MAGAZINES IN A SUPERMARKET ECONOMY
Wessenden Marketing
Littleworth House, Tuesley Lane, Godalming, Surrey GU7 1SJ
Tel. 01483 421690 Fax. 01483 427089
Email. info@wessenden.com
Website. www.wessenden.com
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MAGAZINES IN A SUPERMARKET ECONOMY
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MAGAZINES IN A SUPERMARKET ECONOMY
1.1 Background
1.2 Brief
1.3 Preface: The £2bn Tesco Profit
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MAGAZINES IN A SUPERMARKET ECONOMY
The major supermarket groups are coming to be regarded as one of the biggest threats to the future of UK consumer magazine publishing.
Much of the current supermarket debate has focused on supply chain issues and the erosion of publisher margin as a result of growing grocery power.
Yet while the grocers can use their power ruthlessly, this power springs from and is devoted to the ceaseless pursuit of customer satisfaction, rather than simply to destroying the competition or squeezing suppliers.
To understand the supermarkets’ agenda and their future direction is to understand (1) the business priorities of a key partner, but also (2) what the consumer actually wants. In a world where consumer shopping patterns are being shaped by and reflected in the supermarket offer, a deeper understanding of the supermarket sector should highlight where the whole consumer market is heading.
The “supermarket economy” is the true context for magazine publishers’ activity in the future and it touches the whole publishing model, not just circulation strategy. It also affects all magazines, not just those actually stocked by the major supermarket groups, as the general consumer environment is being shaped by these trends.
The brief is to map the environment for consumer magazine publishing with reference to the supermarkets’ agenda, through a consolidation, review and analysis of currently available research and trends.
What are the options and the challenges facing publishers as a result? Can publishers work with the supermarkets rather than be crushed by them? How will all this impact on the publishing model of the future?
While supply chain issues are to be referenced, they do not form the central focus of this particular report.
The aim of this project is to provide an overview of the issues which supermarkets present: an outline agenda for more detailed work and research in the future and the context for ongoing industry projects.
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MAGAZINES IN A SUPERMARKET ECONOMY
Although it was well-trailed and well-prepared in advance, the announcement of Tesco’s full year trading profit (52 weeks to Feb
2005) still caused a public stir and represents a major milestone in
UK retailing: Tesco has become the first UK retailer to post profits of more than £2bn.
The results came two weeks after TNS data showed that the retailer’s share of the grocery market had broken through 30% for the first time.
Apart from the sheer scale of the profit, Tesco’s announcement underlines a number of key trends detailed in this report.
Perhaps most significant is the growing importance of what Tesco calls the three “growth businesses”:
1. Non-food (20% of total UK sales) with overall sales growth of
17%. The fastest growing categories were:
•
Clothing (+27%)
•
Seasonal products (+27%)
•
Stationery, news & magazines (+26%)
•
Home entertainment (+20%)
•
Health & beauty (+13%).
Consumer selling prices in non-food have been reduced by 1% year on year. This has been funded by “our growing scale and supply chain efficiency, including an increasing level of direct sourcing.” Tesco is rolling out its supply chain disciplines and practices to non-food categories generally.
Tesco, like Asda, is currently involved in testing a store format which sells no food at all in it.
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2. International (21% of total Tesco sales). Overseas sales rose by 18.3% (on constant exchange rates) outstripping the 11.9% rise in the UK.
3. Retailing services
•
After only 12 months of operation, Tesco Telecoms
(mobiles, land lines & internet access) has 1m customers.
It is losing £4m per year, but has made an immediate market impact.
•
Tesco.com accounts for 2.4% of all Tesco’s UK sales and makes a healthy 5.0% profit margin.
•
Tesco
(700,000 up on last year) of which 1.7m are credit cards and 1.4m motor insurance policies
Together, these three areas make as much profit for Tesco as the entire business made in 1997.
Other key trends are:
Increasing profitability . Operating margins edged up slightly to
6.2% of sales. This has come from constant pressure on supply chain and operational savings.
Growth in sales space . New store openings are still a major driver of Tesco’s growth, though the underlying like-for-like sales are still very impressive. Yet growth in sales space is putting massive pressure on all its retail competitors, both multiple and independent. It also puts pressure on its own internal operations to convert that space growth into profitable sales.
UK Sales Growth
Like for Like
New Stores
TOTAL
9.0%
2.9%
11.9%
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MAGAZINES IN A SUPERMARKET ECONOMY
Price deflation . The sales growth was volume driven.
UK Like for Like
Sales Growth
Volume
Price
Value
8.9%
0.1%
9.0%
Strip petrol sales out of the figures and the +0.1% price rise turns negative and the +9.0% value rise slows to +7.5%.
Tesco invested £230m over the year in price cuts. It has just announced a further £67m for its latest campaign, sparking an immediate response from Asda.
The ongoing mission remains entirely consumer-focused based on four key priorities for shoppers:
•
Making shopping trip as easy as possible.
•
Constantly to to help them spend
• less.
Offering of either large or small stores.
•
Bringing to complicated markets.
Tesco’s core Mission Statement remains: “Our core purpose is to create value for customers to earn their lifetime loyalty. We deliver this through our values: (1) non one tries harder for our customers and (2) we treat other people how we like to be treated.”
Owning more consumers . Analysts estimate that Tesco has picked up 1m new customers from its competitors over the last year, taking its UK shopper numbers to 13m. Customers are also spending more : average spend per visit is up by over 2% year in year.
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All this underlines Tesco’s specific success as an operator, but also points to more general trends in the grocery market:
•
The growth of non-food.
•
The roll-out of supermarket supply chain disciplines and practices to non-food categories.
•
The importance of building share through an aggressive policy of store openings and price competition.
•
The general consumer context of price deflation.
•
The focused pursuit of the consumer.
Tesco sets the context and the benchmarks for the rest of the grocery sector.
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MAGAZINES IN A SUPERMARKET ECONOMY
The major supermarket groups dominate the current consumer marketing scene. Their buying power, supply chain mastery and obsessive pursuit of the consumer make them both fascinating to observe and frightening to do business with. As a result, people have strong opinions about them:
•
The media dislike them for “homogenising” the country and for duping consumers with selective price cuts.
•
Their retail competitors criticise them for destroying all opposition and, therefore, for undermining the traditional retailing fabric.
•
Their suppliers, including magazine publishers, fear them as in their drive for margin, consistency and efficiency, they can squeeze supplier margins, strangle innovative new product development and reduce product diversity.
•
The consumer remains ambivalent, wistfully lamenting the loss of the independent retail sector while continuing to buy a wide range of goods from their convenient, wellpresented and well-stocked supermarkets.
Whether the supermarkets are responsible for shaping the modern consumer marketing climate or whether (as they would argue) they are merely responding to bigger social trends and consumer demands is a complex question. The real answer lies somewhere between the two.
In a commercial sense, the question is also probably irrelevant.
Whatever their role in where consumer marketing is now, they are at the cutting edge of that consumer marketing. Observing them has a great deal to teach any FMCG supplier, including magazine publishers.
BEYOND THE SHELF: Supermarkets Blurring the Boundaries
A clean retailer-manufacturer interface is being complicated by the increasing number of roles that the supermarkets are assuming, such as:
•
Magazine advertisers with the commercial leverage which that implies.
•
Media owners, selling “consumer contacts” via such media as in-store TV, trolley ads, direct mail etc.
•
Magazine publishers in their own right.
•
Magazine subscription agents competing with publishers’ own subscription activity.
•
Non-retail operators, competing in online activity.
•
Magazine censors, making stocking and delisting decisions on the basis of editorial issues and “taste & decency”.
•
Magazine product influencers with increasingly detailed views on such issues as on-sale dates, cover pricing, editorial positioning, etc.
While the publishing industry may be over-sensitive to some of these issues, probably the most profound and worrying is the emerging role of the supermarkets as media owners in their own right, not so much for the fact that they will be competing with publishers for advertiser budgets, but because the numerous
“customer contacts” that the supermarket media operations can offer are all part of the grocers’ relentless drive to “own” the consumer. However, rather than seeing the supermarkets purely as competitors, there may be creative opportunities for publishers and retailers to work together in partnership.
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MAGAZINES IN A SUPERMARKET ECONOMY
ON THE SHELF: Magazines in Supermarkets
The supermarket operators have grown close to a 30% share of consumer magazine retail sales value, with predictions that they could in time reach 40%. This growth is based on their taking a very definite profile of magazine sectors, as detailed in the report.
It is also being accelerated by the current buoyancy in the weekly magazine market, which is driving share, with publishers’ knowledge and support, ever more quickly into the hands of the supermarkets.
It is also based on a magazine range that is wider than many actually realise and which, over the long term, has been growing.
Far from ignoring specialist magazines, the supermarkets have provided many new sales opportunities for a wide range of magazine product. Yet the supermarkets’ surprisingly deep commitment to range is also a danger in two respects:
•
Should commercial pressures force a reduction in supermarket space for magazines in the future that would have a major negative effect on the publishing industry.
•
The supermarket commitment to magazines has had a major impact on WHSmith High Street. Perhaps of even more significance than what the supermarkets choose to do themselves with their magazine offer is the ongoing stability and direction of WHSmith.
The industry needs to be clear why supermarkets want magazines . Magazines do not build consumer traffic in supermarkets. They do not offer supermarkets attractive profit margins. What they do provide is a major enhancement to the supermarket shopping experience and there appears to be a clear link between magazine purchasing and basket size. Probing more deeply into this whole area is an urgent requirement.
In perspective, the supermarkets have brought many benefits to the magazine business, which include increased sales opportunities, better standards of magazine retailing & wholesaling and more efficient supply chain processes. Yet they have undermined the positioning of WHSmith Retail in particular and they threaten to destabilise a supply chain, which for all its complexities, offers relatively open access for publishers of all sizes to an unusually large and diverse retail network .
This whole process is managed through four, interlocking interfaces.
RETAILER
Shopper
Interface
Consumer
Interface
Point of
Purchase
Business
Interface
The consumer interface bonding with the reader.
CONSUMER
PUBLISHER
. Magazine publishers are the masters of
•
Understanding and defining that bond more clearly and selling that to retailers are urgent and essential requirements.
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MAGAZINES IN A SUPERMARKET ECONOMY
•
Finding more direct routes to the consumer, principally through postal subscriptions, but increasingly through on-line applications, is a priority.
The shopper interface . What matters to retailers is how and why their shoppers relate in-store to magazines as a category. Again, a more detailed understanding of this is essential.
The point of purchase . This is the real “hot spot” where all three players meet, where the sale takes place and about which the industry understands least. It is also clear that there must be more potential to develop the in-store theatre of magazines in more creative and promotional ways than is the case at the moment.
Focusing more on the consumer “front end” and on growing sales in a positive way must be the industry’s key priority.
The business interface . The supply chain “back end” has been the focus of so much of the industry’s time over the last few years.
Yet the supermarkets feel that progress on some very basic operational issues has been far too slow. The publishing industry must accelerate developments in standardising and simplifying supply chain processes if it is head off another supermarket revolt as was seen in National Distribution in 2000. Central to all this is:
•
Defining the role of the wholesaler more clearly.
•
Implementing standard key performance indicators right through the supply chain.
•
Simplifying the processes that bring the product to market without compromising control over the product itself.
•
Extending the Supermarket Code to include newspapers and magazines. This would provide an ongoing monitoring of supermarket business practices by the regulatory authorities.
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BEHIND THE SHELF: Supermarkets in context
Supermarkets are under immense pressure . Minimal volume growth and low price inflation in their core food product categories have resulted in massive competition between the major players and in business operations which are focused on:
•
Squeezing every economy and efficiency from their supply chains.
•
Driving volume through price-driven consumer offers.
•
Building market share through acquisition.
•
Diversifying into
(1) non-food products and services
(2) more varied retail format & locations (e.g. convenience)
(3) non-retail channels (e.g. online)
(4) overseas expansion.
This makes the “supermarket sector” an increasingly complex and volatile marketplace. Behind a handful of impressive grocery retailing operations, there is a whole host of very mediocre ones, who have not got their consumer offer right, whose price positioning simply does not add up or whose supply chains are creaking badly.
This has a number of implications:
•
Publishers’ channel strategies must take account of retail multiple shares which will shift more quickly than ever before with complete retail groups potentially disappearing through acquisition or collapse.
•
Publishers cannot not treat all supermarkets in the same way.
They can differ widely in terms of their consumer offer, shopper behaviour, business processes and overall proficiency.
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MAGAZINES IN A SUPERMARKET ECONOMY
•
Price has emerged as a key lever in the grocers’ marketing toolkit and will become increasingly important as market competition intensifies.
The importance of price raises some fundamental issues:
•
The grocers are setting general consumer expectations for the price of many consumer goods, many of which are actually seeing price deflation. In that context, there must be a limit as to how high and how rapidly magazine cover prices can rise.
•
Setting their own consumer prices on branded goods is a fundamental way in which the supermarkets manage their business. Holding on to control of the cover price is a key aspect of publishers’ continued control of the brand.
•
The various supermarket positions on price show real strategic thinking about the role that price plays in their branding. Publishers must show the same level of strategic thinking not just in setting retail cover prices, but in balancing subscription prices versus retail prices.
Linked to price is the pivotal role of own-label products in the supermarket process of weakening the position of the manufacturer.
The fact that magazines are so difficult for retailers to “own-label” is probably the single most important asset that publishers have in their negotiations with supermarkets. It is a strength which should never be underestimated.
Magazines are an important part of the supermarket diversification into non-food . Yet this also means that magazines are fighting to hold their current space allocations in-store against an everexpanding array of non-food products. The publishing business must become much smarter in the arguments it puts forward to hold its current position within the supermarkets.
The trend towards supermarket diversification has two other implications:
•
The supermarkets’ own knowledge about an ever-widening product range must be stretched. This opens up an opportunity for proactive suppliers to have more input into the retailers’ management of the category, especially a category as complex and fragmented as magazines.
•
Consumer research shows that the supermarkets have a difficult balancing act to set their drive for a wider product range against shopper concerns that they might lose their food focus. Blurring the core offer has been the undoing of some major retailers in the past and could be the undoing of some major grocers in the future.
Central to the way in which the supermarkets operate is a constant streamlining of supply chain processes and costs:
•
Publishers must attempt to simplify and open up the magazine supply chain without conceding too much control.
•
Publishers must show the same focus on supply chain processes that the supermarkets have.
•
Publishers must try to understand and improve the in-store processes that the supermarkets are seeking to manage.
Consumer shopping patterns are becoming more complex and fragmented. Understanding much more clearly where magazines fit into these trends is central to defending and growing sales in supermarkets.
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THE PUBLISHER RESPONSE
The obvious response to growing supermarket power is for publishers to develop non-supermarkets sales, but the industry has not yet devoted enough resource to doing so.
These non-supermarket channels include:
•
Other existing magazine retailers.
•
New, non-traditional magazine retailers.
•
Postal subscriptions
•
Electronic delivery of editorial.
The report also suggests a range of more detailed action points, ranging from increased investment in consumer research through to developing a more defined strategy for the wholesale sector.
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MAGAZINES IN A SUPERMARKET ECONOMY
CONCLUSIONS
Standing back from the detail, the report suggests some key conclusions.
Publishers have good reason to be confident.
The power of the magazine brand with the consumer lies at the core of magazines’ negotiating position with supermarkets which is actually stronger than many publishers fear it is.
Supermarket power in such a fast-moving and pressured environment is much more volatile and fragile than it first appears.
Retail brands which are based so heavily on price are actually very vulnerable. This can make them more dangerous and erratic to deal with as the recent past of Safeway and Sainsbury demonstrates.
Publishers have no reason to be complacent and there needs to be real action in a number of areas:
•
The “Magazine Message” needs to be sold to retailers. This message needs to be supported by detailed consumer research insights and by a consistent approach at an industry level.
•
Although improvements have been made, senior publishing management need to demonstrate as sharp a focus on circulation issues as they have shown on advertising issues.
•
Publishers have abdicated responsibility for too many important decisions about the future of the supply chain to links lower in the chain, particularly to wholesalers, who have their own priority list which can be subtly different to those of publishers.
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•
The supermarkets have a great deal to teach the publishing industry about:
(1) taking apart and then reassembling their own business models and those of the partners they work with.
(2) building and actioning a long-term strategy beyond the six month ABC horizon.
(3) the relentless pursuit of the consumer in order (to use
Tesco’s phrase) “to earn their lifetime loyalty.” Continuous learning and continuous improvement lie at the core.
•
Publishers need to spend real resource in developing nonsupermarket sales channels.
•
As consolidation takes place in every link in the supply chain, how much scope is there for further consolidation in publishing and would that stifle the industry’s essential creativity?
It is imperative for publishers to engage with the supermarkets .
To refuse to engage; to avoid transparency in the supply chain; to slow down changes to supply chain processes; to side-step contentious issues or confrontation: all these things will do will be to build up the supermarkets’ already significant frustration with a
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MAGAZINES IN A SUPERMARKET ECONOMY complicated product category and to force radical change, which is what almost happened with National Distribution in 2000. To engage with the supermarkets has its dangers; but to refuse to engage has many more.
Yet perhaps the biggest threat to the newstrade structure is the uncertain future direction of WHSmith Retail . The current situation is the direct result of the growing share of the grocers in the magazine business. The full consequences of that may still have to be played out.
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MAGAZINES IN A SUPERMARKET ECONOMY
2.1 Supermarkets as media owners
2.2 Supermarkets as publishers
2.3 Supermarkets as advertisers
2.4 Supermarkets influencing advertisers
2.5 Supermarkets as subscription agents
2.6 Supermarkets as censors
2.7 Supermarkets as product influencers
2.8 How supermarket power grows
2.9 Managing supermarket power
2.10 The Bain study of Wal-Mart
2.11 Conclusions
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Much of the current supermarket debate within the magazine industry has focused on “on-the-shelf” issues: in other words, how to deal through the supply chain with a retail channel which is growing its market share very rapidly.
Yet some of the more worrying and far-reaching trends are taking place “beyond the shelf”, as the major grocers develop roles and take initiatives beyond their traditional retailing operations.
There are growing concerns among publishers that the commercial interface between supplier and retailer is becoming confused and blurred due to a number of factors.
While some of these concerns may be alarmist, they are undoubtedly adding to the tensions in the supply chain.
MAGAZINES IN A SUPERMARKET ECONOMY
In 1977, 3 spots on TV could achieve an 80% coverage of UK adults and the top three supermarkets had a 25% market share. In
2005, 65 spots on TV are required to achieve the same coverage and the top four retailers have more than 75% market share. As media has fragmented, retail has consolidated. Now 95% of UK consumers visit a supermarket on average 1.7 times a week.
In April 2005, Walmart USA announced that the reach of its in-store
TV screens made it the fifth largest TV network in the USA after
NBC, CBS, ABC and Fox. With a monthly reach of 130m consumers shopping its aisles, it has become a powerful media owner in its own right. The retailer is currently upgrading the system which broadcast movie previews, clips of sports events & concerts and advertisements for consumer products on sale instore. The upgrade involves installing 600 42-inch high-definition screens by December 2005 with the system being rolled out to all
2,600 Wal-Mart stores in the USA.
“Supermarket media” is not a new phenomenon. In-store promotions have always been a staple of grocery marketing activity, trying to influence the consumer at the point of purchase. They have also been a very useful revenue stream, which is estimated currently to be worth in the region of £50m per year (in-store media only).
In-Store Retail
Media Spend
Year
2001
2002
2003
2004
Source: Concord
Spend
(£m)
26.8
34.4
42.0
50.0
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Yet several factors have more recently come into play:
•
In response to customer feedback, the major retailers recognise that they need to “declutter” their stores to make the shopping trip more streamlined and less confusing. This has resulted in the amount of point-of-purchase signage being cut back by up to 50% with a concentration on fewer, bigger promotions.
•
Store compliance with in-store promotions has become a major issue with recent POPAI research suggesting that only
53% of the point-of-purpose material delivered to supermarkets actually makes it to the shop sales area.
•
With massive consumer traffic, the major retailers have recognised the media opportunities that their stores themselves can offer.
•
Meanwhile, traditional media are fragmenting in their reach and there is a growing consumer apathy to traditional sales messages.
•
Add in the accountability and measurability of in-store media, particularly when it is linked to loyalty card data, and the supermarkets are developing a convincing media case.
The major grocers have set up their own media departments to sell their “media opportunities” to external clients. These opportunities are distinct from normal in-store trade marketing activity and represent a real push to get access to suppliers’ mainstream advertising budgets in addition to their trade marketing budgets.
The real coup for the supermarkets in being taken seriously as a media outlet is when they begin to pick up ads for products which are not sold in-store (e.g. car advertising).
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MAGAZINES IN A SUPERMARKET ECONOMY
The media options fall into three basic areas, each with their own ratecard:
1. AT HOME
•
Inserts in loyalty card statements
•
Direct mailshots to loyalty card members
•
Customer magazines (see “Supermarkets as Publishers” on the next page)
•
Specific user groups and clubs (e.g. Tesco Wine Club, Tesco
Baby & Toddler Club)
•
Websites
2. OUT OF STORE
•
Posters on the sides of delivery vans and lorries
•
Poster sites around the outside of stores
•
Sampling stands in car parks
•
Ads on petrol pump nozzles
3. IN STORE
•
In-store plasma TV screens
•
Trolley and basket ads
•
Floor posters
These new media options are much more than a cynical means of developing more retailer revenue, although they do serve that purpose. They are also part of the supermarkets’ relentless pursuit of the consumer’s lifetime loyalty, trying to influence their buying decisions at every step along the shopping process from the home right through into the store. Tesco refers to their media options as
“consumer touchpoints”: places and times in the consumer’s life when the retailer can make contact and have an impact.
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As a very specific extension of “supermarkets as media owners”, there has been a growing interest among retailers in developing their own print products, though they have had much more success in book publishing or in magazine one-shots.
Some of these projects are customer magazines rather than openmarket, paid-for publications. Here, the retailer is using the proven customer-bonding power of the magazine format to serve their own shoppers.
Title
Asda Magazine
Tesco Magazine
The Somerfield Magazine
Simply Co-op
Dec 2004
ABC (000)
2,585
2,000
1,116
1,000
% Actively
Purchased
0
0
0
0
Sainsbury's The Magazine
Waitrose Food Illustrated
340
300
97
2
Source: Supermarkets & ABC
A distinct sector is “retailer exclusives” where established magazine publishers produce titles for exclusive distribution through a particular retail chain.
True own-label publishing is actually very difficult to achieve successfully, though WHSmith Retail have done most in this area.
This underlines the importance and strength of brands in the magazine sector.
MAGAZINES IN A SUPERMARKET ECONOMY
In 2004, the top ten supermarket chains spent a total of £224.2m in advertising, up by 15% year on year. Consumer magazines took a
6.7% share of that spend: £15.4m (Source: Nielsen Media
Research).
The table below shows how the grocers’ ad spend broke down by medium. Magazines increased their share year on year, but still remained in fifth position with TV and national and regional newspapers all increasing their shares too. Waitrose devoted more of its budget to magazines (13%) than any other grocer, followed by
Tesco (10%). The supermarkets are significant buyers of magazine ad space. Tesco is the tenth largest single advertiser in consumer magazines.
Top Ten Supermarkets Ad Spend Profile
Medium
TV
National Newspapers
Regional Newspapers
Direct Mail
Magazines
Radio
Outdoor
Internet
Cinema
TOTAL
2003
46.0%
16.3%
7.5%
9.7%
5.4%
8.7%
2004
46.7%
20.3%
7.8%
7.6%
6.7%
6.5%
5.5%
0.9%
3.8%
0.5%
0.0% 0.1%
100.0% 100.0%
Source: Nielsen Media Research
In the Spring of 2005, Marks & Spencers (M&S) and Associated
Newspapers fell out over the editorial coverage being given to the retailer in the business sections of the newspapers. M&S
(temporarily as it happened) withdrew its advertising worth in the region of £3m per year from three of Associated’s newspapers.
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While pacifiying disgruntled advertisers who have been upset by the editorial coverage given to their company is the regular task of most publishers, where that advertiser is also a retailer which sells the publications concerned, the potential for unfair “leverage” becomes a real possibility.
Having said this, it was the ruthless use of newspaper editorial coverage which was a major factor in derailing the National
Distribution plans of Tesco and WHSmith in 2001. Here editorial was used to influence a commercial retail decision. So there clearly is a willingness on both sides to blur “commercial” and “editorial” factors, which could have dangerous implications.
Some years ago, US magazine distributors reported a suggestion made by a major supermarket chain to lean on some of its FMCG suppliers to advertise in a specific consumer magazine in return for that magazine sharing some of the resultant advertising revenue with the retailer.
The suggestion was immediately rejected, but it highlighted the supermarkets’ growing knowledge of and interest in the publishing business model with its dual revenue streams of circulation and advertising.
High Street retailer WHSmith has made a major impact in the postal subscription arena by selling gift subscriptions to magazines from special displays in-store. Tesco trialled a similar scheme in 2004, though with much less success than WHSmith.
Tesco has since run a much stronger promotion across 23 magazines where Tesco Clubcard vouchers can be exchanged for cut-price (75% below retail cover price) postal subscriptions. The reported subscriptions volumes exceed those of the WHSmith gift subscription operation.
Other major retailers are using their loyalty card and customer data not just to target in-store magazine promotions, but also to sell postal subscriptions to their shoppers.
While publishers are rightly pursuing these types of promotions, they are all examples of retailers beginning to take a material share of non-retail routes to market.
Postal subscriptions, one of the possible “escape routes” from retail multiple power, are actually being taken over by the retailers themselves.
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MAGAZINES IN A SUPERMARKET ECONOMY
The range management disciplines of the major retailers are normally based on pure commercial criteria centred on the financial return on investment of their shelfspace. Yet there have recently been more instances of “taste and decency” decisions where retailers have delisted titles due to provocative covers and editorial content, mainly in the men’s lifestyle area.
The retailers claim that they are merely responding to complaints from their own shoppers and that to ignore that feedback would be both irresponsible and commercially inept: it is the shopper who is setting the decency agenda, not the supermarkets themselves, is the claim.
Tesco has issued decency guidelines which have divided opinion within the publishing community, with many seeing them as being utterly reasonable while others fear that this is the “thin end of the wedge”.
The Tesco policy statement runs: “We do not aim to be the moral guardians or censors of content, provided it remains within the law, but we do aim to deliver choice as demanded by our customers.
There is no consumer demand for “censorship” registered with our
Customer Service department.”
Tesco categorises “at risk” newspapers and magazines as those whose covers depict exposed genitalia or female nipples, the association of violence with sexual activity, the “C or F words” and male or female derogatory words. These titles will only be accepted for display if they are securely bagged in such a way as to obscure all the indecent material on the cover and to prevent access to the publication except by opening or damaging the bag.
Yet the whole issue of range editing for non-commercial reasons makes the publishing industry feel uncomfortable, especially when significant market share can be at risk dependent on subjective, and sometimes personal, opinions.
Recent examples are Sainsburys banning Front in the Spring of
2004 and Marks & Spencer deslisting Zoo and Nuts in 2005. In the
USA, Wal-Mart has lead the way by deslisting Maxim, Stuff and
FHM and by obscuring the covers of titles such as Cosmopolitan,
Marie Claire and Redbook with special screens.
The role of the retailer has changed very significantly. Big Retail is no longer the neutral purveyor of a defined range of branded goods to a defined and localised geographical community. The modern multiple retailer now specifies products for the audiences that it has consciously decided to serve.
Apart from commissioning their own-label product lines (see Section
4.11), supermarkets also have a material influence over branded consumer products too, principally in terms of consumer pricing, pack size and packaging.
The major retailers have made no secret of their desire to control magazine cover prices (usually by price-cutting) in order to manipulate sales volumes. Yet there have been reports of retailers also making suggestions about on-sale dates and editorial positioning in order to maximise sales on the shelf.
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MAGAZINES IN A SUPERMARKET ECONOMY
In other FMCG categories, retailers have exerted their power in a number of ways which were outlined to PPA members in recent presentations made by consultants Deloitte & Touche:
•
Using increasing market share to renegotiate retail margins .
•
Controlling retail selling price , which usually means cutting it. This normally involves some funding for the price cut from the manufacturer.
•
Influencing of the product.
• product range more tightly through head office
“hard ranging”.
•
Controlling through EPoS driven systems.
• frequency of deliveries to feed sales based replenishment.
•
Forcing manufacturer investment into in-store promotional activity.
•
Forcing investment as Radio Frequency Identification (RFID).
such
• supply chain savings upstream and then taking a
“share” of the savings having learned about the suppliers’ economics along the way (e.g. Factory Gate Pricing)
Some of these trends are simply unlikely ever to apply to press products, but many do. It is also impossible simply to ignore the general forces at work in the retail market.
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Responding to the growing influence that the supermarkets have in so many different aspects of the modern commercial world may seem a daunting, even hopeless, prospect.
Can the growth of retail multiple share be stopped? No. All the trend data and research evidence shows the growth of the supermarkets is due to all kinds of social and commercial factors which are outside the control of any single part of the supply chain to influence. Only massive and decisive government intervention can have a material effect.
Can retail multiple power be managed? Yes. There is more and more anecdotal evidence that smart suppliers are able to manage the supermarket relationship much more effectively and proactively than had been feared in the past. The Bain study of WalMart, summarised on the next page, provides some useful pointers.
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A study of 38 US companies was recently made by management consultancy, Bain & Co. All 38 companies are suppliers of the Wal-
Mart retail group in the USA and have a high exposure to the retailer. The general trend is that as a supplier’s exposure to
WalMart grows, its profit margins decline. Where Walmart’s share of a supplier’s business is under 10%, profit margins average
12.7%. At the other extreme, when Walmart’s share grows beyond
25%, profit margins average only 7.3%.
Yet 9 companies out of the 38 reviewed have managed to maintain their profit levels as the Wal-Mart share has grown. They have done this via three routes which Bain identified as key issues:
•
They made an above-industry-average investment in research to understand the value of their products to the consumer. How does packaging, product quality and image translate into brand values? What is the consumer prepared to pay for that brand? It was only with a detailed understanding of the consumer that they were able to have a more balanced and logical debate with Wal-Mart about consumer pricing and to maintain premium prices on premium brands. They were also able to repackage some products more cheaply where low prices were clearly a bigger issue for the shopper.
•
They invested in understanding the value of their brand to
Wal-Mart. This included analysing the retailer’s own costs in order to assess Wal-Mart’s own return on investment. Yet it also extended to researching how their products built consumer traffic and encouraged additional purchases instore. This data gathering went beyond their own brands to the role of their whole category in the shopper’s “WalMart experience”.
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MAGAZINES IN A SUPERMARKET ECONOMY
•
They copied Wal-Mart in relentlessly and aggressively pushing down their own costs and in improving supply chain performance, trying to keep business processes as simple and streamlined as possible.
None of this is a revelation, but it does prove that suppliers can partner the major retailers on a more even footing if they are smart and focused. They have done so by taking apart their own businesses with the same rigour as WalMart has done. They have also done all this by engaging fully with Wal-Mart and giving the retailer much more transparency to their own costs and processes.
What other studies of WalMart have shown (e.g Michael Bergdahl:
“What I leaned from Sam Walton: How to compete and Thrive in a
WalMart World”) is that the retailer has succeeded not through radical or innovative strategy, but from a relentless emphasis on cost-control and execution, based on an obsession with continuous learning and continuous improvement. The WalMart mantra is:
•
“Take care of your people….” Managers are required to respond to any staff requests for help, even if it means delaying their own work. When looking to fill staff vacancies, managers two levels above the open position are required to approve all new hirings to ensure that executives do not shy away from hiring subordinates who might outshine them.
•
“Your people will take care of the customer….” The WalMart
Cheer starts every day and ends with the question “Who is number one?” The staff response is “The customer…ALWAYS!” Shop staff, or “associates” in
WalMartspeak, are empowered to make significant refunds on the spot to resolve customer complaints. Managers spend more time in the field than at head office, communicating the message down to the branches, but also obtaining firsthand market intelligence. Under the Ten Foot Rule, associates are required to help, or at least to smile at, customers if they come within a ten foot radius.
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MAGAZINES IN A SUPERMARKET ECONOMY
•
“….and the business will take care of itself.” Yet this conceals the obsession with detail and control, not only over WalMart’s own processes, but over those of its suppliers and partners.
As an illustration of both this attention to detail and of its ruthlessness, WalMart USA’s pay week runs from Thursday to
Wednesday, so that any necessary staff cuts are made on the slowest sales days.
To ignore or resist the supermarkets are simply not long-term options. Yet engaging with them should only be undertaken after a realistic assessment of each party’s strengths in the whole supply process.
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MAGAZINES IN A SUPERMARKET ECONOMY
All this demonstrates a number of issues.
Firstly , the relationship between the publisher and the supermarket is becoming an increasingly complex one. Not only is the retailer’s buying decision as to which magazines to handle complicated by issues of taste and decency, but the magazine publisher is increasingly competing with the supermarket for the consumer’s time & money and for advertisers’ marketing budgets.
Secondly , this role complexity is being driven by the supermarkets’ obsessive and relentless pursuit of the consumer: to understand them; to influence them: to own them. In Tesco’s phrase “to earn their lifetime loyalty.” For products which truly are brands when they understand their consumers intimately and emotionally, magazines have to keep one step ahead of the supermarkets in their consumer insight and in the range of their “consumer touchpoints”.
This is reflected in Tesco’s Mission Statement: “Our core purpose is to create value for customers to earn their lifetime loyalty. We deliver this through our values: (1) non one tries harder for our customers and (2) we treat other people how we like to be treated.”
Thirdly , their attention to detail and processes means that the supermarkets inevitably set the commercial agenda of all the supply chains they deal with, taking apart other people’s business models and reassembling them in more efficient ways. Magazine publishers must understand and streamline their own businesses with the same rigour and also understand the retail model and concerns.
Fourthly , the supermarkets’ influence with the shopper is allowing them to set the consumer agenda, and much of that centres on price. Magazine publishers must have a clear and long-term pricing strategy for all their routes to market: retail, subscription and online.
Fifthly, there is a real conflict of cultures between retailers and publishers. This can be the source of a great deal of misunderstanding and irritation on both sides. It can also be the basis of creative co-working.
All this can result in both exciting new partnerships between publishers and retailers and also in simple competition and role confusion. Yet publishers need to be working closely with supermarkets and understanding their thinking in order to stand a chance of getting a positive result.
All of these issues are explored in more detail in the rest of this report.
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MAGAZINES IN A SUPERMARKET ECONOMY
3.1 Supermarket magazine trends
3.2 Supermarket magazine range
3.3 Supermarket magazine profiles
3.4 Why supermarkets handle magazines
3.5 Overview of the interfaces
3.6 The Consumer Interface
3.7 The Shopper Interface
3.8 The Point of Purchase Interface
3.9 The Business Interface
3.10 Assessing supply chain assets
3.11 The MPA Retailing Growth Initiative
Wessenden Marketing
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Magazines being sold in supermarkets (the “on-shelf” area covered by this report) remains at the core of whole supermarket debate.
The supermarkets are often characterised as very restricted range retailers, creaming off only the very largest titles, constantly reducing range and, therefore, restricting and, indeed, threatening magazine diversity.
They are also seen to be putting retail competitors out of business, wanting to throw the supply chain into chaos to meet their own ends and threatening to rip margin out of its suppliers.
As always, the truth is a little more complex than that, as this section attempts to demonstrate.
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MAGAZINES IN A SUPERMARKET ECONOMY
The early tests
The early 1980s saw the first tests of selling magazines in supermarkets, amid much opposition from both wholesalers and traditional retailers.
The initial trials involved less than 10 titles, all of them women’s magazines, which were sold exclusively at the checkouts. It was assumed that UK supermarkets would follow the US model where the checkouts currently account for 56% of total supermarket magazine sales as opposed to 44% for the “mainline” magazine racking in-store. It was also assumed that it would only be women’s magazines which could ever be sold in supermarkets in any volume.
However, events quickly moved on in the UK through the 1980s:
•
Supermarkets developed in-store browser areas and have blown hot and cold over till displays of magazines since then.
•
Supermarkets began to handle a much wider range of magazine titles than had originally been anticipated. This was due in part to the relative importance of the “mainline” display, but also because many supermarkets underestimated what the entry-level point was in offering a range which was big enough to be taken seriously by the consumer. The entrylevel at the very smallest supermarket outlets is currently 40-
50 magazines.
•
Male interest titles have also become significant supermarket sellers.
•
Changes in the magazine market itself with a proliferation of new titles and the renaissance of the weekly magazine have changed some of the supply-side drivers.
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Growth trends
By 1990, the major supermarkets held a 5% share of consumer magazine industry RSV. Since then, the major supermarkets groups have quickly established a massive presence in the magazine supply chain.
•
The supermarket format currently accounts for 27% of the retail sales value (RSV) of all consumer magazines.
•
The supermarket operators currently account for approximately 30% of the RSV of all consumer magazines
(the “operators” figure is higher as it includes smaller convenience stores run by the major supermarket chains).
In terms of the number of outlets, the supermarket sector still continues to grow.
Number of Outlets Handling News & Magazines
Year
1992
2000
2004
Supermarkets
1,334
3,751
4,407
%
Change
181%
17%
Total
Press
Outlets
44,474
54,621
53,807
%
Change
23%
-1%
Source: ANMW
Between 1992 and 2000, the period when the press retailing universe grew strongly after deregulation, supermarkets were the fastest growing retail sector. Since then, the press retailing universe has leveled out and shown slight contraction, while the supermarket sector has continued to grow.
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MAGAZINES IN A SUPERMARKET ECONOMY
So, how far will supermarket share go? The chart below shows the current share of category sold through the grocery multiples.
Product
Detergents
Meats
Bread
Milk
Chocolate
Tobacco
Magazines
Chewing gum
Newspapers
Grocers'
Share
90%
80%
70%
65%
40%
35%
30%
30%
10%
Source: AC Nielsen & Wessenden
There are some major differences between press products and other FMCG categories which will restrict the growth of the grocers’ share of the magazine business. The first is that much of the grocers’ growth has been driven by own-label products, which are limited in the press market. The second is that magazines remain an impulse, add-on purchase in supermarkets: continued availability in other outlets will ensure a relatively broad retail spread.
Wessenden’s own estimates for the ceiling of grocery share are:
Product
Magazines
National Papers
Regional Papers
Source: Wessenden
Grocers'
Share
Current
30%
10%
9%
Grocers'
Share
Ceiling
40%
20%
18%
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MAGAZINES IN A SUPERMARKET ECONOMY
Magazine Shares by Named Multiple
Retail shares are extremely volatile, but the table below provides a picture of the relative positions of the major players, showing those retailers with a share of over 1%, rounding to the nearest 0.5%.
The supermarket chains (shaded) account for six of the top nine magazine accounts: with Morrisons acquiring Safeways, this in now reduced to five.
Retailer % Share of Total Mag Market
RSV 2004
Retailer
Tesco
WHS High St
WHS Travel
Sainsbury
2004
13
11
7
5.5
Asda
TM
Safeway
Morrisons
4.5
3.5
3
2
Waitrose
Other Multiples
Independents
TOTAL
(Source: Newstrade data)
1
16.5
33
100
Trend
Up
Down
Up
Steady
Up
Steady
Down
Up
Up
Up
Down
Supermarkets have made their biggest impact in the high volume, high frequency sectors of magazine publishing which fit in with the regular pulse of food shopping. Most mainstream weeklies are now heavily dependent on the grocery channel. Weeklies are also easier to handle from a supermarket’s point of view with shelf replenishment being much more straightforward.
The current buoyancy in the weekly magazine market is helping to accelerate the grocers’ share growth .
Wessenden Marketing
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The issue of magazine range is highly emotive. There is a common view that supermarkets operate very restricted magazine ranges which are being reduced and are being managed much more rigidly with hard ranging and a strict one-in-one-out policy on new launches. All this is felt to be strangling magazine sales opportunities, especially for specialist consumer and business titles.
Yet magazine range is highly complex and surprisingly difficult to pin down definitively. This is for a number of reasons:
•
Historically, retail head offices have allowed local shop management considerable freedom to make their own local buying decisions. This is changing with the move to hard ranging which has been driven by the supermarkets, but which is being widely adopted by other retail groups. Yet the balance between “mandatory” and “optional” titles varies widely from retailer to retailer, as do the systems to police range effectively.
•
In practice, whatever the retail head offices decided on range was not always implemented locally. With wholesale systems, in the past, unable to lock ranges definitively, the number of titles always grew, driven by the pressure of new launches and constant promotions, which meant that unauthorised titles would creep on to the shelf. Many retailer range reviews are simply about pruning back this “range creep”, rather than a fundamental range reduction.
•
The constantly changing shop portfolios of the major retailers always causes definition problems.
•
Many major retailers are currently going through major regrading programmes of their shop estates.
MAGAZINES IN A SUPERMARKET ECONOMY
•
From time to time, retailers can shift their strategy for magazines, depending sometimes on the individual supermarket buyer and the importance given to the category in the overall plans of the retailer.
The chart below takes the current high and low points of range for the major supermarkets, showing the average number of titles handled by the smallest outlet up to the every largest (excluding the convenience stores and petrol forecourts in the estate).
Magazine Range Spectrum for the Major Supermarkets (excl. convenience stores)
120 560 Tesco
Morrisons
Sainsbury
Asda
Waitrose
40
45
45
90
250
345
365
440
Limited Range
Under 200 titles
Mid Range
200-400 titles
Extended Range
400+ titles
Source: Wholesaler & distributor targeting systems
To place this in context, WHSmith High Street’s spectrum spreads from 300 up to 1,300 mandatory titles with a list of optional titles to be chosen at the local shop’s discretion in addition. Few outlets come close to WHSmith’s range, but TM Retail has just reranged its
“variety” outlets so that the very largest shops can take almost
1,000 mandatory titles.
Wessenden Marketing
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The independent retail sector
No. of Titles
Less than 100
100-250
251-400
401-550
551-700
701-1000
More than 1000
TOTAL
% of
Shops
21%
42%
16%
8%
5%
4%
3%
100%
Source: Brandlab
The proportion of independent retailers which can actually be counted as true “range retailers” for magazines is in the minority.
The oft-quoted past when a healthy independent retail sector supported a thriving specialist magazine market is simply not a fact.
Piecing everything together would suggest the following conclusions :
•
The current picture of the supermarkets is that many of their outlets offer significant magazine ranges. They occupy the middle ground between WHSmith and the convenience stores.
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Number of Mags Stocked by Independent Retailers
MAGAZINES IN A SUPERMARKET ECONOMY
offers a massive spread of magazine range as PPA/Brandlab’s “Magazine & the Independent
Retailer” research project shows. Yet the core of the independent sector is in the limited range 100-250 title band. The weighted average across the whole sample is 283 titles per outlet.
•
Despite periodic pruning back and occasional shifts in strategy, the long-term trend in supermarket ranges has generally been up.
•
However, there is broad tendency to “declutter” the smaller stores and to let only the larger ones offer a real range.
•
Conversion from a CTN to a convenience store or from a broad-based c-store to a grocery-owned one will usually mean a range reduction.
•
The supermarkets have developed their own distinct profile of magazines which is shown in more detail on the next page
(Section 3.3: Supermarket Magazine Profiles”).
The major supermarkets have actually become more committed range retailers of magazines than many “traditional” magazine sellers. This, of course, has its own dangers should the grocers decide to cut back on their magazine space and range in the future.
The most profound impact that the supermarkets have had has been on WHSmith High Street as the grocers have progressively ripped share out of WHSmith in some of its core, high volume magazine sectors, as the chart on the next page demonstrates.
The retail future of specialist and business magazines is much more dependent on the direction and stability of WHSmith than on the supermarkets’ own range policies.
As a footnote on range, as later sections demonstrate, the consumer has a very pragmatic view of the supermarkets’ magazine offer. They know that the grocers’ magazine range is not as wide as that of WHSmith, but they do not expect it to be (in fact, consumers tend to underestimate the size of the magazine range in supermarkets). That is one of the reasons why they have a repertoire of shops to satisfy their total magazine purchasing needs.
The supermarket is just one option, but a very important one, in the consumer’s range of magazine shopping locations.
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MAGAZINES IN A SUPERMARKET ECONOMY
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
0%
TV Listings
Children's
Comics
Women's Interests
Adult
Teenage
5%
WHS Average = 11%
Puzzles
Men's Lifestyle
Motoring
Buying & Selling
10%
Country
Current Affairs
15%
Home Interest Computing
B2B
Sport
Foreign
20%
WHSmith High St
Music
General Interest
25% 30%
Grocer Average = 27%
Leisure
35% 40%
The chart graphs the percentage of Retail Sales
Value (RSV) which is accounted for by the major grocers (vertical axis) as opposed to WHSmith High
Street (horizontal axis).
The top left area shows those magazine sectors where WHSmith is weak and the supermarkets strong, with TV Listings and
Women’s Interest being the two largest segments.
The bottom right area is made up of WHS strong / grocers weak sectors, which tend to be more specialist magazines.
The bottom left area is made up of magazine sectors which have a more even and traditional balance with independent retailers accounting for a much higher share of the magazine sectors which fall in this quadrant.
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What supermarkets like about magazines
As has been already noted, news and magazines have become an important element in the supermarkets’ non-food offer for the following reasons:
Magazines have provided good growth in retail sales value (RSV).
Magazines, and particularly weekly magazines, provide high levels of repeat buying which helps to build frequency of purchase in the supermarket.
Yet there is also a significant element of impulse buying which helps to build basket size.
Topical editorial and the strong emotional link between reader and magazine mean that the product has a strong image in the consumer’s mind, yet is relatively low priced, resulting in a good perception of value-for-money which is very much part of the supermarket consumer offer.
The ability to create tailored promotions can further build consumer loyalty to a particular retailer.
The synergy with other home entertainment products creates a larger leisure-orientated category which is central to the non-food offer.
Magazines are attractive products in their own right which create a pleasing display at the front of the store and which can extend the length of the shopping trip through browsing, through creating a more relaxed atmosphere for the whole shopping trip, sometimes by linking into the coffee shop area.
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Magazine ranges can be flexed in a very versatile way to suit the space and layout of individual stores.
It is sometimes claimed that magazines are a useful builder of consumer traffic in-store. Yet all the research evidence points to this NOT being the case in the sense that magazines are not the prime motivation for making a shopping trip to a particular supermarket. This is the opposite for outlets such as WHSmith which is a real destination shop for magazines.
What supermarkets dislike about magazines
Lack of control over buying margin. Due to the complexities of the magazine supply chain, and in particular the existence of a strong wholesale sector which provides a frustrating buffer between retailer and manufacturer, retail margins are not a straightforward publisherretailer negotiation (yet).
Lack of control over price. Price is the supermarkets’ most commonly used and most effective promotional lever. With publishers still effectively setting the retail selling price, this tool is not available to the supermarkets.
Complex ranging. One of the leading supermarket groups recently complained that for a category which accounts for only 1% of total store turnover, magazines had the longest and most complicated range review process of any product group. The magazine market is fragmented, complex and very fast-moving which makes it both attractive to the consumer, but very frustrating to edit from a retailer’s display perspective. Increasingly, retailers have moved from simply looking at having a balanced range of sectors and titles to looking more at the financial return of that range. Often, when it comes to the number of titles, “more is less”, and more money can be made be displaying fewer titles better. The level of launch activity in magazines is another complicating factor.
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MAGAZINES IN A SUPERMARKET ECONOMY
Poor supplier compliance. The magazine supply chain is actually very bad (sometimes retailers suspect deliberately) at sticking to range guidelines which have been agreed at head office.
Product complexity. A specialist and perishable product which is not delivered ready for the shelf, whose sales vary from issue to issue, which needs constant shelf-tidying and replenishment and which is fully returnable, but within rigid parameters set by the supplier and which has high levels of waste (and shrink): all these factors add up to a resource-hungry category in terms of shop staff time. Yet as future sections of this report will discuss, there is a real distinction between the complexity of the product itself and the complexity of the processes involved in managing the product.
What supermarkets want from magazines
The supermarkets will continue to grow their share of magazines, stealing sales from across all outlet types, by devoting more space to the category, but only if :
•
There is more targeted and flexible ranging to drive better return on investment.
•
There is more promotional activity in-store with a real focus on driving volume. This means more creative and eyecatching displays, but also more “value” promotions (e.g. 2 for 1s, blanket price cuts, cross-merchandising, etc.)
•
The links in the supply chain work together to drive more operational cost savings. These focus on shrink & waste, instore simplification, sales based replenishment and maintaining agreed availability targets.
In short, the supermarkets need to increase their return on investment from magazine display space in order to justify their
Wessenden Marketing commitment to the category. Their preferred route is to cut costs. If this fails, their fallback is simply to grab a bigger share of cover price via one means or another.
Yet the fact is that supermarkets are wedded to magazines, because their customers want them there.
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MAGAZINES IN A SUPERMARKET ECONOMY
In the complex relationship between Publisher, Retailer and
Consumer, there are four key interfaces which need to be managed quite distinctly from each other.
CONSUMER
Shopper
Interface
Consumer
Interface
Point of
Purchase
3. The Point of Purchase
The real “hot-spot” where all three participants in the magazine sale come together. What is the process of how and why consumers buy magazines?
4. The Business Interface
The processes that bring the magazine product to market. Are these different for magazines than they are for other FMCG goods?
Can the magazine processes be improved?
The following pages look at each of these areas in turn……
Business
Interface
RETAILER PUBLISHER
1. The Consumer Interface
The direct, one-to-one relationship that the publisher has with the consumer. How does the consumer behave as a magazine reader?
2. The Shopper Interface
The direct one-to-one relationship that the retailer has with the consumer. Where do magazines fit into the shopper’s thinking and purchasing patterns? By extension, where do magazines fit into the retailer’s consumer offer?
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Sections 4.5 to 4.8 outline a number of the trends which are characterising the modern consumer.
Recent projects undertaken by the Henley Centre on behalf of the
PPA underline just how complex the modern consumer actually is and how magazines cut through that complexity with the strong emotional links that they engender with their readers.
How Consumers have Changed
In one of its recent reviews of national consumer trends, the Henley
Centre made the following observations about how UK consumers have changed.
•
Consumers are ambivalent about what they want or need.
The majority feel that they have all the material things that they need, but they are not sure what else they want in addition to make them happy.
•
Consumers’ desires are often intangible and unrealistic.
Hence the “cult of celebrity”, of wanting to live someone else’s life. “Quality”, however that is defined, has become more important. Success is measured by how satisfied and in control of life they are rather than by material possessions.
•
Consumers do not just spend money. They are constantly trading off time against money and time has a monetary value. Information overload, especially from the proliferation of media is a key issue. Cutting clutter is a key aim.
•
Consumer spending is under pressure , partly from a slowing economy, partly because of a growing conflict between “living for today” (high spending and high debt) and
“preparing for the future” (lower spending and more saving).
•
Consumers are harder to categorise as lifestyles and established community & family patterns fragment. Everyone likes to think of themselves as an individual.
•
Consumers are increasingly cynical & distrustful , where UK consumer trust levels for their supermarket are almost twice that of those for the current government. In this environment, traditional advertising messages have much less impact where the “referral economy” and “viral marketing” are taking over.
Consumers are increasingly active, involved, demanding, less forgiving and less trusting.
The Bond between Magazine & Consumer
The Henley Centre “Delivering Engagement” project details how magazines can cut through this confusing consumer marketplace to create a real and intimate bond with the reader. Magazines:
•
Deliver trust , acting both as a friend and advocate. Portable and intimate, they find their way into every part of the home and shape themselves around the personal time of the reader.
Authoritative and reliable, they filter information and provide views and insights.
•
Enable participation and provide a bridge to interaction. By providing guidance on a range of subjects, magazines can prompt activity in a number of areas, including increased use of the internet which appears to be a very complementary medium to the print magazine.
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MAGAZINES IN A SUPERMARKET ECONOMY
•
Offer readers help and support in managing their lives. If consumers are preoccupied with self-improvement then magazines are their natural guides and mentors both at home and at work, providing a mix of inspiration and practical advice.
•
Confer and boost readers’ personal status . The choice of magazine is very personal and is often seen as a statement of the kind of person someone is or wants to be seen to be. It makes them feel special and unique.
•
Provide fun, relaxation and escape in a pressured world.
Leveraging the bond with the consumer
There are four practical outputs from the Henley Centre work.
The first is that the magazine medium has a natural affinity with the internet.
Online can enhance the magazine experience, offer new ways to deliver the editorial to the consumer and already is a proven mechanism for selling subscriptions to the consumer. It could offer more protection from the vagaries of the retail route to market.
The second is that magazines can benefit other companies who are associated with them.
The “halo effect” of trust extends most obviously to companies who advertise in the magazines themselves, but could also be leveraged more with retailers: to enhance the shopping experience, to be used in a more direct way to reward the consumer for shopping at that retailer or to develop more in-store activity through linked cross-category promotions and cross-merchandising.
The third is that magazine purchasing is a very powerful and sensitive way to classify consumers , rather than by broad and standard socio demographic, lifestyle or housing classifications.
Publishers could work more closely with the grocers to profile their shopper base.
Yet the most important fact is that magazines are the ultimate in brands . Inspiring fierce loyalty and an intimate bond while being very volatile and difficult to replicate, they are much more resistant to the supermarket debranding and standardisation process than other consumer goods. They are also a “fun” category to deal with, but only as long as the supply chain processes do not create too much irritation and frustration.
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Where do magazines fit into the shopper’s thinking and purchasing patterns? By extension, where do magazines fit into the retailer’s consumer offer?
The general magazine purchasing context
The general magazine shopping patterns across all magazine outlets are shown in the diagram below.
Magazine Repertoire
Average no. of titles in repertoire
Average no. of issues bought per month
10.7 titles
4.0 issues per month
Channel
Repertoire
I buy mags mainly from retail
I buy mags mainly via subscription
I buy mags via both retail & subs
Total regular magazine buyers
63%
16%
21%
100%
Magazine Shop
Repertoire
Average no. of shops from which magazines are bought on a regular basis
2.9
Magazine Shop
Visits
Average times that a shop selling magazines is visited
Average times that a magazine purchase is made
Average no. of mags bought per purchase occasion
15.2 visits per mth
2.9 purchases per mth
1.3 mags per purchase
Magazine
Shop Visits by Mode
BUYING MODE: I wanted a mag & bought one
BUYING MODE: I wanted a mag & couldn't find it
BROWSING MODE: Just browsing & didn't want to buy
NON-BUYING MODE: I didn't want to buy a magazine this time & just walked past the mag display
Total mag shop visits per month
3 visits per mth
3 visits per mth
4 visits per mth
5 visits per mth
15 visits per mth
MAGAZINE REPERTOIRE: Magazine buyers are selecting their purchases each month from quite an extensive repertoire of titles.
CHANNEL REPERTOIRE: A significant (21% of regular magazine buyers) and increasing proportion is buying regularly via both retail and subscriptions.
MAGAZINE SHOP REPERTOIRE
•
No single shop satisfies the consumer’s demand for magazines.
•
Supermarkets have become the most popular location for buying magazines as the table below demonstrates
Where do you purchase the majority of your magazines from?
Supermarket
High St newsagent
Local independent retailer
Petrol station
Transit point
All magazine buyers
36%
34%
28%
1%
1%
100%
MAGAZINE SHOP VISITS & BUYING MODES: Magazines are very widely available and the consumer passes magazine racks
15 times per month, but only buys on 3 occasions.
•
As magazines are usually bought for immediate consumption, what triggers the purchase is often some available “treat” or leisure time.
•
On 6 of the shop visits, the consumer is in “buying mode”, actively looking to buy. Yet actual magazine purchases are only made on half of those occasions, the main reason being that the desired title is not on-shelf. Magazine purchasing is polarised between (1) very purposeful, title-specific searching when the consumer will visit other outlets in order to obtain the magazine they want and (2) very impulsive buying “on spec”.
•
Browsing is involved on many purchasing occasions as the consumer often checks the repertoire before making a final
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MAGAZINES IN A SUPERMARKET ECONOMY buying decision. It is also a pleasurable leisure activity in its own right, particularly among men, and is often undertaken when there is no intention of buying.
Supermarket magazine shopping
Magazine buyers interviewed immediately after a visit to a supermarket (PPA / Brandlab: “Magazines & the Multiple Retailer) showed the following characteristics:
1. Supermarket visits are very frequent
Shoppers visited that particular supermarket 8.7 times per month on average. This regular shopping pulse is commented on in focus group work by both Brandlab and the Magazine Publishers of
America in the USA: it makes the purchase of the core, regular magazines in the consumer’s repertoire very easy and convenient when on the grocery shopping trip and explains why weekly magazines fit so neatly into the supermarket offer.
2. Magazines do not drive the supermarket shopping trip
Supermarkets
What was the main purpose of your shopping trip today?
Top up food shop
Main food shop
Magazine
Newspaper
Confectionery
Music/Videos/DVDs
Books
Other non food
TOTAL
Source: Brandlab
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Super
45.3%
39.7%
2.7%
1.9%
1.3%
0.5%
0.2%
8.4%
100.0%
Predictably, food dominates as the prime motivation for supermarket shoppers, though it is significant how important “top up” shopping has become, where basket size, basket profile, instore time and shopper psychology can be fundamentally different to the “main food shop”. What is significant is that non-food categories in total drive 15% of supermarket shop visits.
3. Magazines are the most important secondary purchase
Supermarket
In addition to your main reason for shopping, what additional items did you purchase?
Magazine
Newspaper
Top up food shop
Confectionery
Main food shop
Music/Videos/DVDs
Books
Other non food
TOTAL
Super
21.4%
14.1%
9.1%
8.8%
7.0%
2.4%
1.6%
35.7%
100.0%
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4. Shoppers also use other retailers to satisfy their needs
Shoppers bought an average of 4.2 magazines per month. They did not use that specific supermarket for all these magazine purchases: they had a repertoire of 2.8 magazine shops where they buy their magazines.
Where do you purchase the majority of your magazines from?
Supermarket
High St newsagent
Local independent retailer
Petrol station
Transit point
68%
20%
11%
1%
1%
All supermarket shopper magazine buyers
100%
“Shopper Profile” later in this section contains more detail on this whole subject.
5. Magazine buyers are prime supermarket customers
The Magazine Publishers of America (MPA) commissioned
Management Science Associates (MSA) to profile a full year of purchasing data from 20 mid-sized grocery stores sourced from loyalty card information. The data covered 285 million transactions from over 1 million households. The resultant research project
(“Market Basket Analysis of Magazine Purchasers in the Grocery
Channel”) provides some interesting insights into the role of magazine purchasing in grocery outlets in the USA.
Over a 12 month period, 24% of the supermarket shoppers analysed through loyalty card data had bought a magazine. Yet this
24% accounted for:
•
58% of the total value of all products sold over the year
•
58% of the total number of items sold over the year
•
34% of all coupon usage over the year
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MAGAZINES IN A SUPERMARKET ECONOMY
The analysis shows, predictably, that magazine buyers are more affluent and better educated than non-magazine buyers and that there is a magazine buying peak in the 36-55 year old age group.
The data also shows that magazine buyers are much more active shoppers than non-magazine buyers, making 52% more shopping trips per year than non-magazine buyers (32 trips per year versus
21).
Yet perhaps more significantly, magazine buyers are most active on those occasions when they are actually buying a magazine. The table below splits shopping activity between three categories:
•
Non-magazine buyers: the 76% of shoppers who simply did not buy a magazine from the supermarket over the year.
•
Magazine buyers with no magazines in the basket: consumers who did buy magazines over the year, but who did not do so on this purchasing occasion.
•
Magazine purchasers with 1+ magazines in the basket: consumers who did buy magazines over the year and who did so on this purchasing occasion.
Shopper category
Non-magazine purchasers
Magazine-purchasers with no magazines
Magazine purchasers with 1+ magazines
Items in
Basket
16.5
20.0
28.4
Basket
Spend
$39.00
$45.14
$77.67
Spend per Item
$2.36
$2.26
$2.73
Source: MPA / MSA
Not only do magazine buyers buy more items when they have a magazine in their shopping basket, they are also spending more per item: a double leverage effect which boosts the basket value by
72% above non-magazine baskets.
It is, of course, a unproven point as to whether the magazine purchase actually drives a bigger basket size or is simply part of a
“big basket occasion”. Yet the link does illustrate the potential for
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more cross-merchandising activity in-store between magazines and other product categories.
The next table shows those categories that are most often bought with magazines.
Percent of Shoppers who are also Magazine Buyers
Category %
Pharmacy
Video
Photographic
Flowers
Greetings cards
Seafood
Prepared foods
57
54
52
45
44
42
41
Household goods
Tobacco
Delicatessen
HBC
Bakery 33
Meat 33
Fresh produce 31
Grocery
TOTAL SHOP
25
24
41
38
34
34
Source: MPA / MSA
The data suggests that the magazine buyer uses the supermarket as a “one stop” destination for a wide range of general household needs, not just food-related products.
MAGAZINES IN A SUPERMARKET ECONOMY
The action points that American magazine publishers derived from the project were that:
•
The magazine buyer is one of the highest spending grocery shoppers and will frequent many higher margin lines during their shopping trip. Additionally, the purchase of a magazine signifies that the consumer is on a major shopping trip.
- There may be more potential for cross-merchandising between magazines and high ticket items in-store.
- Magazine displays could be located near higher priced seasonal or impulse items.
- Additional, subsidiary magazine displays which are related to other product lines could be located in-store.
- Supermarkets might place their own advertising materials in or close to the magazine displays.
•
Supermarket product ranges could be refined by using magazine purchasing data.
•
The magazine buyer is a more loyal shopper, visiting the supermarket more often than a non-magazine buyer. Multiple magazine purchasing could be incentivised through loyalty card programmes.
•
General coupon redemption activity could be stimulated through links with magazines.
There is currently little research available in the UK linking magazine buying to general shopping activity and this is a potential area for further investigation.
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MAGAZINES IN A SUPERMARKET ECONOMY
Shopper profile: Supermarket outlets
Supermarket
Core
50%
If you do not purchase all of your magazines from this store, what would entice you to buy more?
This store will never be able to entice me away from buying elsewhere
More promotional activity
Greater range of titles available
More opportunities to browse the fixture
33%
31%
19%
17%
TOTAL 100%
Where do you purchase the majority of your magazines from?
High St newsagent
Another supermarket
Local independent retailer
45%
28%
24%
Petrol station
Transit point
TOTAL
2%
2%
100%
Satellite
36%
Non Users
14%
If you never buy magazines from this store, why is that?
I do not consider buying magazines when I am shopping there
I am in too much of a hurry and have not got the time to browse
It does not stock the magazines I want to buy
I do not feel that I am encouraged to browse the fixture
The newsrun does not attract me
61%
28%
6%
4%
2%
TOTAL 100%
SATELLITE and NON USERS were asked where they bought the majority of their magazines from if not from “this Supermarket outlet”. A High Street newsagent is by far the most common alternative with another supermarket or a local independent retailer being secondary sources that are competing closely with each other. A big gap opens up between these key magazine stockists and Petrol Stations and Transit Points.
SATELLITE USERS were asked what would entice them to buy more magazines at Supermarket outlets. 33% (a lower figure than for the other two retail types surveyed – independent newsagents and High St newsagents) said that “this supermarket outlet will never be able to entice me away from buying magazines elsewhere.” The implication is that there may be more opportunity to change consumers’ minds than for the other retail types. More promotional activity was highlighted as an area which would attract more magazine purchasing. A “greater range of titles” is of lesser, though still significant, proportions.
NON USERS (14% of total shoppers) were asked why they did not buy magazines from this outlet even though they shopped there for other products. The reasons are broadly similar to the High Street sample, but with subtle differences in stress. The prime reason given, as with High Street shoppers, is that “I do not consider buying magazines when I am shopping there”, yet this reason is not quite as pronounced as with High Street shoppers (61% of
Supermarket shoppers as opposed to 71% of High Street shoppers). This would suggest again that there may be more opportunity to influence the
Supermarket shoppers in terms of magazine purchasing frequency. The secondary reason is not having enough time to browse, though here this is a stronger factor than with High Street outlets. The assumption is that High Street shoppers give themselves more time to browse these outlets, whereas
Supermarket shoppers can have the secondary magazine purchase squeezed out by the pressure of food shopping.
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MAGAZINES IN A SUPERMARKET ECONOMY
Purchasing intention: this specific shop visit (Supermarket)
Supermarket
Bought intended mag: 29%
Intended to buy a magazine before entering shop: 35%
Bought: 33%
Bought another mag: 4%
Did not buy: 2%
Bought: 8%
Did not intend to buy a magazine before entering shop:
65%
•
A significant percentage (35%) of Supermarket shoppers intended to buy a magazine. This is mid-way between the levels seen among the Independent and the High Street shoppers.
•
2% did not follow that intention through and did not buy a magazine at all: a slightly lower proportion of “failed sales” than for the other two retail types. As with High Street shoppers, the main reason given was that the magazine was not available or they could not see it (73% of non-purchasers).
•
This 2% of shoppers who did not buy a magazine as they intended to was more than replaced by another 8% who bought a magazine even though they did not intend to before entering the shop. This ratio of “non intentional” buyers to “failed buyers” is high and is an indication of the level of impulse sale that is taking place in Supermarkets.
•
Among the 33% of purposeful shoppers who wanted a magazine and bought one, 4% actually changed their minds in-store as to which magazine they were going to buy. Supermarket shoppers are similar to High Street shoppers: they changed their mind because “another magazine caught my eye”.
•
So looking at the total number of magazine purchases made on this specific shopping trip, 29% of them had some kind of impulse element to them, higher than Independents (20%) and High Streets (22%).
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MAGAZINES IN A SUPERMARKET ECONOMY
General magazine purchasing
Respondents were then asked to step back from this specific magazine purchase to characterise their magazine purchasing from this outlet in more general terms.
Planned
Impulsive
Supermarket
High St
Indies
Convenient
It depends
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0% 10% 20% 30% 40% 50% 60%
How would you describe your magazine purchases from this store?
Planned: I will come to this shop specifically to buy a magazine
Impulsive: If I see a magazine I like when I am here, I will purchase it even if I had not planned to
Convenient: I buy my magazines here because I am shopping for other things and it is convenient
It depends: Sometimes my magazine purchase is planned and at other times it is impulsive
TOTAL
Indies
31%
21%
21%
26%
100%
High St
52%
21%
7%
20%
100%
Super
32%
27%
31%
11%
100%
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MAGAZINES IN A SUPERMARKET ECONOMY
Why consumers buy magazines in supermarkets
Convenience . The magazine purchase can be incorporated very time-efficiently into the normal food shop. Consumers know that they will be at the supermarket regularly and the magazine purchase often fits in with this “shopping pulse”.
A “ lost purchase ”. The price of this slight self-indulgence can be lost in the price of the overall food basket.
A “ treat purchase ”. The magazine is the shopper’s reward for having to go through the drudgery of the food shop.
Entertainment . Browsing and buying magazines is a pleasurable activity in its own right. It is fun for the main shopper. It can act as an “adult creche” for non-shopping companions (usually male!).
A quick purchase . If the consumer wants a very specific, specialist magazine or wants to spend time browsing, they can choose to go to WHSmith. Yet if they want to buy a magazine quickly, then the ample, but edited supermarket range makes the purchase a fast one. Some magazine buyers are actually put off by the sheer range of magazines available at WHSmith.
In summary, consumer visits to supermarket outlets are driven by food purchasing, though more and more of this is “top up” shopping and more and more secondary purchasing is made up of non-food with magazines being one of the premier categories, adding to the basket size and enhancing the shopping experience itself.
The supermarket is the consumer’s most frequently used location for magazine buying and these outlets have developed a remarkably large core of regular magazine buyers, where the consumer seems relatively open to the idea of buying more magazines from these shops if the conditions are right.
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Magazines may not be a totally “front of mind” purchase when consumers are shopping. There is no evidence that they influence the choice of grocer that consumers decide to shop at. Yet they are an important element in making the shopping trip more enjoyable and they form a category about which the consumer has strong opinions and clear views as to which retailers provide the best magazine service.
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MAGAZINES IN A SUPERMARKET ECONOMY
This is the real “hot spot” at the magazine racks where all three parties (publisher, retailer and consumer) inter-relate most fully. It is the area where retailer and publisher should be co-operating most actively in order to boost sales. It is also the area about which the publishing industry understands least. Yet research by both
Brandlab in the UK and by the Magazine Publishers of America
(MPA) in the USA does produce a number of broad conclusions.
Location of the magazine area in-store
Consumers appear divided on this subject. Those shoppers who are in “quick shop” mode prefer the magazine displays to be in the main traffic area. They see the advantage of this being that they do not have to make a special and intentional diversion away from the main food shopping route round the shop. Shoppers in slower shopping mode tend to prefer a separate magazine area away from the main flow. This gives a break in the shopping mission, and a more relaxed and inviting area for browsing. Checkout displays spark much more impulsive sales, but only of a limited range of titles. Yet these have the advantage of being displayed prominently and full-face.
Yet on the whole, the consumer seems relatively happy with the current location of magazine displays which tend to be in the
“landing zone” in the entrance to the supermarket.
A factor which comes through the American research very strongly is the consumer’s enthusiasm for cross-merchandising: the thought that appropriate magazines should be placed in relevant product areas (e.g. wine magazines in the off-licence zone, health titles in the health & beauty zone, etc.). In addition, in-store demonstrations linked to magazines were mentioned positively. However, there are clearly practical merchandising and replenishment issues associated with multi-siting magazines around the store.
Supermarket magazine range
86% of supermarket shoppers are satisfied with the supermarkets’ current ranges (“all” or “most” of the magazines they would want) in the larger stores as the table below shows. This compares with
97% of WHSmith High St shoppers who are satisfied with the WHS range.
Does this supermarket stock the magazines you wish to purchase?
All
Most
Some
54%
32%
9%
Few
None
TOTAL
3%
1%
100%
Most magazine buyers are very pragmatic. They know that the supermarkets cannot match the WHS range, but that is why they still hold WHS in their repertoire of shops. They know that “you can always get the magazine you want at Smiths” if all else fails.
Real magazine enthusiasts will always be disappointed by the supermarket range. Yet many lighter magazine buyers are actually daunted by the sheer range of magazine product at WHSmith: they prefer the edited supermarket selections.
What the Brandlab focus group work did underline is that consumers have very clear expectations of range by outlet type and that they consistently underestimate the actual ranges offered in the larger supermarket outlets.
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MAGAZINES IN A SUPERMARKET ECONOMY
Supermarket promotions
It is in the area of promotions that the whole industry produces below average consumer satisfaction scores. Shoppers are very aware of publisher added-value promotions such as covermounts and supplements. Yet retailers’ own promotions rarely seem to register with the consumer and they rate WHSmith more highly than the supermarkets. There clearly is more potential for more creative promotional work in the supermarkets.
Operational shelf issues
The availability of the major magazine titles on the shelf is generally considered to be satisfactory, though focus groups always highlight the issue of gaps in magazine displays being very visible
(supermarkets tend to operate fixed, “hard displays” with pockets allocated to specific titles which are left empty if the title supply runs out).
General shelf tidiness in the supermarkets lags behind that of
WHSmith.
Supermarkets lag behind WHSmith in the quality of staff in being able to offer service and advice as to what is in stock or not. Yet again, this is where the consumer is very pragmatic. They do not expect informed magazine staff in a supermarket, because they do not perceive the supermarkets to be magazine specialists.
Consumers generally feel that magazines are easier to find in supermarkets than in WHSmith, but this is often because there are fewer titles to review. Focus groups consistently call for better signage of and clearer divisions between magazine sectors in supermarkets with as many full facings as possible. Also consumers appreciate deeper shelf racking as it can be difficult to replace the magazine after browsing.
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MAGAZINES IN A SUPERMARKET ECONOMY
Since the abortive attempt to introduce National Distribution in
2000, the issues of the major retail multiples and of the supermarkets in particular, have never been far below the surface; nor has their frustration in having to deal with a supply chain which they feel is unlike any other.
The basic supermarket concerns have already been touched on in
Section 3.4 “Why Supermarkets Handle Magazines”, but the question is dealt with in more detail here.
Supermarket supply chain principles
How supermarkets manage their supply chains is actually very similar from country to country as a recent Distripress workshop, drawing on the experience of a wide range of countries including the
UK and USA, demonstrated. There are a number of recurring principles and themes:
1. Consistency
The supermarkets believe that consistency drives down operating costs. This means that everything must look the same to each store: invoices, delivery documentation, receiving practices, adherence to store ranges. Consistency may be boring, but it drives out cost. Surprises and anomalies are to be avoided, because both cost money.
2. Perfect transactions
The printing and accuracy of barcodes, wholesaler packing accuracy, delivery times, paperwork, the follow-through of in-store promotions. Every aspect of the business must be as near perfect as possible. The magazine wholesalers in every country who reported to Distripress thought that they had high operating standards until they started dealing with supermarkets. Whatever their faults, the best grocers are superb process managers and they expect the same of their suppliers.
3. Cost reduction
Eliminate handling and labour in every process from goods in, through on-shelf replenishment and merchandising and on to returns processing and paperwork. Electronic data exchange is a key development in speeding up and simplifying communication.
4. Simplification
Keep invoices simple and put all charges on the same invoice
(include basic margin, RDA, promotional allowances, etc.). Make magazines look as much like other products as possible in terms of terminology, processes, and promotions. Make it clear who does what in the supply chain to reduce duplication of effort and timewasting queries. Move more towards Vendor Managed Inventory.
5. Theatre not mess
The supermarkets are obsessively customer focused and driven to enhance the shopping experience. Are newspaper and magazine promotions sufficiently creative to grab the consumer’s attention?
Are the products sufficiently integrated into the rest of the store and should more cross-category promotions be mounted? Why do magazines have to contain so many inserts that make such a mess of the floor around the magazine displays? 100% availability of the key titles is becoming an essential requirement especially during key selling times such as the weekend.
6. Price
The whole area of magazine pricing is becoming a big issue in a number of countries. The fact that magazine products are prepriced irritates and perplexes supermarkets even though the reality of pricing each title individually may not actually be practical. In some countries, such as the USA and Germany, magazine pricing is perceived to be getting too high especially to discount retailers.
This is highlighted when publishers discount subscriptions heavily or use short-term price cuts to stimulate sales: the retailer suspects
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that their consumers are being overcharged for their normal retail copies. EDLP (Every Day Low Pricing) is not as prevalent in the UK as in Germany or the USA, but its effects can still be felt here.
7. Space and range
Most supermarkets have learned through experience that they cannot have a proper magazine offer based on a very limited title range. Yet grocery space, with more and more non-food categories in competition, is under intense pressure. The supermarket buyers need suppliers’ help in managing and constantly flexing a sensible range and in building an internal business case to maintain and grow the space dedicated to magazines.
The JIG Eight Point Plan
As part of the ending of National Distribution in 2001, the UK industry agreed to “The Eight Point Plan”.
This essentially allowed publishers to continue appointing wholesalers within exclusive regional geographical territories (a fundamental issue being questioned by the Office of Fair Trading at the time of writing of this report). In return, the creation of a Central
Publications Unit (CPU) would act as a central data warehouse and processor for invoices etc, bringing standardised documentation and processes across the industry.
Behind The Eight Point Plan, the retailer sector made very plain what the key issues were. The supermarket wish-list was (and is):
•
Direct contractual relationships with publishers and distributors . While what this actually means in operational terms is still vague, the principle is clear: it opens up direct negotiations between publishers and retailers about margin.
MAGAZINES IN A SUPERMARKET ECONOMY
•
Control over wholesaler performance . National Distribution
(ND) gave retailers the ability to set contractually agreed key performance indicators (KPI's) with a magazine supplier whom the retailer could fire if the KPI's were not adhered to. The KPI's revolve around issues such as pack accuracy, delivery times and accuracy of returns processing. In the absence of ND, retailers want a mechanism with publishers/distributors to effect this kind of quality control.
•
A single information source . The data management tools to enable easy access to data, Sales Based Replenishment and more sophisticated targeting.
•
A reduction in in-store magazine administration through electronic delivery notes and invoices, non-checking of deliveries and returns, etc.
•
Sales based replenishment to result in maximum availability
(over 95% on-shelf availability) with reduced retailer stock holding and reduced waste (at the time of the Eight Point Plan, from 33% to 23% as an industry average).
•
One van per store . All magazine product from a single wholesaler: one van, one point of contact, one invoice for every retail outlet.
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MAGAZINES IN A SUPERMARKET ECONOMY
The BRC KPIs
While elements of the Eight Point Plan and the supermarket wishlist have been incorporated into a series of JIG working groups, the main thrust of what the major multiple groups had been pushing for has been dissipated and retail frustration with the whole JIG process has been mounting.
More recently, the British Retail Consortium (BRC) has been publicising its Key Performance Indicators (KPIs) which revert to many of the issues that have been rumbling around the industry since the National Distribution furore. It looks as though the BRC
KPIs will become the agenda for supply chain changes over the coming months, whether they are progressed through the JIG structure or not.
Currently, there appears to be no obvious appetite for ND among the major supermarket groups, but they are looking for real movement on a list of detailed, operational issues which are encapsulated in the KPIs shown in the next column.
Key Performance
Indicator
What Retailers Want
Quality of delivery to stores
Every store should have a set delivery time and the wholesalers should leave product in an agreed & secure area. Costs incurred in additional handling or from lost sales resulting from under-quality deliveries would be passed back up to the publisher.
Availability targets
100% availability for new stores & refits
Most retailers have set availability targets which are often ignored by or get lost in the supply chain.
These must be adhered to.
Many new or refitted stores are undersupplied as the supply chain can be over-cautious during the early days. 100% availability is required as these stores try to establish their new sales patterns.
Agreed supply volumes
Consistent, industrywide solutions
Most retailers agree supply volumes during promotions, but these can be changed by the supply chain without any notice.
Agreements must be adhered to.
Returns processing, Sales Based Replenishment, etc….there are a number of processes where wholesalers must standardise their approach in order to produce easy-to-use solutions for store staff.
Tracking of deliveries & returns
99.5% target for packing, deliveries & returns accuracy with standardised processes and tracking.
Range compliance
Cross-docking returns
The supply chain must deliver only those products agreed with the retailer - 100%.
All returns sent back to the wrong wholesaler should be credited swiftly through cross-docking between wholesalers. A longer term solution could be a central returns warehouse.
Consistency of paperwork
All wholesalers must standardise their processes and paperwork so that retail staff can work in a common way across all titles in all stores.
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The Tesco penalty ratecard
If the BRC KPIs represent the broad principles of how the supermarkets want the magazine supply chain to operate, then the
Tesco Penalty Ratecard shows the more detailed operational issues which lie behind their drive for accountability and transparency.
Originally introduced in 2002, and now copied by a number of other retail multiples, the penalty ratecard sets service standards and processes that the supermarket expects publishers and their distributors & wholesalers to adhere to. Failure to meet these standards incurs financial penalties.
The 15 penalty areas are summarised in the table on the right. One of Tesco’s biggest concerns centres on titles being supplied without
HQ authorisation. Publishers have benefited in the past from poor policing of this area, with titles not on the central buying list slipping through the net and getting on display in local branches (see
Section 3.2 “Supermarket Magazine Range”): a number of retail multiples see this as a major source of their waste and a big part of the store staff’s time spent on administering the magazine category.
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MAGAZINES IN A SUPERMARKET ECONOMY
1
2
3
4
5
Breach
Late notification of retail price change
Non-scanning barcodes / late notification of barcode change
Title in Tesco store without prior HQ authorisation
Unauthorised use of
Tesco name or logo in offers or ads
Title withdrawn using
Tesco Emergency
Product Withdrawal process
Tesco Standard
72 hours' notice
72 hours' notice
Every title on sale requires a Tesco
Authorisation Number
4 weeks' notice of any promotion mentioning
Tesco
-
Penalty
£150 per store / minimum £5,000
£150 per store / minimum £5,000
£150 per store / minimum £5,000
£10,000
£150 per store plus
£10,000 charge
6
Non authorised coupons in Tesco stores
All redemption schemes to be cleared with
Tesco HQ
£150 per store / minimum £5,000
7
Customer complaints via Tesco's central call centre
Where call centre cannot quickly resolve the issue & further investigation is required
£1,000 per complaint
8
Unauthorised merchandisers instore
All merchandising / sampling activity to be cleared with Tesco HQ
9
Unauthorised display material in-store
All display material to be cleared with Tesco
HQ
10
Requests for EPOS data via Tesco
Finance Admin team
-
£5,000
£10,000
£1,000 per request
11
Major new title support using Tesco facilities
Use of Tesco facilities beyond standard communication in bulletin
12
13
Non-notification of age retsricted covermounts / titles
Oversized titles / covermounts
All sensitive material to be cleared with Tesco
HQ 4 weeks before onsale
Any issue outside standard dimensions to be cleared with Tesco
HQ 4 weeks before onsale
14
Delay or non production of images for Point of Sale
Brochure
Artwork must be cleared with Tesco HQ
& delivered 2 weeks before promotion
£10,000 for A-K stores
£5,000 for E-K stores
£5,000
£5,000
£1,000
15
Late payment of invoices
14 days from invoice date
10% of invoice or
£1,500 (whichever is the greater)
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An Indicative Supermarket Cost Model for Magazines
The table below is from a Wessenden Marketing project where a number of UK supermarkets pooled their financial analyses of the magazine category. The result is an overview of the “average supermarket”. All the figures are shown as a percentage of magazine cover price, rounded to the nearest half a percent.
100.0%
25.0%
Trading contribution
1.0%
1.0%
-1.0%
26.0%
Gross contribution
-6.0%
20.0%
-6.0%
-1.0%
-13.0%
-0.5%
Profit/Loss -0.5%
Source: Wessenden Marketing
•
Base retail gross margin . The standard 25% discount that all retailers receive.
•
Additional over-rider from wholesalers . Unlike the newspaper business, retail multiple terms on magazines are controlled by the supplying wholesaler. Unlike other product categories, the differential between a major supermarket chain and an independent retailer is very small (little over
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MAGAZINES IN A SUPERMARKET ECONOMY
1%): a source of massive irritation to most multiple retailers who want to be able to leverage their buying power.
•
Publisher income from promotions . This revenue stream is growing for all multiple retailers and is closer to 2% for
WHSmith Retail who takes the largest slice of publishers’ instore promotional expenditure. Yet there remain major questions over retail compliance and the whole costeffectiveness of retail schemes.
•
Carriage Service Charges (CSCs) from wholesalers .
This remains a big issue with independent retailers who tend to get hit more heavily than the multiples. For independent shops, CSCs represent 2-3% of cover price with the Dobson
Report suggesting that a large section of the estate is charged 8-9%. Yet this issue has the power to blow apart wholesale economics which rely heavily on CSCs.
•
Shrinkage . This is the inventory gap where retailers simply lose product. It is the difference between what the wholesaler declares is the net sale (based on copies delivered and signed for minus copies returned within the credit period) and what the retailers’ tills say is the money that has been taken from the consumer. Shrinkage in other product categories in supermarkets runs at 1-2% and the main source is theft. On magazines, the figure is much higher and is mainly the result of inaccurate goods-in records and staff missing returns cut-off dates. The estimated industry average across all retail types is approximately 4% for magazines and this is the major driver behind the retailers’ desire for “pay-on-scan” which will shift shrink up the supply chain.
•
Staff costs . These are very difficult to allocate accurately.
Whenever a proper analysis is undertaken, the staff time devoted to magazines always turns out to be higher than the retailer thought with the complex in-store administration of
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MAGAZINES IN A SUPERMARKET ECONOMY the category absorbing a great deal of time. Yet the supermarket staff costs are below the industry average for magazines (they are over 8% for WHSmith Retail). Tesco estimates that 60% of their staff’s time is spent on in-store administration rather than on the display area.
•
Store site rental . Again, another difficult to allocate cost which is largely dependent on where in-store the magazines are displayed. WHSmith High St has claimed that its Zone A
(front of store) costs represent a massive 22% of cover price. Property costs raise the question as to where and how magazines should be sited in-store with some tests on using entertainment zones (press, books, music, DVD, video, etc) being planted deeper in-store in a discrete area.
There are some positive factors to take into account:
•
Magazines are low risk items on full sale-or-return.
•
Magazines have a higher than average stockturn.
According to data from the Magazine Publishers of
America, the magazine stockturn is 17.4 times per year in comparison to the US supermarket all product average of
8.5 times per year.
The conclusion of this analysis is that magazines are a marginal product to supermarkets: most grocery chains fall in the +2% to -
2% profit margin range.
The reasons why supermarkets handle magazines at all are reviewed in more detail in other sections of this report and they are non-profit reasons. The supermarkets also know that they can never jettison the magazine category completely as it is now a high profile part of the supermarket shopping experience for the consumer.
Yet with the rapid growth of other, higher margin non-food categories, it is imperative that retail margins on magazines improve, otherwise the commercial arguments for reducing the
Wessenden Marketing supermarkets’ current allocation of magazine space and range will be overwhelming.
The publisher response
And what should the publishing industry be doing in the face of these figures?
MAKE MAGAZINES MORE PROFITABLE TO SUPERMARKETS.
This is not about handing over bigger discounts, though this is on the agenda of a number of retail multiples, but is about streamlining the in-store processes that add cost to the retailer, shrinkage being a key area.
QUANTIFY THE NON-PROFIT DRIVERS. There are powerful nonprofit reasons for retailers to handle magazines, but these need to be quantified and researched more thoroughly than at present.
They also need to be communicated more powerfully and consistently at an industry level than is the case at the moment (see
Section 3.11 “The MPA Retailing Growth Initiative”).
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Can the supermarkets be stopped?
If the publishing business meets all the supermarket demands, will they stop pressuring?
The experience of other UK FMCG sectors is that the supermarkets never stop the pressure to squeeze efficiency from their supply chains, but that suppliers can manage that pressure more proactively and effectively than most do.
The views of US magazine wholesalers are broadly similar. The conclusion of a leading American wholesaler, was that the US wholesale sector walked blindly into its current financial mess, but that even with the benefit of hindsight, they would still be pretty much in the same place: perhaps on better margins, but still with the same service requirements which continue to increase each year.
The current supply chain issues
Behind the general debate about introducing more transparency and accountability into the supply chain lies a number of very specific, but overlapping issues, whose importance varies from retailer to retailer and from time to time, dependent on the operational priorities of the moment.
Pay on Scan , where the proposition is that retailers pay for their magazines on the basis of their own EPoS data rather than the goods-in/returns-out documentation of the supplying wholesaler.
This has massive operational and financial implications for the supply chain which will not be easily or quickly resolved.
Hard ranging is a major priority of many retail multiples at the moment and involves much tighter retail head office control over what actually appears on the shelves at their branches.
MAGAZINES IN A SUPERMARKET ECONOMY
On-shelf availability is currently a massive supermarket preoccupation across all categories and is linked to the issue of hard ranging. Namely, that if a retailer commits to a clearly defined consumer offer in a tight magazine range, then it wants to be able to deliver that range consistently throughout the month. The retail push for deeper availability clearly has an effect on publisher waste levels.
Sales Based Replenishment (SBR) . The retail sector is pushing very strongly for fast rollout of a consistent SBR service which has the same processes whoever the supplying wholesaler is.
Shelf ready deliveries.
The industry faces a major challenge in making the magazine product more “shop staff friendly” for shelf replenishment (see Section 4.12 “Supply Chain Focus”).
Retail compliance.
Publisher concerns about retail compliance behind in-store promotions remain an ongoing issue.
There is also a more operational, but still significant issue and that is “ buyer churn ”. A recent survey of supermarket retail buyers by
The Grocer showed that half of the sample had been in their current buying role for under 18 months, with most recognising that their frequent job-hopping could adversely affect the buyer-supplier relationship. The supermarket concern is that being in a single category too long can make a buyer go stale and may mean that buyer-supplier relationships can become too close and friendly.
The publisher issue is that buyer churn can result in a loss of expertise and knowledge of a complex category, an inability to evaluate long-term trends and constant policy changes regarding fixturing, promotions and range.
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The OFT review & its potential impacts
The Office of Fair Trading (OFT) has been conducting a longrunning review of the newspaper and magazine supply chains. At the time of writing of this report, the OFT had given an indication of its thinking, but not a firm or detailed ruling.
The “provisional conclusions” are:
•
No Block Exemption for either newspapers or magazines . This would have given clear, legal protection for the current system.
MAGAZINES IN A SUPERMARKET ECONOMY
While there appears to be little appetite among the major retail groups to push for radical upheaval in the supply chain, there is a real retail determination to get some resolution to their long-running issues and the threat of upheaval might help that cause.
It looks as though the OFT is potentially opening the door to significant change in magazine wholesaling.
•
Full approval for the newspaper supply chain.
The OFT intends to give “written opinion” that maintaining the current arrangements is essential to the efficient distribution of national newspapers. The “written opinion” will not have the force of law, but it would guide the courts’ decision should a legal case ever arise. This effectively protects the current status quo for newspapers.
•
Partial approval for the magazine supply chain . The
OFT states that it does not believe that “absolute” geographical wholesale monopolies are essential for the magazine business to operate effectively and it wants to see some relaxation in this area, allowing retailers, under certain conditions, to obtain a magazine supply from outside the territory of their existing wholesaler if they so wanted: often called “passive selling”. Under what conditions this would be allowed have yet to be discussed.
This could result in just a minor tweaking of the wholesale situation or it could create a major loophole which might allow some retail multiples to demand national distribution deals.
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MAGAZINES IN A SUPERMARKET ECONOMY
The table on the right lists the key assets that each of the main links in the supply chain possesses.
The balance of power in the current magazine supply chain is unusually evenly spread and two fundamental factors emerge from this analysis.
The first factor is that the long-term strength of the publisher resides in the power and complexity of the magazine product as a brand which it is difficult for the retailer to replicate as an “own-label”. Yet the complexity of the magazine product is quite distinct from the complexity of the magazine supply process. It is quite feasible to maintain the complexity of the product while simplifying the processes that deliver it to market. Indeed to satisfy the supermarkets, it essential to simplify some of these processes.
What the industry must be clear about is which processes can be smoothed out or handed over to the retailer without compromising the control over the product itself. Each one may be used as a negotiating point, but not all are truly central to brand-control.
The second factor is the unusually influential role of the wholesaler in the whole supply chain process, particularly in copy management and data handling. The wholesaler is the mediator, and the enabler. It is also the buffer between publisher and retailer, giving the publisher some protection, but also creating an additional communication link in a long and complicated chain.
Four issues about the wholesale role must be remembered:
Publisher Wholesaler Retailer
Core Asset
Financial
Editorial product
Local geographical monopolies
The shelf
Perishable, fast-moving, changing from issue to issue.
Too complex for others in the supply chain to control.
Detailed knowledge of & control over a defined area.
This improves wholesale economics, retsricts competition & weakens national retail negotiations.
The ultimate asset - access to the consumer.
* Supply chain margins
* Retail cover prices
* Carriage charges
(CSCs)
* Scale
Retail margins
Powerful control over the product & the process
CSCs improve wholesale economics & make entry more difficult. Wholesaling is a low margin business driven increasingly by scale.
The current supply chain makes retail renegotiation of these difficult, but there are other mechanisms (e.g. promotional funding, Retail
Display Allowances noncompliance fines, shrink share, higher servive levels, etc.)
Copy
Management
Relationships
Strategic Tactical Micro
Top down - setting print orders & circulation parameters.
Translating publisher parameters into retail orders.
Detailed EPoS insights, but not quite enough to control day to day orders.
Reader Retailer
Strong emotional link between the brand & the consumer.
Easy to underestimate - understanding of & regular contact with retailers. The ability to match publishers' & retailers' requirements.
Shopper
Their consumer!
Information
Reader Retailer Shopper
How readers read - complex insights, too detailed for retailers.
Mass of detailed data about where products sell.
How shoppers shop.
Individual brands are only significant in how they affect the "shopping experience".
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MAGAZINES IN A SUPERMARKET ECONOMY
Four issues about the wholesale role must be remembered:
•
The wholesale operations compete among themselves and are constantly looking for competitive advantage over each other. They want to produce the best SBR system, the best returns process, etc rather than to create industry standard processes. The supermarkets long for consistency of process across their store portfolios. The wholesalers still produce a patchwork of processes, even though they have made great strides towards working more closely together.
To the supermarket, “consistency” is better than “perfection”.
•
Wholesale service standards can vary considerably from depot to depot, though they are not as bad as some retailers make them out to be. What is required are objectively verifiable and independently policed KPIs for wholesalers .
Most of the major magazine distributors have had their own
KPIs in place for some time, yet they are not being enforced with the rigour and the transparency which would give the supermarkets more confidence in the whole supply chain.
•
The really detailed insights about how to make the magazine category work in-store are held within the wholesaler, where there is a tremendous reservoir of knowledge and skill .
Publishers have allowed this knowledge to build up outside their real control and grasp.
•
Wholesale finances are under pressure from a variety of sources. The financial stability of the wholesale sector is vital to a strong and healthy supply chain for magazines.
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As an interesting footnote, it is instructive to see what US magazine publishers are currently doing to improve a supply chain which they have allowed to spiral out of control over the last decade.
In 2004, the Magazine Publishers of America (MPA) started a major change in the way that it engaged with the retail sector. The MPA concluded that the magazine business had to be much more positive and consistent in the message that it puts across to retailers, moving away from a preoccupation with fixing the backend supply chain to seeing how to work together with retailers to build front-end consumer demand. The result was the MPA
Retailing Growth Initiative which is based around a number of activities.
•
Organising where magazine CEOs and retail CEOs engage and discuss. There was a general recognition that US publishing management simply did not give enough focus to circulation issues, being much more ad-driven instead.
•
Commissioning research to understand better how consumers shop for magazines and not just how they read them. The first wave of research has already shown how different each outlet type is in terms of what consumers want from the magazine displays, browse times and magazine range. It also threw up some interesting insights about lighting, signage and where in-store magazine displays should be located.
•
Working on projects which will improve magazine performance with a particular focus on reducing waste levels.
MAGAZINES IN A SUPERMARKET ECONOMY
•
Assembling (see table below) as to how magazines perform versus other product categories. There was felt to be a real gap between how retailers perceived magazines and the reality of the category.
Benchmark
Gross
Margin
Staff
Costs
Definition
Net retail sales price minus cost of merchandise plus trade promotion revenue, over-riders &
RDA: as a % of retail sales price.
The cost of retail staff devoted to a category as a percentage of
RSV.
Inventory
Turn
The number of times in a year that a category's stockholding turns over.
Magazines in
Supermarkets
Supermarket All
Product
Average
33.6%
8.6%
17.4
27.6%
10.9%
8.5
Before the wholesaler meltdown, US supermarket retail gross margins on magazines averaged 27.5%, much closer to the UK average. They moved more than 6 full percentage points as a result of retailers flexing their muscle.
A big difference between the USA &
UK is that US wholesalers tend to physically merchandise & replenish the magazine racks rather than the supermarket's own staff. This fact reduces the US staff cost figures.
Often forgotten in the financial assessment of a category is how quickly it moves off the shelves and, therefore, how much retail money is tied up in stock. Magazines move fast.
Basket
Size
The average weekly
"basket" of goods bought per consumer.
$67 with a magazine in the basket
$39 without a magazine in the basket
Magazine buyers are simply more upmarket and higher spending than non-magazine buyers. Yet the act of buying a magazine also seems to be linked to increased in-store spend.
This should open up all kinds of crossmerchandising activity.
Source: The Kreisky Media Consultancy
•
Stimulating magazine retail display innovation by searching out best practice and initiating a “design challenge” to recognise quality magazine displays.
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MAGAZINES IN A SUPERMARKET ECONOMY
•
Looking emerging retail channels , trying to open up new, non-traditional retailers to magazines in a planned and structured way.
•
A more co-ordinated and consistent communications programme rather than sudden blasts of PR activity.
While a number of these US initiatives are already being tackled in the UK, they have never been organised into such a clear and coherent programme of activity. This has been the key to the
MPA’s success in moving the debate on from pure supply chain issues (which are still massively important and which have still to be resolved as a matter of urgency) on to more positive consumer marketing areas.
Yet behind it all lies the necessity for senior publishing management to focus consistently on circulation issues.
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MAGAZINES IN A SUPERMARKET ECONOMY
4.1 UK grocery market trend
4.2 UK grocery market structure
4.3 UK grocery market retail shares
4.4 Retail drivers & effects
4.5 Key consumer trends
4.6 Consumer age structure
4.7 Changing food shopping trends
4.8 Shop types to shopper needs
4.9 Non-food in supermarkets
4.10 The role of price
4.11 The role of own-label
4.13 Responses to grocery power
4.14 Conclusions
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The previous sections detailed key trends and issues relating to how the supermarkets deal with the magazine product.
Yet the grocers operate in a much broader context of major changes in shopping patterns and retail economics.
Placing the supermarkets in this bigger framework is essential to understanding their aims with magazines.
MAGAZINES IN A SUPERMARKET ECONOMY
The UK grocery market was worth £118.1 billion in 2004, up 2.7% on the previous year according to the Institute of Grocery
Distribution (IGD). Yet remove retail price inflation from the figures and this modest growth rate in 2004 turns into a “real” drop of
0.5%.
What is clear is that the grocery market has been slowing down: steadily since the early 1990s and more sharply since 2001. The
IGD forecast in the table below shows that the market went negative in real terms in 2004 and will continue to contract in real terms for the foreseeable future.
Year on Year Sales Growth
Year
Current
Prices
Constant
Prices
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
3.3%
6.6%
4.6%
3.3%
2.7%
2.6%
2.6%
2.8%
2.1%
2.2%
1.2%
4.4%
2.3%
0.5%
-0.5%
-0.2%
-0.2%
0.0%
-0.7%
-0.5%
Source: IGD
The reasons for this sales slow-down are discussed in more detail in Section 4.4 “Retail Drivers & Effects”
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MAGAZINES IN A SUPERMARKET ECONOMY
Retail grocery growth is becoming increasingly reliant on shortterms bursts of inflation and extension into non-food ranges as growth mechanisms, neither of which point to strong or reliable market fundamentals.
In addition, where growth does occur, it is increasingly restricted to just two or three price-led retailers with the remainder struggling to maintain growth and market share: signs of a mature market with an intense focus on price.
Using the grocery market sector definitions (see “UK Grocery
Market: Structure” on the next page, IGD’s forecasts suggest a distinct shift in share from the supermarket and traditional retail formats into convenience retailing.
Share of UK Grocery Sales
Sector
Supermarkets & Superstores
2003
73.3%
Convenience Retailing
Traditional Retail & Developing Convenience
TOTAL
Source: IGD
20.0%
6.7%
100.0%
2009 % Chge
72.2% -1.5%
21.7%
6.1%
100.0%
8.5%
-9.0%
Looking at Supermarket & Superstore shop numbers, IGD predicts that the current portfolio of 6,507 outlets in 2004 will contract by 2% to 6,377.
UK Supermarket & Superstore Numbers
Sector 2003 2009 % Chge
Hypermarkets
Superstores
583
727
763
817
31%
12%
Supermarkets
TOTAL
Source: IGD
5,197
6,507
4,797
6,377
-8%
-2%
“Middle ground” retail outlets are under pressure. The success of the hypermarket format and the growth of convenience retailing continue to pull sales out of the High Street and into both neighbourhood and out-of-town locations.
The format most likely to be eroded is the smaller supermarket, with sales areas of 3,000 to 25,000 sq ft: too large to offer true convenience shopping; too small for the low-price/wide-range offer of the hypermarket (40,000+ sq ft).
Yet planning restrictions and a shortage of suitable sites will continue to limit the growth of the hypermarket.
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MAGAZINES IN A SUPERMARKET ECONOMY
UK Grocery Retail Market
Sector Sales £bn
Sales
Share (%)
Store
Numbers
Supermarkets
& Superstores
£86.2bn
73% 6,507
Multiples
Co-operatives
Independents
96% share
3% share
1% share
5,324 stores
949 stores
234 stores
Convenience Retailing £23.6bn
20% 53,653
Traditional Retail & Developing
Convenience
Alternative Channels
£8.3bn
Total Grocey Market
Source: IGD
£118.1bn
7% 44,593
100% 104,753
Wessenden Marketing
Multiples
Co-operatives
Symbol Groups
Forecourts
Independents
10% share
10% share
31% share
16% share
33% share
2,213 stores
2,065 stores
12,780 stores
8,375 stores
28,220 stores
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MAGAZINES IN A SUPERMARKET ECONOMY
The latest market shares (First Quarter 2005) for the major supermarket chains are shown in the table below. The big three chains account for almost two thirds of the grocery market with
Tesco clearing the 30% mark for the first time.
Market Shares of the
Major Grocers
(Quarter 1 2005)
Grocer
Tesco
Asda
Sainsbury
Morrisons
Co-op
Somerfield
Waitrose
Kwik Save
TOTAL
Source: TNS
% Share
30.2
16.6
16.1
12.9
6.3
3.9
3.7
2.0
91.7
•
The big four chains account for 76% of the total grocery market; the eight chains tracked for 92%.
•
Tesco has cleared the 30% mark in the first quarter of this year for the first time.
•
All Safeways stores are included in the Morrisons figures.
Morrisons’ branded stores account for 8.0% and Safeways stores for 4.9%.
Wessenden Marketing
The next table tracks the quarter by quarter trends in share, from the Second Quarter of 2004 on.
Trend in Grocers' Market Shares
(Quarter 2 2004 = 100)
Grocer
Tesco
Asda
Sainsbury
Morrisons
Co-op
Somerfield
Waitrose
Kwik Save
TOTAL
Source: TNS
Q2 2004 Q3 2004 Q4 2004 Q1 2005
100
100
100
100
100
100
100
100
100
101
99
99
99
101
100
103
96
100
102
106
99
90
90
94
106
83
99
105
95
102
88
94
108
112
83
99
•
Globally, the eight keys chains tracked have lost share slightly.
•
Tesco continues to march steadily upwards.
•
Asda is very wobbly in its share. It showed very strong sales growth in 2003 and the first half of 2004, but this has now slowed down.
•
It looks as though Sainsbury’s six month old recovery plan is beginning to have an effect.
•
Morrisons is having real problems integrating the Safeways portfolio of stores which were losing share steadily prior to the acquisition and have continued to do post acquisition.
•
Both and Somerfield have had their shares boosted by acquisitions and by better trading.
•
Waitrose has been boosted by acquisitions, but its underlying trading has also been very strong, showing that the premium price position in the grocery market can still work despite the ongoing price battles between the major players.
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The table below shows a number of key trading statistics for the first quarter of 2005.
•
The current percentage market share.
•
Penetration percentage: the percentage of all shoppers who have used the supermarket during the period.
•
Spend per visit: the average “basket size” on each visit to the store
Grocer
Tesco
Asda
Sainsbury
Morrisons
Co-op
Somerfield
Waitrose
Kwik Save
Market
Share %
30.2%
16.6%
16.1%
12.9%
6.3%
3.9%
3.7%
2.0%
Penetration
%
56%
35%
37%
22%
25%
18%
8%
10%
Spend per
Visit
£30.09
£31.73
£29.32
£24.21
£9.32
£14.46
£28.76
£12.48
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MAGAZINES IN A SUPERMARKET ECONOMY
Source: TNS & ACNielsen Homescan
The average spend per visit for the top three retailers is broadly similar, averaging £30.38, but then drops away markedly to
Morrisons. The Co-op has a quarter of UK shoppers visiting its outlets, but with a low basket size, its shoppers are treating it more like a convenience store with a significant amount of top-up shopping taking place in its outlets.
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MAGAZINES IN A SUPERMARKET ECONOMY
This section summarises the key influences which are impacting on the supermarket operators
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MAGAZINES IN A SUPERMARKET ECONOMY
1 Slowing sales growth
Slow population growth is resulting in limited volume growth of core food products (see Sections 4.5 and 4.6 for more detail on changing consumer demographics and attitudes).
2 Growing sales space
While sales growth is slowing, sales space continues to rise.
Although this is not at the rate of the 1980s' "race for space" when retail selling space was increasing at +3% per year, it is still predicted to be at a steady +1% per year, bringing overcapacity into a number of retail sectors. The effects are:
•
Increasing competition between retail groups.
•
Increasing choice for the consumer resulting in less loyalty.
3 Rising costs & reducing margins
The retail cost base continues to rise as a result of two key factors:
(1) Rising basic operating costs such as rent and rates. Although there is general overcapacity in retail sales space, the competition for prime sites is still keeping property costs high.
(2) The cost of carving out a position in the new retail marketplace is heavy:
•
New retail formats as the major players attempt to create stores for a variety of location types.
•
More in-store "theatre" for the consumer.
•
Better in-store service through more and better trained staff.
•
Home shopping and online operations.
4 Price competition
Retailers have responded to the slowdown in consumer sales with price cutting in core food categories. Consumers have come to expect a low inflationary environment. The grocers are looking to retail price inflation in their core food categories of under 1% per year for the foreseeable future with regular dips into food price deflation.
5 The growth of online
Just under 3% of all retail sales are made online and this percentage is predicted to grow steadily.
Online Share of
Total Retail Spend
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
Share
0.7%
1.3%
1.5%
1.9%
2.4%
2.9%
3.4%
4.0%
4.7%
Source: Verdict
Choice, lower prices and convenience are the key consumer attractions of online shopping which is being driven by a number of key categories such as books, music and computer software.
Magazine publishers report that 17% of all new magazine subscriptions come via online (Source: “PPA Subscription Marketing
2004”).
Yet it is the grocers who are driving much of the total market growth.
In its last financial year (12 mths to Feb 2005), Tesco.com made a profit of £36m on sales of £719m making it the world’s largest online supermarket and delivering percentage profit margins (5.0% of sales) close to those of its mainstream retail business.
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MAGAZINES IN A SUPERMARKET ECONOMY
6 From "Needs" to "Wants" shopping
As UK consumers have become more affluent, their spending patterns are shifting away from "needs" purchases (e.g. staples such as food) and into "wants" purchases (e.g. leisure services, activities such as cinema/eating out/etc., holidays, vehicles, insurance). This is seen in a number of trends:
•
Consumer expenditure through retail is accounting for a declining share of total consumer spending.
•
Consumer expenditure on food and grocery items is accounting for a declining share of retail revenue.
•
Shopping itself is turning into a leisure pastime in its own right and consumers are looking for more "theatre" and enjoyment from the shopping experience itself.
•
The major supermarket multiples are looking to grow into more non-food categories in the search for:
More sales growth from faster growing categories.
Better margins than in the core food category.
The "one-stop" shopping experience for their consumers.
7.
Shopping location trends
The table on the next page shows the continued long-term drift out of the High Street and the Neighbourhood locations into Out-of-
Town shopping, though the rate of change has altered as both High
Street and Neighbourhood show more signs of life.
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MAGAZINES IN A SUPERMARKET ECONOMY
One of the most far reaching changes to the retail market has been where people actually shop. In the pursuit of more sales, the major retail groups have been developing formats for every location.
High Street Neighbourhood Out-of-Town
Shop
Numbers
1990
1995
2000
2005
188,196 141,391 3,232
162,315 132,400 4,517
169,261 117,471 5,786
174,653 107,950 6,480
% Change 2000-05
1990
+ 3% - 8% + 12%
55% 26% 19%
Share of
Retail Sales
1995
2000
2005
% Change 2000-05
51% 21% 28%
49% 19% 32%
47% 17% 36%
- 2% - 2% + 4%
Still dominant in terms of shop numbers.
The better High Streets are reviving as
Out-of-Town development slows.
•
High
•
High passing trade.
•
Wide retail mix.
•
Central location with easy access for young & elderly.
•
High
•
High rent compared to sales.
•
Limited
•
Poor store
Still declining in terms of numbers, but the development of the Convenience format is slowing down the decline. Also, consolidation is taking place and the arrival of the grocers is helping to raise standards.
•
Long opening hours & convenient locations.
•
Established niche in local community.
•
Meeting consumer need for "ad hoc" shopping (e.g. top up & distress purchases).
•
Limited product range & sales space.
•
Low consumer spend per visit.
•
Uncompetitive
•
Large independent sector means unsophisticated retail standards.
•
Lower profit margins: 3.0-4.5% compared with 4.5-6.0% for grocers.
Still growing, but not as fast as in the past due largely to planning restrictions.
•
The shop.
•
Car
•
Wide
•
Scale efficiencies for the retailers.
•
Limited availability.
•
High costs.
•
Requires compelling price or consumer offer to tempt shoppers.
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MAGAZINES IN A SUPERMARKET ECONOMY
The factors outlined on the preceding pages are all driving the retail market in a number of directions…..
1. The drive for scale
With the potential for organic growth more limited than in the 1990s, the major multiple groups are driving for growth and scale through:
•
UK acquisitions & mergers.
• expansion.
•
Market share growth through aggressive share stealing.
2. The drive for volume growth through price
Intense price competition is a key symptom of a mature market.
3 Leveraging productivity from scale
The purpose of scale is to achieve major productivity gains from:
•
Pulling down the relative cost of the retail headquarters.
•
Pushing through improved buying terms with suppliers.
•
Driving supply chain economies by streamlining processes and administration.
•
Obtaining better return on investment from capital investments such as IT.
4 Multi-format retailing
In order to have a presence in every location type, the major multiples are developing different formats and consumer offers for different sized stores, from massive hypermarkets through the High
Street down to Convenience and petrol forecourt retailing.
5 Multichannel retailing
There are three basic retail business models:
•
PURE ONLINE. While lacking the rent costs of physical retailers, the start-up and customer acquisition costs are
Wessenden Marketing massive: combined these can be over 30% of sales. Reaching critical mass fast is essential with profitability three years out for even the strongest players.
•
BRICKS & MORTAR (pure retail). The danger here is simply of losing out in the battle for consumer spend. Yet this route can still be more profitable than Pure Online.
•
CLICKS & MORTAR. This multi-channel approach will be the most profitable. An existing client base, an understanding of consumers, distribution know-how and a solid financial base & cash flow: all make existing retailers the obvious people to develop a multi-channel approach to the consumer.
6 Broadening the product range into non-foods
In order to develop into faster growing and higher margin product categories as well as to provide a more complete service to the consumer, the major retailers are developing their consumer offer into a wider range of products and services (see Section 4.9 “Non-
Foods in Supermarkets”). Magazines have been a major beneficiary of this trend.
7 The danger of consumer overchoice
Balancing the drive to build breadth of range and depth of product within range is a retailer concern about confusing the consumer with too much choice. Range control and management is becoming a much more sophisticated area than ever before and is of prime concern in the magazine category with the sheer volume of titles available.
8 Adding value, service and theatre
Meeting consumers' "wants" rather than their "needs" means investing in improving customer service (e.g. reducing queues at tills, longer opening hours) and the general shopping environment.
It also means much clearer branding (and sub branding within store)
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MAGAZINES IN A SUPERMARKET ECONOMY to encapsulate and differentiate the consumer offer and to appeal to a wider range of consumer lifestyles.
9 Supercategory Management
First generation Category Management was
•
Spread across too many categories (typically 120-180 within a grocer) which became mini fiefdoms for individual buyers.
•
Overly focused on product attributes and supplier market definitions.
Second generation Category Management looks at
"supercategories" - a range of products spanning many traditional categories, focusing more on the needs of the shopper. It is an attempt to manage consumer categories rather than product categories; to look at the consumer's experience of shopping in the whole store.
10 “Debranding” through own-label
The extensive use of retailer own-label products is aimed at
(1) stripping out costs
(2) differentiating products between retailers
(3) reducing the power (and, therefore, the negotiating power) of manufacturers’ brands.
11 More commoditisation and less NPD
Truly innovative new product development (NPD) is in danger of being throttled by reduced levels of reward for supermarket suppliers (see Section 4.10 “The Role of Price”).
12 Owning the consumer
Behind so much of what the major retail multiples are doing lies a key assumption: that the retail shopper is THEIR consumer, not the manufacturer's. Central to their aim of tying the consumer into their retail offer is a programme of research, data analysis and marketing activity to understand and communicate with the modern shopper.
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MAGAZINES IN A SUPERMARKET ECONOMY
A number of major research projects all point to some key trends.
Consumer Trend
Ageing population
(detailed on next page).
Increase in working women
Increase in single person households and single parent families.
Effect
•
Shifting market sizes for age-defined products & services.
•
More experienced & cynical consumer looking for quality, service and value for money.
•
The older the consumer, the higher proportion of disposable income goes into investments & leisure services (e.g. holidays) rather than retail sales.
•
A major source of time pressure.
•
A major source of time pressure.
Increase in consumer affluence
Increasing time pressures
Fragmenting lifestyles as consumers define themselves more by their leisure activities rather than traditional criteria such as class & occupation.
Rising car ownership
Shopping becoming a leisure pastime in its own right
The "savvy" consumer
A major shift from "needs" purchases (e.g. staples such as food) into "wants" purchases (e.g. leisure, lifestyle and entertainment products) with the following implications:
•
Consumer spend is shifting out of retail and into other leisure products & services (e.g. holidays, eating out, cinema/theatre, vehicles, investments & insurance, etc).
•
Consumer spend is shifting out of food and into other categories.
•
Shopping is turning into a leisure pastime in its own right.
•
Consumers are more discerning in decisions about how to spend their leisure time.
•
Driving growth of longer opening hours, the Convenience format and home shopping.
•
A key driver of magazine growth, especially in the specialist area.
•
Retailers having to niche their consumer offers in a more targeted way.
•
A key factor behind shopping turning into a leisure activity in its own right.
•
Consumers want to shop in a variety of locations and retail formats to meet their varying moods and requirements.
•
A more mobile consumer ready to travel significant distances to shop if the offer is right, driving the growth of out-of-town shopping.
•
Growing importance of car parking facilities close to retail sites.
•
The consumer is looking for more "theatre" and entertainment from the shopping experience itself.
•
Experienced, cynical, aware of value for money, quality & service, more ready to complain.
•
Much less brand loyal, both in terms of the products bought and the retailers they buy from.
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MAGAZINES IN A SUPERMARKET ECONOMY
The UK population is predicted to grow by just over 0.2% a year, increasing by only 2.5 million over the next 20 years, peaking in 2035 and then actually beginning to decline. Slow population growth limits volume growth in all food products.
Age Band Projected Growth
2000 to 2010
0 - 14
15 - 24
- 7%
+ 9%
This contracting age band is the result of the trend towards smaller families who will have higher per capita spend. The volume of products sold to this group will fall, but overall spend will be up, but only in categories where added value can justify premium pricing.
A growth sector, but highly fickle and continuing to fragment into smaller, very image conscious groups. Shopping is part of leisure and social scene. Prepared to spend significant sums on chosen products. Limited mobility means that the High Street is still the favoured location.
25 - 39 - 15%
40 - 49
50 - 64
65 +
+ 19%
+ 13%
+ 7%
A sharply contracting group (linked to the declining 0-14 band). Volume of sales down, but the potential for premium products to generate more revenue, though price and value for money are very important. Very time pressured so convenient / family friendly / one-stop shopping locations are attractive. Home shopping and home delivery also becoming more important to this group. Out-oftown the preferred retail location driven by high car ownership.
A growth sector and a very affluent one, but with expenditure shifting out of retail and into leisure & services (eating out, holidays, insurance & investments, etc.). Highly segmented lifestyles, demanding more niche marketing. Practised consumers who want to make their own lifestyle statements by what and how they buy: therefore, less likely to rely on generalist retailers. The home
& the garden are key areas of expenditure.
Another growth sector. Becoming more like the 40-49 group - more fashionable, health & beauty conscious and IT literate. High disposable incomes, but intense competition from leisure services.
The "retail experience" becoming more important.
A modesty growing sector with low shopping activity. Local shops preferred, especially independents and middle market stores ("safe") with a limited repertoire of retail outlets. Few retailers are specifically targeting this group. In terms of affluence, this group above all others will be polarised between the extremes as pension provisions will be varied between those with private and state pensions.
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MAGAZINES IN A SUPERMARKET ECONOMY
A major consumer research project from the Institute of Grocery
Distribution (IGD) highlights how consumer food shopping patterns are changing.
Changes to Frequency of Food & Grocery Shopping over Last Three Years
No change
More frequent / same stores
More frequent / different stores
Less frequent / same stores
56%
18%
11%
12%
Less frequent / different stores 3%
TOTAL 100%
Source: IGD Shopper Missions
While the majority of consumers interviewed said that their frequency of shopping had not altered over the last few years, a significant 29% claimed to have increased the number of grocery shopping visits that they make. In addition, 14% are shopping in different stores to what they were doing three years ago.
The conclusion of the research project is that there is a definite trend towards consumers making more food shopping trips that are
•
Of shorter duration per visit
•
Of lower spend per visit
•
Split more clearly between (1) main shopping missions and (2) convenience / top-up trips
•
Made across a wider portfolio of retail outlets
•
With a wider range of products bought, with a shift into more non-foods and more “treat” purchasing as disposable incomes rise.
•
With a growing polarisation between basic shopping trips, which are often seen as being boring and time-pressured, and more leisurely shopping trips.
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The changes have major implications for supermarkets retailers in three areas. The modern supermarket operator must:
1. Develop a wider range of store formats to cater for different shopper missions. This lies behind the supermarkets’ drive into convenience retailing.
2. Create store layouts which are designed for easy shopping whatever the mission. This needs to take into account of:
•
The position, length and width of aisles
•
The position and number of tills
•
The location of service counters, gondolas and freezers
•
Category
3. Adapt targeted ranges and merchandising to suit different shopper missions. Increasingly, shoppers want to find their products quickly and easily in a fast and simple shopping experience. In this environment, 100% availability of the key products becomes even more imperative.
All this has implications for where magazines sit in an increasingly complex consumer offer.
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All the current consumer research demonstrates that it is no longer sufficient to build a sales strategy around simple shop types (e.g. supermarket, convenience store, etc.), because the same consumer can shop the same store in different ways according to their mood or “shopping need” at the time.
The IGD Shopper Mission research project makes a simple distinction between two shopping modes:
(1) The primary / main food shop which generally takes place on a weekly basis, which is supplemented by
(2) Secondary / top-up shopping visits for fresh foods, out-of-stock products, products that they had forgotten or products which are simply not sold by the retailer where they undertake the main shopping trip. IGD then further divides the secondary shopping trip into four types:
•
•
Distress shopping
•
Habitual
•
Impulse
In the USA, the Coca Cola Retailing Research Council of North
America in a project called “The World According to Shoppers” has produced a more detailed and sophisticated categorisation of shopper “need states” and shopping missions.
The background to the project is that the traditional US supermarket format has been losing share of retail sales to other retail formats such as supercentres, warehouse clubs & hard discounters and health food supermarkets
The project comes to the same broad conclusion as IGD, namely that the same consumer can shop in different ways at different
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MAGAZINES IN A SUPERMARKET ECONOMY outlets at different times of the month dependent on what their specific need at the time actually is. The resultant nine “need states” are outlined on the following page. In addition, the project underlines the fact that shopping trips are becoming more distinct and polarised and that different retail formats need to cater for these different need states
Magazines fit into this categorisation system in the following ways.
There are two need states where magazine purchasing can be a key element of the shopping trip:
•
Discovery
• consumption
This actually provides some interesting insights into the nature of magazine shopping itself.
Yet magazines are also frequently purchased items on other shopping trips too and, although more of a background purchase, they can improve and enhance the shopping experience itself in a subtle way.
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MAGAZINES IN A SUPERMARKET ECONOMY
Need State Quotes
Care for Family
I consider grocery shopping to be a very important job and take it seriously. I want to do a good job for my family. I buy what people ask for and what I think will please them, but I always make a decision that ensures it's good for them.
Efficient Stock-Up
I don't like to grocery shop, so on my major trips I buy everyhing I can. I like to have a lot of things on hand, so that I can avoid making an additional trip to the store.
Smart Budget
Shopper
I have a planned grocery budget that I don't want to exceed. I'll stock-up on bargains and I want the store to make it easy for me to find savings.
Discovery
Specific Item
I like to browse during my grocery shopping trips.
Every trip is a little different. I look for new ideas, new recipes, new foods - and even some nongrocery products, like clothes.
I need something right away: a specific food, ingredient, prescription or alcoholic beverage. If it's not on the shlef, I'm likely to go to the next
Reluctance store.
If I could, I'd rather have somebody else do my shopping or do it online - anything to avoid goping to the store. Right now, I put little time of effort into my shopping trips.
On my grocery trips, I am looking for bargains on a limited number of specific products that I want Bargain-Hunting among Stores to buy. I gop to the store that is offering the best deals on these products.
Small-Basket Grab
& Go
Immediate
Bread, milk, bananas and beer. In and out in a few minutes. That's what I'm here for.
I'm thirsty, I'm hungry or I'm out of cigarettes.
Consumption
Source: Coca Cola Retailing Research Council of North America / TNS NFO
Average
Transaction
Size
% of Shopping
Trips
% of
Supermarket
Spending
$110
$95
$93
$90
$60
$58
$57
$41
$32
20%
13%
16%
5%
10%
8%
12%
10%
5%
28%
16%
19%
6%
8%
6%
9%
5%
2%
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The Coca Cola research project highlighted two need states (shaded) where magazine purchasing was particularly important. These two states define the two extremes of magazine purchasing.
DISCOVERY
•
They want to see new ideas and products, to buy grocery and nongrocery items on the same trip and to enjoy themselves and have fun.
•
The reward they seek is a surprise and the pleasure of finding something new.
•
These shoppers are impulsive and inclined to try new products. New recipes and meal ideas are attractive to them. Finding treats for family
• members is also very satisfying.
Magazines fit into this whole psychology.
IMMEDIATE CONSUMPTION
•
They want to satisfy an immediate craving and to get in and out of the shop fast.
•
The reward they seek is immediate gratification.
•
The importance of convenience outweighs wide range. It also makes the choice of outlet impulsive and random.
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MAGAZINES IN A SUPERMARKET ECONOMY
The importance of non-food
IRI estimates that 32% of total sales going through the supermarkets currently is non-food.
The supermarkets’ push into non-food is driven by a number of factors already mentioned which include:
•
The overall growth in traditional grocery markets is around
3%, whereas non food areas are averaging 13% thus providing a significant avenue for growth.
•
Non-food lines can provide higher gross margins than food ranges. Yet they often have more demanding display requirements which mean that their profit per square foot is not as attractive.
•
Non-food items tend to be higher priced and can, therefore, boost basket size.
•
Non-food ranges provide customer interest and excitement, and assist in driving additional customers into the store.
•
Retailers can capitalise on Christmas Trading opportunities with non-food ranges.
•
Non-food categories are generally less mature and therefore more likely to benefit from technical innovation and increased customer spending.
Stripping traditional non-food categories out of the figures (e.g. household products, petcare) as well as clothing shows the following non-food sales profile.
Wessenden Marketing
% Share of Non-Food Sales in Supermarkets
Category
% of
Sales
Electrical
Housewares
Garden & Flowers
News & Magazines
Video & DVDs
Greetings Cards & Wrap
Stamps & Phone Cards
Music
Stationery
Books
Phones/Mobiles
Computer Games
TOTAL NON-FOOD
16%
14%
14%
14%
9%
6%
8%
8%
3%
2%
4%
2%
100%
(Source: IRI)
Adding all the “home entertainment” products together (news & magazines, video & DVDs, music, books and computer games) produces a “supercategory” accounting for 35% of non-food sales.
The consumer perspective on non-food
IGD’s research among consumers shows that there are clear pros and cons in the consumer’s mind regarding non-food lines in supermarkets.
On the positive side, the presence of non-foods:
•
Adds theatre and interest to the core food shop which is often regarded as something of a chore.
•
Offers the convenience of a one-stop shop to the time pressured consumer.
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MAGAZINES IN A SUPERMARKET ECONOMY
On the negative side, non-foods:
•
Can make the store more difficult to navigate than a foodfocused outlet and can simply complicate and extend the length of the shopping visit.
•
Can dilute the breadth of food ranges and divert the attention of the supermarket away from the quality of the food offer.
Consumers were asked where they would go as a first choice retail outlet for a range of non-food categories.
First Choice Retailer to Buy Non-Foods
Category
Super market
Specialist
Retailer
Other Total
Household goods
Health & Beauty
Home Entertainment
Homewares
Clothing
Electrical Goods
79%
64%
22%
22%
13%
11%
8%
22%
42%
38%
46%
60%
13%
14%
36%
40%
41%
29%
100%
100%
100%
100%
100%
100%
Source: IGD
The categories that emerge as stronger supermarket purchases are those which:
•
Are frequently purchased
•
Are relatively low-priced
•
Require no expert sales advice
•
Have low after-sales requirements (e.g. home delivery, installation, guarantees, etc.)
In short, they are quick and convenient to add to the supermarket basket.
Home Entertainment in the supermarket non-food offer
Home Entertainment products (news & magazines, video & DVDs, music, books and computer games) account for 35% of supermarket non-food sales (excluding household products, petcare
& clothing).
The IGD research also shows that it is the non-food category which adds most interest to the consumer’s supermarket shopping trip, turning it from a chore into more of an outing, particularly when there are other family members involved. High product turnover
(new issues of magazines, new launches of books, CDs and computer games) also add interest in comparison to the more static food ranges.
Supermarket shoppers were asked where they would go as their primary purchase point for Home Entertainment goods. Only 22% would go to a supermarket as their first port of call, though 32% would be prepared to buy these goods at a supermarket.
Home Entertainment Products:
Primary Purchase Point
Purchase Point
First
Choice
Buy at All
Specialist Retailer
Supermarket
Internet
Mail Order
42%
22%
8%
4%
Discounter
Dept. Store
2%
1%
Other 5%
None 16%
47%
32%
10%
6%
4%
4%
6%
16%
Source: IGD
The specialist retailer remains the prime outlet for Home
Entertainment due to (1) their wide product range and (2) their
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ability to focus on the category and to create more theatre around their range (though this is not very evident in specialist magazine retailing).
Direct-to-consumer sales (internet, mail order, subscriptions, etc.) are increasingly important for Home Entertainment products where, for example, Amazon has combined price, range, convenience and service into a compelling consumer offer on books and music.
It should also be noted that supermarkets themselves are using their home shopping capability to extend their Home Entertainment range and offer.
The primary drivers behind the consumer’s choice of purchase point for Home Entertainment products are:
•
RANGE. There is a minimum critical mass below which a supermarket is simply not taken seriously as a Home
Entertainment retailer. It is wide range which still makes the specialist retailer the prime outlet.
•
PRICE. Supermarket policy on Home Entertainment tends to be to offer consistently low (EDLP) prices across a bestseller range rather than short-term hi-low promotions (which is how the specialist retailers such as HMV and Virgin are fighting back). Supermarkets are building a position as the consistently cheapest location for a limited range of bestselling products. Magazines, with cover prices still set by the manufacturer, cut across this whole supermarket Home
Entertainment offer.
•
THEATRE & SERVICE. Listening posts for music, seated reading areas, the space (and encouragement) to browse, cafes: these are all elements which specialist Home
Entertainment retailers have developed and which the supermarkets find difficult to match.
MAGAZINES IN A SUPERMARKET ECONOMY
•
CONVENIENCE. Convenient location with car parking facilities is one of the prime reasons for consumers to buy from supermarkets. Convenience and speed of service is also driving internet sales.
The secondary drivers behind the consumer’s choice of the supermarket for Home Entertainment products are:
•
HIDDEN PURCHASING. The cost of this more selfindulgent, “treat” purchase is lost in the overall food basket.
•
FUN PURCHASING. Of all the non-food categories, Home
Entertainment is the one that adds most interest to the boring chore of food shopping.
•
IMPULSE PURCHASING. “I only bought it because it was there” is a recurring consumer rationale behind these purchases.
What is still unclear from all the consumer research is just how strongly consumers identify Home Entertainment as a coherent and unified category, which should, therefore, be located in a single area of the shop.
News and magazines, due largely to the oddities of its supply chain, often finds itself isolated operationally within supermarkets. The category does not always sit with other Home Entertainment sectors from a buying point of view. It is often physically located in-store in its own unique area away from other Home Entertainment product.
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Other consumer services
MAGAZINES IN A SUPERMARKET ECONOMY
It should be noted that in addition to the range of non-food goods on display on supermarket shelves, there is an increasing range of consumer services on offer through the supermarkets. These include:
•
Insurance
•
Banking, loans and financial services
•
Lottery
•
Paypoint for gas & electricity bills
• agency
•
Photo
•
Dry
•
Creche
•
Café and food service
•
Office
•
Pharmacy
Key implications
Magazines are fighting to maintain their current share of supermarket space against an ever-widening range of other nonfood categories.
The supermarkets have to balance an expanding range of non-food lines against being seen to lose focus in the core food category.
This balancing act also operates within each category: to balance a range that is wide enough to be taken seriously against “overchoice” which confuses the consumer. Buyers are constantly flexing and adjusting ranges up and down and magazines are part of this process.
Specialist retailers are still very important to the consumer when it comes to the purchase of Home Entertainment products generally, including magazines, due to the specialists’ ability to stock wide ranges and to create excitement around their core product.
•
This offers continued opportunities for the specialist magazine retailer, though the level of theatre around the retailing of magazines is fairly limited and needs to be improved.
•
This means that publishers must have a coherent strategy to develop these specialist retailers in the face of growing supermarket power.
The supermarkets have targeted Home Entertainment products as a prime category for their own direct-to-consumer activities. This could bring retailer and publisher into competition in the race for the direct consumer sale.
Would magazines benefit from being grouped more cohesively into a broader Home Entertainment super-category, rather than floating, as at the moment, as an odd, one-off sector in-store?
Supermarkets actually have a difficult balancing act between offering a wide product range and diluting their core food offer. If they fall between two stools, and some operators inevitably will just as some convenience store operators already have, they will lose their shopper base remarkably quickly.
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MAGAZINES IN A SUPERMARKET ECONOMY
Price has come to the fore in the UK supermarket sector as a key weapon in the competitive battle. This has major implications both for suppliers dealing directly with the supermarkets, but also for all
FMCG companies, as the supermarket pricing policies are clearly shaping the price expectations of the UK consumer across a wide range of product categories.
While magazine publishers are unusual in still maintaining control over their retail sales price (for the time being), this does not make them immune from the powerful trends at work in the general shopping environment.
The consumer’s value equation
There is a large body of consumer research which points to some fundamental conclusions:
•
The modern UK consumer is very price-conscious and price is an important element in the decision-making process as to where to buy consumer goods. IGD’s research shows that price is the single most important factor in determining which supermarkets they use for grocery products.
•
Yet price is part of a range of other inter-related issues.
What the consumer is usually evaluating is “value” rather than pure “price” where value is the trade off between price and other benefits such as product quality, convenience of location, in-store environment, etc.
A significant finding of the IGD research is that price is just as important among loyal shoppers as among the more promiscuous consumers. It is often claimed that loyal customers are less pricesensitive than disloyal customers. The research suggests that in many cases, low prices actually drive loyalty.
The supermarket price models
While no retailer has a simple, one-dimensional approach to price, there are four basic models which have emerged in the UK grocery market.
1. PREMIUM: quality rather than price. Product innovation, high customer service, higher-priced niche products & high specification stores are all part of the positioning. Prime grocery exponents are
Waitrose and Marks & Spencer.
2. DISCOUNT: at the other end of the spectrum from Premium where low prices form the core offer with small ranges in relatively small and spartan stores. Prime exponents are Aldi, Lidl, Netto and
Kwik Save.
3. EVERY DAY LOW PRICING (EDLP): constantly low prices across the whole product range with no temporary discounts. EDLP operators differ from Discounters mainly through their sheer scale.
Massive buying power is used to reduce costs through scale efficiencies in larger stores with wider ranges, creating a “one-stop shopping” environment. Asda is the closest UK operator to this model, but it does not yet have the scale of its US parent, Wal-Mart, to operate “pure EDLP” and it still has to rely on some short-term promotions to boost sales.
4. HI-LO: frequent and deep price promotions for short bursts on limited product ranges which mask the higher “background” prices on everyday lines. This approach is more affordable for smaller retailers. Of the major grocers, Sainsburys is the closest to being a
Hi-Lo operator.
The major grocers do not fit easily into these boxes and both Tesco and Morrisons operate what is sometimes called “EDLP plus” trying to stretch EDLP across as wide a range of core products as possible while still committed to Hi-Lo promotions: a combination
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which can devastate the opposition, but which can also destroy the retailer’s own profitability should it get the sums wrong.
The implications of supermarket pricing
More consolidation and intensifying competition will mean that price will be used increasingly as the prime retail tool to lever market share and to drive volume.
Price competition in grocery products will be funded by:
•
Improved margins from non-food products.
•
Improved efficiency in the supermarkets’ own internal operations.
•
Supplier funding through direct promotional payments or through better buying terms.
All this has a number of major impacts:
1. It is setting the price context for many consumer goods categories, a number of which have seen actual retail price deflation in recent years. Supermarket pricing is both reacting to and stimulating the UK shopper’s increasing demand for value for money in every aspect of their shopping. The modern shopper wants an explosive mix of improving quality and competitive pricing at the same time. In this context, how high can magazine prices go in an industry where value growth has been driven by significant cover price inflation?
2. Control over the consumer selling price is a fundamental part of the grocers’ modus operandi. It allows them to create consumer promotions which fit in with their own price positioning. More strategically, it is part of the “debranding” process (see Section 4.11
“The Role of Own-Label”) where the manufacturer’s brand proposition is subsumed beneath the over-arching retail brand.
How long will this key element of the brand be allowed to stay within the publisher’s control?
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MAGAZINES IN A SUPERMARKET ECONOMY
3. If price is becoming an increasingly important driver of which retailers consumers choose to shop from, then are retailers actually building “brands ” in any meaningful sense of the word? Price may build shopping frequency, but does it build true loyalty and brand values? This places brand owners, which many magazine publishers in reality are, in a much stronger position when dealing with retailers.
4. The increasing pressure on suppliers’ margins will undermine investment in new product development (NPD). Suppliers will be forced into a low-cost / low-risk approach to NPD, extending and adapting existing lines rather than creating new ones.
5. The whole debate about price should concentrate publishers’ minds on what their own magazine pricing strategy should be.
Most magazines are polarising between the EDLP model of the weeklies and the Premium model of the glossies. Around these two models, most publishers operate a hi-lo promotional model, with occasional retail cover price cuts on mainstream titles, but with frequent price manipulations between retail and subscription pricing, often with little cohesive thinking lying behind the relative prices.
Magazine publisher need to show the same level of strategic thinking as the supermarkets when it comes to the whole issue of pricing.
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In 1980, retailers’ own-label products accounted for just over 20% of packaged grocery sales in supermarkets. Own-label share then grew steadily to 39.5% in 1997 when it levelled off and then slipped back to 38.5% in 2001. Since then, share has edged up to 40% currently (Source: TNS).
Behind these share shifts and the recent, modest revival in ownlabel, there has been a considerable change in the positioning of own-label products. Originally created as a cheap alternative to manufacturer brands, own-label products have developed into much more sophisticated and segmented ranges with many shoppers having as much confidence in the quality of retailers’ own products as in manufacturer brands: a long-term and subtle process which has eroded the brand manufacturers’ core strength.
The table below demonstrates how retailers have been developing their own brands, with the “Premium” sector showing by far the strongest growth. For example, Tesco’s Finest range was introduced in 1998 and now accounts for £600m of sales (over 30% of its total own-label business) across 1,200 lines.
Tesco Asda Sainsburys Morrisons
Budget Value Smartprice Low Price Bettabuy
Own-label product has a number of purposes and effects. It is one of the supermarkets’ most powerful levers in exerting more control over a category:
•
It allows the supermarkets to strip out costs.
•
It allows the supermarket to understand much better the cost structures of its suppliers’ own brands.
•
It gives the supermarket complete control over range management, product development, supply processes,
• promotions and consumer pricing.
It offers differentiated product from supermarket to supermarket in categories which are becoming increasingly commoditised.
•
Strategically, it shifts the consumer bond from the manufacturer to the retailer, reducing the power (and the specifically the negotiating power) of the manufacturer:
“debranding”.
Apart from developing their own customer magazines, retailers have found that creating true own-label magazines is much more difficult and complex than might appear on the surface.
The primacy of the publisher’s brand is one of the most powerful assets that the magazine industry has and its strategic value should never be underestimated.
Core
Premium
Healthy
Kids
Other
Tesco
Finest
Healthy
Living
Kids
Organic
Asda
Extra Special
Good for You
More for Kids
Organic
Sainsburys Morrisons
Taste the
Difference
Be Good to
Yourself
Blue Parrot
Café
Organic
Freefrom
Luscious
Better for You
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Every Day Low Costs (EDLC)
Every Day Low Pricing (EDLP) for the consumer ultimately feeds through into Every Day Low Costs (EDLC) from suppliers as every supply chain process is examined, streamlined and has unnecessary cost stripped out.
Over the last two years, there have been two notable examples of all this: Factory Gate Pricing (FGP) and Open Book Costing (OBC).
Factory Gate Pricing
This is where retailers review the distribution process and decide that, where they have spare transport capacity, they can pick up supplies themselves from the manufacturer rather than have the manufacturer deliver to them. The retailer then negotiates a lower price (factory gate price) from the manufacturer when the delivery costs have been stripped out.
In order to arrive at FGP deals, the major supermarkets have learned a lot more about suppliers’ distribution costs and processes.
What also became clear from the trade press coverage of the FGP process, when Tesco and Sainsburys started it in earnest over two years ago, was how little some manufacturers actually knew about their own cost structures which are actually quite complicated with large deliveries to supermarket hubs often cross-subsidising smaller drops to specialist wholesalers.
FGP is regarded as being the single most significant supply chain development since the introduction of central distribution in the early
1980s. Tesco estimates that the full implementation of FGP will slice through the £500m that is spent each year on primary trunking from the factory through to its own distribution depots.
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Open Book Costing
This is where the manufacturer opens up their complete production process to the retailer, including packaging and raw production costs, so that retailer and manufacturer can work together to drive out cost from the whole production process. They can also work closely in designing from scratch cost-efficient products that are suited to the retailers’ specific requirements. In some instances, this has led to retailers using their buying power to negotiate better raw material or insurance costs than the manufacturer was able to achieve on their own.
In its initial OBC push, Sainsburys was aiming for suppliers to reduce costs by an average 5% as a result of the process. The understandable concern of suppliers is that OBC allows the supermarkets to get much more involved in their business costing and planning process. However well intentioned this open partnership may start out, should a retailer come under real pressure on margins, then “partnership” will fly out of the window and the retailer will use the information it has gathered to put a real squeeze on manufacturers’ prices.
Shelf Ready Packaging
Another comparable development is Shelf Ready Packaging
(SRP). Data from Insight Research shows that around 50% of any supply chain’s costs are tied up in the “last 50 yards” between the back of the delivery van and the shop shelves. Ironically, initiatives such as Sales Based Replenishment, which drives more frequent deliveries, can actually put more pressure on this part of the supply chain rather than help it.
A key supermarket trend is to ask suppliers to make deliveries as store-friendly as possible with ready-to-display packaging and better scheduling of deliveries and in-store labour. An example of retailready delivery is of milk being packed on to “dollies” that are wheeled straight out of the van and into the retailer’s display area.
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Shelf ready cardboard trays with a lid or a side which can be opened up with a tear strip: this is another example. Yet this kind of packaging is only feasible with very high volume product with simple packaging.
The proven advantages of SRP are:
•
Improved on-shelf availability
•
Better use of shelf space
• breakages
•
Better on-shelf
Tesco is the grocer currently pushing most aggressively with a target of 10,000 food lines being in SRP format by the end of 2005.
Press products , by contrast, are among the most “shelf-unready” possible. Some ideas that have been looked at in the press area are:
•
Extending the use of newspaper perspex sale cubes which can be packed by the wholesaler and rolled straight out of the back of the lorry into the shop.
•
Organising magazine supplies into product categories so that they are easier to place on shelf.
•
Structuring magazine on-sale dates through the month to suit the retailer rather than the publisher.
•
Simplifying and reducing the paperwork associated with magazine deliveries and returns. Pay-on-Scan would have an impact here.
•
Getting the wholesaler to replenish the magazine shelves themselves as happens in the USA.
Cutting the cost of the “last 50 yards” is one of the key challenges for both newspapers and magazines over the next two years. While all this has cost implications, it is a more creative way of discussing supply chain streamlining rather than straight margin discussions or
Pay-on-Scan.
Yet there is also a big retail issue that all multiple groups face: why entrust the most expensive and crucial part of the supply chain to the lowest paid and least motivated workers?
Behind all this lies the supermarkets’ relentless pursuit of costreduction. It is based on their
•
Taking their own business processes apart
•
Trying to understand their suppliers’ own business models
•
Never being satisfied with the latest improvement. The pursuit of cost reduction is literally never-ending and insatiable.
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There has been considerable comment on the growing power of the supermarkets, ranging from the “Rip Off Britain” campaign of the national newspapers through to Joanna Blythman’s book,
“Shopped: The Shocking Power of the British Supermarkets” on to more detailed and academic studies such as “Ghost Town Britain” by the New Economics Foundation and “Market Concentration & the Decline of the Independent Small Shop in Britain” by the
University of Surrey.
The thrust of all this comment is essentially the same: that in their drive for profitability and consistency in both the product range and the processes that deliver that range, the supermarkets are crushing all life, individuality and diversity from everything they touch:
•
Reducing the number of suppliers to only those operations which can deliver the specified product in large enough quantities and at low enough prices to satisfy the supermarket demands.
•
Employing staff on long hours, often at unsociable times of the day and at below average rates.
•
Putting smaller scale retail competitors out of business by loss leader pricing strategies backed by operational scale economies.
•
Delivering reduced choice to consumers with limited product ranges at prices that are not always as competitive as they may seem, with “consistency” rather than true “quality” being the actual consumer promise.
Taken together, these influences mean that “Big Retail” is said to be having a massive and negative effect on the business, retailing and social fabric of the country.
It would take a complete report in itself to comment objectively on each of these areas. Suffice it to say that the real situation is considerably more complex than many commentators suggest. The
NEF’s “Ghost Town Britain” tracks a number of shifts (e.g. the decline in the number of traditional pubs, post offices, bank branches, pharmacies and parks & green spaces) which are due to a much more complex interplay of social, demographic and attitudinal shifts among consumers rather than simply the arrival of
Big Retail on the scene.
Big Retail may not always create change, but it is always very adept at responding to change, filling holes which open up, tracking consumer trends whatever the merits of those trends, finding weaknesses in other people’s business models, but weaknesses which often were already there. In addition, most commentators ignore the emergence of niche retail formats which counterbalance the growth of the supermarket “one-stop” shop.
However, there is one observation from all this which is central to this report. It is that Big Retail has altered the role of the retailer .
The retailer is no longer the neutral purveyor of a defined range of branded goods to a defined and local geographical community. The large retailer now specifies products for the audiences it has consciously chosen to serve. It has turned the tables on the manufacturer and reduced the influence of the manufacturer’s brand. When specifying power of that nature is linked to a big and growing market share and a disciplined approach to business processes; that is an awesome and potentially dangerous combination. There clearly do need to be some checks and balances in the system. There are, potentially, four…..
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1. THE CONSUMER RESPONSE.
In a market economy, the ultimate arbiter should, in theory, be the consumer. The main thrust of Joanna Bythman’s “Shopped” is that consumers should reduce the supermarkets’ power by refusing to shop there. Yet, as the supermarkets themselves point out, they have only succeeded because consumers like their offer. A number of recent surveys show the consumer to be very ambivalent about the supermarkets: concerned about their power, regretful about the decline of the independent retailer, yet still continuing to spend their money at the supermarket, because it is easy and convenient.
2. THE GOVERNMENT RESPONSE.
Most of the commentators regard the UK as being what the
University of Surrey report calls overly “market-liberal”, refusing to intervene enough to control the business fabric of the country.
Suggestions for intervention include:
•
Tax and rate relief for smaller businesses.
•
Tougher planning regulations to stop both (a) large scale retail developments and (b) large retailers returning to the High
Street to create what the NEF calls “clone town Britain”.
•
Central funding for local initiatives to help business start-ups, and community-driven retail projects (e.g. community banking, community pharmacies, etc.).
•
Tougher regulation of mergers and acquisitions with the supermarkets’ continued foray into convenience retailing being a prime example.
•
More regulation on how supermarkets do business. The
Supermarket Code of Practice , administered by the Office of
Fair Trading (OFT), is a live example of this and provides the framework for grocery suppliers to complain about unfair treatment from the big four supermarket groups. The first formal review took place in March 2005 and was greeted with
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MAGAZINES IN A SUPERMARKET ECONOMY much cynicism as, having reviewed 500 commercial relationships, the OFT concluded that there were only
“isolated incidents” of breaches of the code (44 from
Safeways and 2 from Sainsbury). The general conclusion is that the OFT needs to dig a little deeper and to extend the remit of the Code to more retailers and more product categories, including news & magazines.
3. THE TRADE UNION RESPONSE.
Socialist commentators, such as Liam Conway, look (rather optimistically) to shop staff to stand up for their own employment rights as well as forcing change on the business policies of the supermarkets through the collective power of unions such as
USDAW.
4. THE COMMERCIAL REPONSE .
•
The University of Surrey recommends the formation of more and larger buying groups for independent retailers to allow them to compete with the supermarkets on buying terms.
However, a study from Dr Quinn of Trinity College Dublin argues that there are already too many symbol groups, presenting a fragmented resistance to the multiple retailers.
He argues that there needs to be considerable consolidation in order to provide a credible response to grocery power.
•
This report recommends that magazine publishers can deal with the supermarkets with more confidence and with more commercial sophistication than at present: to engage proactively using the strength of their brands and their product
& market knowledge.
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MAGAZINES IN A SUPERMARKET ECONOMY
5.1 Non-Supermarket Sales and
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The response to any single channel, supermarket or not, which dominates the circulation profile of a magazine is obviously to rebalance the channel shares.
The grid below outlines possible future routes to market for magazines of different sizes ranked by their Retail Sales Value
(RSV). For example, MAXI titles are made up of the top 200 revenue earners. There are in the region of 400 consumer magazine publishers, producing approximately 2,600 titles which have a UK retail distribution.
The grid gives an indication of how dependent each type of title could become in the near future on different routes to market. A black box is where a route to market will be closed off or become irrelevant to that type of magazine.
Magazine Type
Maxi Midi
Top 200 Titles 200 to 400
Mini
400 to
1,000
Micro
1,000+
No. of Titles in Market 200 200 600 1600
Extended Range (400+ titles) MID MID HIGH
HIGH or
NIL
Mid Range (200-400 titles) HIGH HIGH
HIGH or
NIL
Limited Range (50-200 titles) MID
HIGH or
NIL
Niche (<50 titles) LOW LOW LOW LOW
HIGH Postal Subscriptions
Electronic
LOW
LOW
MID
MID
HIGH
HIGH HIGH
In terms of routes to market, the grid divided into two broad categories: (1) NEWSTRADE SUPPLY CHAIN and (2) PUBLISHER
DIRECT.
1. NEWSTRADE SUPPLY CHAIN
(i) Extended range retailers , handling over 400 titles (WHSmith and the top end of the grocery estate and High St operators such as
TM Retail). The smaller the magazine, the more dependent it becomes on these range retailers, until it drops off the buying lists completely. The buying policies of a handful of retailers can change the retail future for specialist publishers within a very short timescale.
•
The future direction of WHSmith Retail is of massive importance (and of great concern currently) to the whole industry.
•
Developing a planned development programme for the second-rung and regional multiple chains is central to any title’s strategy.
(ii) Mid range retailers , handling 200-400 titles (the larger cstores, medium-sized supermarkets and the core of the independent retail sector). This sector may not have the profile or generate the big per-outlet volumes of extended-range retailers, but they are the “engine room” for most Maxi and Midi titles.
•
Again, having a real circulation development programme with the secondary multiples and key independents (most easily done through wholesaler promotional clubs) is important.
•
Home News Delivery (HND) is a largely unmapped and hidden dimension to this retail sector which could be developed with more cross-promotions with newspaper publishers.
(iii) Limited range retailers , handling 50-200 titles (petrol stations, small c-store & grocery outlets). These outlets generally are of less importance to the industry as a whole, though they
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(i) Niche handling under 50 titles (computer stores, music shops, garden centres, model shops, craft shops, etc.). This sector is perplexing, as it seems to offer such potential to reach the consumer in a relevant environment, yet has such big practical hurdles to overcome, such as setting up in-store displays & merchandising, delivery costs, cash collection, order regulation, etc.
Some specialist wholesaling operations exist, such as Worldwide
Magazine Distribution, a joint venture between the three multiple newstrade wholesalers, but this sector is usually handled by publishers direct as many of these retailers can also be advertisers in the magazine. “Specialist Magazine Publishers 2005” commissioned by MMC through Wessenden, shows that some specialist titles can derive up to 20% of their retail sales through his route, though these are the exception rather than the rule.
•
A more planned and progressive development of these outlets is essential if they are ever to yield the potential that they seem to offer. Yet they could become a major route for some smaller titles.
(ii) Postal are growing in importance slowly, constrained by two factors: (a) a general lack of subscription knowledge and expertise in UK publishing companies and (b) a real lack of commitment from publishers to devote serious resource, in terms of both time and money, to growing this route to market, unless they are forced to by pressures on their retail availability.
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MAGAZINES IN A SUPERMARKET ECONOMY account for many new entrants into the press retailing universe. Yet for a Midi title on the edge of dropping off these buying lists, any retail opportunity is a valuable one.
•
These outlets need a lot of work and nurturing as the quality of magazine retailing is generally not as high as it is a lower priority to the retailer. Although the hard-edged return on investment may be low in this sector, maintaining a presence is strategically important.
Yet a real subscription strategy takes some time to create and action.
•
This is the obvious alternative to growing retail multiple power and supply chain upheaval. Yet many publishers are simply leaving it all too late.
(iii) Electronic which covers a range of media (e.g. websites, email, SMS, etc.) and four key applications:
(a) As a source of postal subscriptions, with 17% of all new print subscriptions already coming via this means (Source:
PPA/Wessenden Marketing: “Subscription Marketing 2004”).
(b) Adding value to the print product through subscriber-only areas on a publisher’s website for added editorial, archive material, reader offers and online administration of the postal subscription. 34% of consumer publishers are already involved in this area (Source:
PPA/Wessenden Marketing: “Subscription Marketing 2004”)
(c) Replacing the print product completely with an online version.
Only 42% of consumer publishers see this as a realistic possibility in the foreseeable future (Source: PPA/Wessenden Marketing:
“Subscription Marketing 2004”), yet there is great potential in certain sectors.
(d) Delivering a facsimile of the print product digitally (e.g. Zinio.
Olive, etc,). The jury is still out as to whether this is a major new route to market, a useful but limited supplement (e.g. export copies, advertiser copies, sampling exercises, etc.) or is just an intermediate step towards a very different online product.
•
Electronic channels to the consumer are varied and complex and have their own very different financial models. Yet this is going to be a major alternative to retail distribution and a part of a “mixed media” future for publishing companies.
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What all this underlines is that there is no single, simple alternative to growing retail multiple power.
Ironically, a number of very heavily subscription biased titles are currently looking for retail sales in order to reduce their exposure to rising postal costs and possible disruptions to the service during the coming liberalisation of the postal network.
The circulation future is multi-channel: a balanced mix of complementary routes to market without an over-dependence on any single channel.
Yet such a strategy is easier said than done, with knowledge and input required from across a range of specialist areas.
Publisher consolidation, either through acquisition or through voluntary groupings of smaller publishers, would be a logical conclusion.
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The growth of supermarket power cannot be stopped. Yet the process of this shift in power can be managed more proactively than at present.
Central to achieving this are two factors. Firstly, senior publishing management must take more of an interest in the whole supply chain than they do at the moment. Secondly, it is imperative to engage in dialogue with retailers without necessarily acquiescing to all their demands. To ignore them and their issues is simply not a realistic option.
All this leads on to some more practical and detailed observations:
Understand the consumer inside out. Through a structured programme of research and tests, understand the consumer better than the supermarket does. Understand the consumer as a complex shopper rather than just as a reader of a single magazine.
Help the supermarket to understand the product and the consumer . It is easy to underestimate the power of the publisher’s knowledge of both the product and the market when the supermarket buyers have difficulty managing such a fragmented and complex category as magazines. This help can be given at an operational level and at an industry level with induction courses for new magazine buyers on the structure and dynamics of the industry.
As their product range increases, their knowledge of those ranges gets stretched and they require more and more “knowledge” input from external sources, often suppliers. There is leverage that suppliers can use in their negotiations and ongoing relationships.
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Improve the magazine buying experience for the consumer.
Both magazine displays and magazine in-store promotions lack variety, life and creativity.
Manage the relationship with the key retail accounts .
Understand their issues and their economics. Recognise the reality of the supermarket sector: they are not all as frighteningly good as
Tesco. Even the best are not infallible. Treat them all differently as their business drivers are very different.
Recognise reality. The supermarkets are not consistently efficient throughout their estate. There can be a massive gap between the intent at head office and the practice at branches. This bubbles up in issues such as shop compliance, shelf replenishment, varying levels of shrink, etc.
Copy the best supermarkets’ business practices
•
Know what the consumer really wants from your products.
•
Deliver what the consumer wants.
•
Understand your own business model with real attention to detail.
•
Understand the business model of all those you do business with. This extends beyond retailers to distributors, wholesalers, subscription fulfillment bureaux, printers, etc.
•
Think strategically and long-term beyond the six month ABC horizon. Yet at the same time, operate at speed as the supermarkets do: they become very impatient when their suppliers do not!
Control the complex product. Simplify the complex processes.
It is essential to bring more consistency and simplicity to the supply chain without conceding true power.
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Develop a real pricing strategy for retail cover prices, but also for the comparative subscription and online prices.
Take back control of the supply chain.
It is imperative that publishers take more responsibility for managing the supply chain to objective and transparent standards.
Develop a real strategy for wholesalers.
Balance the shares between the key retail accounts . In-store promotional expenditure can be a key tool in manipulating tier listings and market share.
Develop a real strategy for other established magazine retailers , both multiple and independent.
Investigate other non-traditional retailers.
Develop other non-retail routes to market . This means, principally, subscriptions, but also online. This also means spending real money upfront.
Develop a coherent communications/contact plan at (1) an industry level and (2) individual company level. Create coherent reasons why supermarkets should stock magazines and sell that message to retailers at the highest level.
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Wessenden Marketing is a broad based marketing consultancy with a range of clients across the media, distribution, retailing, direct marketing, finance and business service sectors.
Wessenden’s services cover four key areas:
•
Consultancy.
Health checks, market mapping & consultancy and project management.
•
Publishing.
Newsletters and reports analysing trends in the media business. “Circulation Briefing” is the key newsletter published 10 times per year.
•
Research.
From desk research through reader questionnaires on to in-store shopper surveys.
•
Training.
Public seminars and in-house workshops on a range of marketing and circulation related topics.
For more information please contact Jim Bilton at:
W
W
Littleworth House, Tuesley Lane, Godalming, Surrey GU7 1SJ
Tel. 01483 421690 Fax. 01483 427089
Email. info@wessenden.com
Website. www.wessenden.com
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