The newspaper and magazine distribution system is in the dock. Dave Visick hears the case for change

Mention newspapers and magazines to a convenience retailer and the response you will most often get is an exasperated sigh and a roll of the eyes to the heavens.
There's even a forum on the internet where retailers from across the UK get together to discuss the service they get from their newstrade wholesaler.
Some choice language is used to describe the wholesalers who, it is said, 'just do what they want'. One store owner sums up his frustration: "I would love for some of these people to come and tell me to my face why they keep messing with our businesses, then I could really give them a piece of my mind."
Now, here's the twist. The forum where all this anger and frustration is vented is on the supplier's own website. But of course under the existing news distribution system, there is no option for the retailer to take their business elsewhere. There's nowhere else to go.
It's hard to think of any other supply chain which raises the retailer's hackles as much as newspaper and magazine distribution. While no one would dispute the value of stocking the items, it's the complexity of the ordering and delivery which creates tension between the wholesaler and the retailer. On one hand, the supplier will mention the 'nightly miracle' of getting the papers out; some 10,500 employees work through the night, sorting, packing and delivering more than 14 million newspapers to 54,000 sales outlets. On the other, the retailer will see only the daily disaster of losing a customer because their favourite title failed to arrive.
So what's going wrong? Critics of the distribution model say it lacks any element of competition, with the three largest wholesalers - Smiths News, Dawson News and Menzies Distribution - each being unopposed in areas of the country, and that this lack of alternative supplier makes them unaccountable to their customers.
"Technically, it's an oligopoly - a series of regional monopolies," says Stefan Wojciecowski, head of newspapers and magazines at the National Federation of Retail Newsagents (NFRN). "At the top of the chain you have the publishers who drive this distribution system of absolute territorial protection for the wholesalers, which means a captive retail audience can't go anywhere else for their supply."
Wojciecowski has a degree of sympathy for the wholesalers, however. "One of the oddities of this trade is that the publishers set the retail price, and each level of the distribution chain has to take a proportion of that. They also dictate the supply of products and allocate newspapers and magazines where their data suggest they will sell best. That often means the multiples get first choice and independents have to share out what's left."
Others are less conciliatory. John Lennon, who as managing director of the Association of News Retailing (ANR) represents the interests of the 32,500 Association of Convenience Stores members who retail newspapers and magazines, says: "The wholesalers have made a rod for their own backs by acquiescing to the publishers and taking a 10-year contract in return for reduced margins. So to make up their margin they introduced carriage charges - these have grown massively over the past 10 years.
"The retailer has become a dumping ground. The wholesalers' terms and conditions are unbelievable - they demand payment after seven days, but when do they pay the publisher? It's obscene - they are plundering the retailers' tills."
The lack of competition, Lennon says, gives the wholesalers no incentive to raise their game. "The system asks retailers to pay for magazines they don't want, to pay for any losses, and to allocate more shelf space than the volume of sales deserves," he adds. "Poor wholesale service to retailers affects retail services to the consumer, like the drastic reduction of home news delivery. The end result is that many retailers are reducing the space given to the category as it is too inflexible, frustrating and costly to manage."
The ANR believes that the system is in need of radical overhaul, and last month published a report, Tomorrow's News, in which it outlined several ways forward based on possible outcomes of the ongoing OFT inquiries. "The report shows that retailer choice of news supplier would bring significant opportunities for all professional retailers," says Lennon.
Not everyone is convinced. "The present system is the most cost effective and efficient route to market and should be evolving to improve performance," says Lloyd Purchase of Smiths News, adding that the wholesaler is working with magazine distributor Comag to develop forecasting systems which categorise retailers in 80 different ways and plan allocation based on net sales.
Distributor Marketforce recently revealed its collaboration with the WHSmith retail chain, which is switching from selling magazine ranges based on store size to individual ranges based on sales profile and customers - a model which could suit convenience stores equally well.
Whether these initiatives will collectively ease the retailer's daily ordeal remains to be seen. For some, they are no more than delaying tactics designed to demonstrate forward movement where none exists.
"While it may be natural to resist or fear change, it is clear that most retailers still want greater flexibility," says Lennon. "When a supply chain is as expensive and performs as inefficiently as this, change becomes a necessity."

Under review

The absolute territorial protection enjoyed by newstrade wholesalers would be illegal in the distribution of most products on the c-store's shelves. Indeed, it's questionable whether the system is legal under current competition law.
The Office of Fair Trading has been looking into the distribution of newspapers and magazines for several years. It's currently running separate inquiries into the vertical agreements between publishers and wholesalers, and the 1994 newspaper code of practice which sets minimum entry requirements for new retailers. It is also considering a request from the NFRN that the whole supply process be referred to the Competition Commission.
The OFT says it acknowledges the repeated complaints from retailers of excessive wholesaler carriage charges and late or insufficient deliveries. It also notes that the current model leads to mass wastage, with more than 1.7 million national newspapers unsold each day, and at least one million magazines returned.
Its findings, first expected early this year, may not be released until 2008.
Rather than an opening up of the market, most interested parties would like to see better regulation of the existing structure. The NFRN supports a tougher Code of Practice that would contain guaranteed standards of service, more say for retailers in supply volumes, and legal undertakings which can be stringently enforced. An ombudsman would be appointed.

The Wholesaler's view

Lloyd Purchase, Retail Channel manager for Convenience, Smiths News
"I believe the way in which the newspaper and magazine supply chain has evolved over the past 15 years has delivered clear benefits to retailers - but that does not mean there's no need to change.
"This supply chain is fundamentally different from others in that it is sale or return. This reduces the risk for retailers and gives wholesalers and publishers the ability to forecast sales, which has resulted in growth and leaves any risk with the publishers, who in turn will determine print figures based on their optimum profitability models.
"I strongly believe that we will see movement from a 'push' to a 'pull' supply chain - this has already started to happen with the development of epos-based replenishment systems. Over time these will become slicker and more efficient and copy allocation systems will be designed to take into account retailers' epos data, shelf capacity, Home News Delivery (HND) and Shop Save orders to improve forecasting.
"Over the past 12 months Smiths has invested in a text messaging service, a query management system and epos- based fulfilment systems. We recognise that the retailers' main frustration comes from magazine copy allocation and this is our key focus area for the next 12 to 18 months."

The industry view

Peter Wagg, Chairman, Joint Industry Group (JIG)
"JIG focuses on supply chain issues and over the past few years we have reached agreements which have been of significant benefit to retailers, like increasing the window for magazine returns to 17 days and establishing a best practice model for vouchers.
"Newspapers and magazines are not like baked beans or chocolate bars. It's very hard to anticipate demand, and harder still to restock if you get it wrong. That's why sale or return works.
"I believe Sales Based Replenishment (SBR) is the way forward. This ensures that not only do the copies go where they are needed most, but this also crucially reduces the amount of waste.
"We're in a period of 'wait and see' at the moment, as we are governed to some extent by the OFT's decisions. After that, I believe we'll see a big leap forward, with JIG instrumental in delivering significant improvements in service to retailers."

Retailers' views

Abdul Majid,
Spar Bellshill, lanarkshire
"It annoys me that I have to give more shelf space to the fixture than I want to so I can make room to display titles I haven't ordered and don't expect to sell. I'd like to have a supplier who thought about me as much as they think about themselves."

Bhavin Patel,
Tylers Green Store, Essex
"I get so many problems with changed allocations, missing titles and returns not credited that I'm barely talking to my news wholesaler.
"I'm sick of this. If I could go to another supplier I would, as you would do if any supplier was letting you down so consistently."

Colin Landsburgh,
runs two stores in Angus
"We're working with the Spar news group and CJ Lang to put pressure on the wholesalers not to send us rubbish. We're cutting down on titles we don't want and identifying bestsellers and creating hot spots to really push them. Working together we're making progress."