was to allow a 30-day period for the industry to seek informal advice from the Office of Fair Trading (OFT) to establish whether the existing publisher/wholesaler contracts that create exclusive distribution areas are contrary to the Competition Act 1998.
Officials representing retail, wholesale and publisher groups held a series of meetings before reporting back to the Government. The DTI had given the news industry until the middle of February to agree a mutually acceptable structure to the news supply chain, with any plan handed over to the OFT for scrutiny. But a mutually acceptable structure has not been achieved.
John Lennon, managing director of the ANR, says: “We worked hard for the 30-day period to address the fundamental problems that restrict choice and competition in the news and magazine industry. But as discussions wore on, it became clear that the critical issues of choice of wholesaler, carriage service charges and multiple wholesale service were not being addressed in a way that promised any benefits for retailers.
“We are delighted that our colleagues at the National Federation of Retail Newsagents (NFRN) and the British Retail Consortium (BRC) have taken the same decision as the ANR.”
The OFT and the DTI must now decide whether a proposal backed by only part of the industry – and not carrying the support of retailers or the largest newspaper publisher News International – can be taken forward.
“We cannot use this proposal as a basis for exemptions for the news industry under the new Competition Act,” says Lennon. “This means that we are facing the prospect of a free market in news and magazines, and ANR members welcome this.”
Currently, certain vertical agreements, such as news wholesalers’ exclusive territories, are exempted from sanction under competition law, but the DTI intends to withdraw the general vertical agreements exemption. If so, it would be necessary for such agreements to meet the criteria set out in the Competition Act. If the DTI decides to abolish the exclusion, it will not take effect until May 1, 2005.
Despite the complex supply chain, news and magazines are big business for forecourt retailers. According to the Institute of Grocery Distribution, the category accounts for about seven per cent of total forecourt shop sales.
For the past two years, Spar’s growth in the news and magazines category has been more than double that of the industry average. According to the symbol group’s news category manager, David Walker, this success has been achieved because Spar now places a huge emphasis on news as a footfall and sales driver, and because it is moving towards managed ranges.
“By taking control over the range of titles we can work more effectively with publishers to improve availability to consumers and in-store disciplines,” says Walker. “It also means it is now our customers who dictate what appears in our stores and not the supply chain.”
To push sales even further, Spar has introduced a magazine link-save scheme. It is currently being trialled at 140 Spar stores in Scotland – nine of which are forecourts. Spar, Marketforce and GlaxoSmithKline have joined forces to produce a promotion that gives every customer who buys Now! magazine a free bottle of energy drink Lucozade Hydro, which is also being heavily promoted this year.
A new unit has been designed to house the promotion and it is currently being used in half of the trial stores with the other half relying on shelf-edge labels and traditional point of sale to highlight the promotion. Initial results have been encouraging, with one store achieving more than 300 per cent uplift and most achieving about a 150 per cent increase in sales.
Meanwhile, for Shell’s company-owned sites, news and magazines are an important category. A spokesman for the oil company says: “At Shell we look to be the destination for news and magazines. Although the items involve quite a small spend on the part of the customer, they are often linked to the purchase of larger items such as confectionery or coffee.
“With news it is also a very regular purchase made on a daily basis,” he adds.
“Our research shows that for many it can become an habitual purchase with customers buying their newspaper or magazine from the same location every day.”
Trading under the current wholesale agreements means that retailers need to establish good relationships with wholesalers and publishers to get the best returns from the category.
Tony Hill, newstrade marketing executive at publishers RBI, says: “When a forecourt manager or buyer is deciding on the range of magazines that is needed for the shelves, the national sales of magazines need to be adjusted due to the unique type of customer that the store attracts. Once the range has been developed, the forecourt manager then has to convince the wholesaler to supply the correct magazines.
“Finally once the magazines have reached their off-sale period the returns need to be given back to the wholesaler so they can record the sales. It may initially seem like hard work, but it is worth it as availability of these titles can encourage customers to visit your store regularly.”