Credit Suisse has today published analysis of the latest Tatts Group results. This is a must-read document for newsagents with lotteries. Here are some key points of interest:
- Higher-margin online sales grew 22% in FY15 and represent 10.4% of all sales including South Australia.
- TTS is trialling lottery products in 54 Woolworths convenience/fuel outlets
- Tatts will need to grow the dollar value of commissions over time, in our view. Tatts’ agency network is responsible for nearly 90% of sales and therefore an integral part of its distribution. It would not be in Tatts’ interest to see falling commissions contribute to agency closures.
This last point is a solid statement from Credit Suisse. Newsagent representatives could use this if they are smart. The Credit Suisse document is for investors. Tatts is a servant of investors.
While the Woolworths trial will be seen by some newsagents as the headline, I think it is not. The first and last points in my list of highlights are the most important in my view.
On the first point, 22% growth in online, newsagents have to consider what they are doing to drive in-store sales. It is too easy to be a victim and much harder to drive sales in-store.
FYI here is my post from June 17, 2013 about the Coles trial.
I expect Associations will express dismay, frustration and even anger at the Woolworths news. It should not have shocked them had they been doing their job. I have moved on from concern about this as I see it as inevitable and do not see value in investing newsagent funds in pursuing a reversal. Newsagents ought focus on what they can do ti improve their businesses.
Coles/Woolies are not a threat, at worst they will do just the quickpicks. Minimum effort and that will not suit the needs of Tatts. Further, I suspect Woolies and Coles will demand more commission and less signage. It may be bridge too far to suit Tatts need to expand. On-line is the threat.
Brett, On NSW Lotteries web site in say FULL NSW Product offering will be made available in participating WW Petrol outlets in NSW and ACT
Expansion of the retail network is a frustration but as I have said here for ages – online is the threat. The best way to combat this is by being a retailer and not a shopkeeper.
Online is a threat to every part of my business, not just lotteries, there is nothing I sell that can’t be purchased on the net, just have to either deal with it or get out. I chose to deal with it and make myself relevant to my customers. If online was the be all and end all, we would all go under, but it’s not, so we find the niche that works. Not much different to battling Coles and woolies really, we can’t do them on price, so we find other ways, same with online.
I’ve seen the NANA and VANA responses. Disappointing and lacking leadership.
The best way forward is to make your business YOUR business. Not someone else’s. Future proof your business by educating customers so that they come in to your store for other transactions and then whilst they are there they buy lotto, not the other way around. We can not rely on other suppliers protecting us as an industry anymore. Business is business. I have no animosity towards Tatts as they are operating a business. I am disappointed in the Associations as yet again they have lacked leadership and a strong voice.
Well I see a lot of people like to bury their heads in the sand here.
If you have no hard feeling toward Tatts you must feel the same way
about Magazines and the Wool/Coles I am sure.
No matter what you think you can do to make your business unique and a destination if the playing field is not even you’re already behind the eight ball.
This issue will be the make or break of a lot of Newsagents.
And it is just more chipping away at what was once our core products.
Trading Hours
Magazines
Papers
NSW Lotteries?
If NANA and VANA fail on this and I don’t have a lot of faith from the leadership I see. It will be the closure of a lot of newsagents.
Customers have show no matter how much they like you, if its easier for then they will purchase it all in One go.
I assume you are referring to me Brett. My head is not burying in the sand,I am being realistic. Tatts want to broaden their sales online and if I owned Tatts I would do the same. My goal I am working towards is making my business 1 that is gradually lest reliant on traditional products (newspapers, Tatts and magazines) and a destination for other product offerings.
@Chris
No I was not referring to your comment but all of the above. Online is the threat but that is building into the future. Wool/Coles are the NOW worry not matter what you think.
I understand if you were Tatts you would want the same but to be realistic we are not Tatts we do not want this.
And if this is allowed to go through unchallenged and wool/coles get a deal cut (has this deal been done already) like they do with Mags/papers well, look where Mags are heading for us so will Tatts.
At this moment in time Tatts need us but will that need equate to looking after us? If we drop the ball here it’s Game Over.
If the future of the newsagency channel or newsagency businesses relies on supermarket businesses not expanding into lotteries then we have no future.
While I think Coles and Woolworths are already too big, I do not think our future should be dependent on regulation. That is what we had through to 1999 for newspapers and magazines and the majority of newsagents did not prepare for competition.
Better newsagents will emerge from a more competitive situation. Sure, there will not be as many – but those who remain will be stronger.
I think there needs to be a robust and professional fight on the power of the supermarkets not just on the Tatts matter but more broadly. However, I think newsagents should spend more energy making their businesses more valuable and appealing in other areas. I say this because our future in our businesses is really on us. It is 100%.
Relying on government intervention or regulation is not a good plan for the future. Also, it will not happen.
Because each newsagency is privately owned there are thousands of directors who can choose what is right for them. Unfortunately, not many are doing this. Instead, they either do nothing, complain and do nothing, make the wrong moves or fight with others.
The best moves a newsagent can individually make today are those that attract new shoppers to their businesses. This has to be the prime activity. Sure fight on the tatts front but do not invest much. Look at the many thousands NANA wasted last year and it achieved nothing.
I am retired. I subscribe to the Australian. They have increased their subs by 58% to $44 per 4 weeks.
Our newsagent delivers – I’ll bet he doesn’t get $44 from Newscorp.
Would it be better for me to pay him the $44 direct?
Tony – the newsagent makes the same profit either way
Tatts is in OTR (on the run) Service stations and I don’t view them as a competitor even though they are within cooee of my store.
I just try to do it better and I am finding that by working harder at the upsell I am increasing my commission from Tatts and I am
doing better than before OTR had lotto.
NSW lotteries agents – don’t despair – just
work harder at product knowledge and upsell.
I admit that my son has returned to our business and he is fantastic at the upsell and it is showing in our figures.
I get sick and tired of newsagents happy to pass off Tatts going into Woolworths and being Online as not a threat. Worse still, it irates me that fellow newsagents are constantly content to get inferior trading terms from companies who are reliant on newsagents to survive.
Wake up and smell the coffee people.
This is a launchpad for future rollout into supermarkets. Just like magazines, newspapers, mobile phone recharge (where newsagents once owned that space).
When will Newsagency associations ever learn? Or will they simply roll over again with another donation by Tatts to an annual awards night?
So-called industry partners know there is NO backbone in the newsagency industry, and they flaunt the control they have over what should be a strong retail channel.
Newsagents make something like 80% of Tatts sales. NOW is the time to negotiate new commission rates of 15%+. If this results in non-newsagency outlets receiving reduced commissions of 5-7%, then so be it.
We are all fools if we think Woolworths will be forced to operate under the same trading terms and agreements we have all recently signed.
If Tatts cannot come to the party, then newsagents choose not to sell or promote the new game “Set for Life”.
If the ANF, NANA and VANA cannot achieve an increase in commission for newsagents from Tatts, then why on earth does the industry need these associations?
Seeing as though Woolies and Coles are NEW franchisees for Tatts, I would love to know if Tatts do a sweep of their accounts twice a week like they do to newsagents !! or if they have to spend thousands and a new fitout that Tatts require
Amanda I think there is a difference between not fighting and being happy. I think NANA wasted a ton of money on their fight about Tatts and got nothing of value from the $$$ invested. They were not smart. Further, it is a battle they would not win because the argument to the ACCC on competition and customer access is compelling – even though we do not want it to be.
I am writing about this for next week as I think newsagents themselves caused this move. Not all newsagents, Indeed, probably less than 20% of lottery outlets. But they will be the ones to really blame here.
You cannot demand something from tatts unless you are in the dominant position and those leading newsagents have not done anything to ensure this. This is a failure of presentation.
I agree with you Mark about what NANA based their fight on. Tatts purchased a product from the NSW Govt and have the right to grow it into other retail outlets under the contract of sale.
As far as putting the blame on newsagents…well I think we are to blame for being a weak industry and having weak leaders and that stretches back decades.
The top 700 NSW newsagents actively participate, promote and invest in Tatts Lotto, and have done so for many years. They have invested in staff training, shop fits and external signage. They have launched and made a success new games.
Those top 700 newsagents have proven that for the consumer, the number 1 place to purchase a Tatts ticket is at a Newsagency.
Those top 700 newsagents should now be demanding a greater commission, as they generate most of Tatts income.
Step outside that top 700 and you have a lot of newsagents struggling to survive, and struggling to invest in their own businesses.
Had a strong industry achieved greater commission and contract terms with Fairfax Media, News Ltd, Gordon and Gotch, Network, Telco companies……. then many newsagency businesses in NSW would not be closing there doors or struggling to pay the rent.
Negotiations should have been based on market share. Newsagents have market share, and want more of the pie. They want better terms, and better commissions.
Failure to achieve any beneficial improvement in trading terms by all our industry leaders from all our “industry partners” is the major underlying problem here.
Amanda I agree with what you have written. There is no doubt that the situation is as a result of moves by a number of suppliers.
The negotiations in 1999 around deregulation were based on market share. A small group of newsagents represented the channel and rejected the reported offer, by the Howard government, of legal representation.
My post tried to be more a call to arms to those who are best practice in our channel. They need to somehow breakaway from the rest as they are the ones who ought to be able to negotiate a better deal since they are the locations of greater commercial value to suppliers.
How to breakaway though Mark?
Newsagents fed up with the ANF/NANA/VANA etc have probably thought they have done so by moving into the various marketing groups.
These groups have provided the tools and education to make our businesses more professional, open our eyes to new product opportunities, and given us better trading terms with non-traditional newsagency lines.
Yet none of these groups has been able to achieve better trading terms with Tatts, Fairfax, News Ltd, G&G or Network. That is not there responsibility…. but why not?
So are marketing groups not the answer?
If someone came to me and said, “we have negotiated a 12.5% commission on Tatts sales for our members only.” and “we have negotiated a 30% commission on Bauer Magazines for our members”….. all of a sudden they have achieved a positive outcome for my business.
How do we achieve a call of arms if there is nobody with a pot of gold at the end of a rainbow?
Hi Amanda, would you be willing to pay a monthly fee to become part of a group that had 100% compliance with key suppliers that meant better trading terms? If 500 newsagencies joined together to form a group that all guaranteed compliance with certain suppliers (forget our associations) then I think we could get better terms as suppliers would know for certain that what is being accepted will be done through all stores.
i will never want to be dictated by magazines distributors. let us say assume a 5% increase is really insignificant amount anymore for the condition they will come with it. forget it!
Amanda it all depends on what you consider trading terms. For me, while margin matters, trading terms are also about preferential access to supply adjustment, exclusive promotions, access to accounts where otherwise you may not get one and faster resolution of issues if one arises.
In this area I know a group alignment can make a difference.
I think the best way any group of newsagents can leverage better terms is for that group to be of above average value to any supplier.
While I understand the desire for better terms from legacy suppliers, I think we are better off with better terms from 2015 focused suppliers and terms that mitigate the costs of the legacy suppliers.
Yes Chris, I would.
A 500 Club.. it would definitely work.
Those small increases in commission from traditional or as Mark refers them “legacy” suppliers, adds substantial income to any quality newsagent.
The challenge is you could not negotiate with suppliers until you have 500 contracted to meet a range of specific requirements. I suspect newsagents would not sign on until you have the supplier contract.
The proactive marketing group reality can be a business today with gift revenue double card revenue, toy revenue at least equal to card revenue, magazine revenue (from non agency lines) at lower than 20% and overall GP tracking at between 45% and 50%.
Why would gotch or network negotiate with newsagents, no matter how many there are?
They are already supplying us now, the only way a negotiation with increased percentage would work was if they got something themselves.
For a 5% rise in commission that would include no early returns, large displays when required and an increase of around 30% in magazine pockets. Back to the old system where they control us!
We don’t have to comply with card, gift, toy, homeware suppliers which are the growth in our industry so why would anyone sign contracts to comply with gotch, network or newscorp who are in decline and dragging our businesses down?
Peter I can think of plenty of card, gift and toy suppliers you have to comply with. Compliance is different things to different suppliers.
Mark I can only think of requiring to have a minimum percentage of Hallmark cards(which we carry anyway) but Hallmark are a company that puts 110% into working with us to maximise profits in contrast to magazine distributors who put 100% effort into inflating their distribution figures and maximising their profits by oversupplying us to our detriment.
There are minimum buy quantities from other suppliers but I wouldn’t consider that as compliance because we can choose weather to take the offer or not, but if in a group as mentioned by Chris above there would be no individual choices, with 100% compliance across the board. This is similar to a franchise situation with no individuality to account for local and diverse conditions which occur in the newsagency channel.
Peter it is compliance though.
On the proposal of compliance around magazines, lotteries and the like, a big challenge would be around policing this. Some suppliers want billboard displays while others want sales growth. The reality is magazine sales are declining and this will continue. I see no evidence to suggest billboard displays drive sales. tactical placement is more successful but this does not satisfy most publishers.
I would be all for a compliance driven negotiation as long as what constitutes compliance is beneficial for newsagents.