The October 2005 issue of Circulation Management, a US journal for Circulation Managers, carries a story about the battle for checkout space in US supermarkets. The article discusses three main trends: shrinking rack space, the rising cost of checkout fees and an influx of new titles and categories.
The most interesting point in the article is what publishers pay supermarkets per pocket for premium checkout space. Annual fees per pocket are made up of: $25 to rent the pocket, $50 per quarter Retail Display Allowance, $100 for a one time introductory placement offer (IPO) and 20 percent of the cover price – usually paid based on scanned sales (not supply and return as handled here in Australia). So, for one title in one pocket at a checkout, the retailer gets $325.00 plus 20% of the cover price for each copy sold.
Now, the IPO is an introductory fee so in year two the figure will drop to $225.00. However, supermarket leverage being what it is, only very successful titles will remain at the checkout unless additional fees are paid to maintain position.
Australian newsagents receive no fees beyond 25% off cover price for net sales. This is calculated as supply quantity less return quantity. Newsagents carry the cost of shrinkage which is, on average, 3% of supply quantity. They also pay for everything supplied and receive a credit for returns once processed by the distributor and this can be several months after supply. This is why we need a scanned based trading model in Australia – it is the only fair model for payment of magazines sold in newsagencies. SBT holds distributors accountable for their actions whereas the current model does not.
We can see from the data presented in Circulation Management the US numbers and can only assume that Australian supermarkets will have negotiated along similar lines.
The argument, of course, by supermarkets and publishers will be the higher volume of traffic in supermarkets, consistent compliance and negotiating power. I agree with these points. Many newsagents, however, deliver compliance, we have excellent traffic and we have the best depth of range in the magazine category. More important than anything else is that we have less capacity to carry the operational costs associated with magazines then supermarkets. Those least able to pay are the ones actually paying.
If newsagents received the US style fees it would add, on average and based on more reasonable charges, $100,000 a year to their bottom line. Such fees would put our stores on a more level playing field with supermarkets and others selling magazines.
Back when only newsagents sold magazines such fees were not appropriate. Now that almost 50% of all magazines are sold outside newsagencies it is appropriate and socially responsible for publishers to pay newsagents following a structure similar to that provided to supermarkets.
Publishers could argue that newsagents get 25% here compared to the 20% supermarkets receive in the US. However, the additional 5% accounts for considerably different accounting practices and a supply paradigm in less successful titles which means a loss situation for around 40% of magazines carried in any given newsagency.
With many new titles expected to be launched in 2006, newsagents could consider introducing fee structures along the lines of US supermarkets. This would value their real estate, their time and the traffic their store already pulls in supporting the entry of new product in an already well served marketplace.
One Australian company, InSite, compensates newsagents for space. However, their roster of titles is not high volume enough at this point in time to compensate for the additional real estate their promotions require. Further, their fee structure is nothing like the US fees paid to supermarkets.
Newsagents and publishers would do well to discuss these US figures and consider appropriate action on both side to arrest the falling net return from the total magazine category for newsagents.