I am garteful to Credit Suisse for sharing analysis of the latest Tatts results. I encourage newsagents to read the full report. here are a couple of highlights that I think are of particular interest to the newsagency channel.
Tatts also has a number of other initiatives to stimulate growth in 2H16, including new website and app, expanded roll out of distribution into convenience stores.
Tatts did caution about margin expansion from digital growth. With growing digital sales comes savings in commissions Tatts needs to pay to retailers, however, during the half Tatts reinvested much of these savings into Facebook campaigns and Google search engine optimisation. Tatts indicated this spend was a few million dollars, broadly consistent with the commission saving Tatts would have received. Tatts will also need to grow the dollar value of commissions over time, in our view. Tatts’ agency network is responsible for nearly 87% 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.
Agents are already closing because of the excessive costs associated with fit out upgrades and threats to have to purchase DigiPOS equipment.
My partner works for an industry supplier and he has counted approximately 30 newsagency store closures in the past 2 years in his region that he services. He has also commented that a further 20 are considering closing because of the costs of the DigiPOS equipment and fit out upgrade.
Yet NO increase in commission.
That Amanda and the fact that competitors with newsagents are not hit with the same costs.
I still don’t understand though Mark, how Woolworths have signed and negotiated different contracts to the standard agreements all newsagents were forced to sign, with better terms!
Why would this not be in the interests of a newsXpress or other marketing group to achieve better terms for it’s members, like Woolworths has?
Amanda, I’m not going to outline here what newsXpress may or may not be doing. The majority of its initiatives are not made public.
I don’t mean this comment to come across as bratty. It is true for newsXpress and I suspect (hope) for other groups. The most significant value is not disclosed as there are some out there who copy the groups – smart groups make it hard for them to do that.
Tatts is a big organisation with results aimed at a particular audience, the results are smoke and mirrors. Analysis at the global level will be meaningless to individual agencies. Reports by state with agency numbers would be of far more interest.
In the Tatts 2015 audit report to the SA government, “quote” :
– “Total sales revenue has increased by $13 million (3%) since the prior year”.
That is just $13m up to reach $442m. At which level it is still down 4% on 2013 at $462m. 2012 saw $424m of revenues, so Tatts SA has grown just 4% in 3 years.
” It would not be in Tatts’ interest to see falling commissions contribute to agency closures.” … is rubbish. Tatts are driven by net profit.
There is another outlet opening near our shop soon (again On The Run) and pity the poor newsagent where I live, he has an On The Run within 50 metres of his shop.
Tatts are playing the same game as magazines companies in supermarkets.
The point I was trying to make Mark was that Woolworths have achieved better trading terms with Tatts than Newsagents. This is not just a failure by NANA, but a failure by every newsagency marketing group that none of those entities have been able to negotiate better trading terms than the current standard contracts.
Amanda, there are two factors in play here:
1. Supermarkets are a major outlet for lotteries overseas and Tatts most likely has performance data.
2. Supermarkets can deliver one thing no newsagency association or marketing group can deliver – network wide consistency. Woolworths, for example, only operates corporate stores. Every newsagency is individually owned with locally-based decisions.
Fix point 2 and you have a basis for negotiation.
While I think the newsagent associations have poorly represented newsagents on lotteries, they are unable to bring anything to the table as a negotiating position. Sheer store numbers is not enough given the extraordinary difference in service levels.
From a newsXpress perspective, there is a far more significant value in bringing between 60 and 80 new suppliers to newsagents who provide more than 50% GP and a stream of new shopper traffic. That is a far more bankable result than any negotiation with Tatts could achieve.
Mark, I agree that your point (1), Tatts would be looking at the success of Convenience and Supermarket sales overseas, but it would be thwart with danger. As the Suisse reports have shown, the current retail platform delivers almost 90% of sales, so to damage that market would be highly risky.
I disagree that you can get a more consistent network of outlets in the delivery of Tatts package in any other retail outlet than a premium Newsagency group. The only consistency Woolworths Plus outlets have compared to say a newsXpress outlet is that they have negotiated the same lotto image package for each store, no matter what the turnover of that store may be. As i said previously, something no association or marketing group has achieved. In regards to the service provided, Woolworths staff offer an inferior level of service to that which you would receive in a newsXpress outlet.
I agree it is important to achieve value to newsXpress members in showcasing new products and suppliers, without a doubt, you need to do so to maintain and grow the newsXpress stores.
But to say it is more significant to achieve new relationships with new suppliers… I would probably ask your members would they rather achieve an extra 2 or 3% margin on lotto, or are they not interested in gaining better trading terms with Tatts?
Amanda,
I am not saying Woolworths or Coles is better. Rather, I am saying the perception of tatts is they would be better – more consistent. That perception is tough to overcome.
On the point about 2% or 3%. I do not believe for a second that is available, not even for supermarkets. But let’s speculate for a moment that 2% extra is available. Would you as a retailer agree to a strict set of terms and conditions for you and all retailers in your group to access this and would you be prepared to have the group invest in the additional manpower to police this and would you pay the group to do this given that the group itself receives no funding from Tatts.
These are complex issues, beyond the headline of wanting more commission.
I am good at building structured businesses around sustainable models. I do not currently see anything in the Tatts retail arrangements for achieving this along the lines of what you suggest.
Mark,
How can you know that Woolworths have not negotiated a better commission? At the moment that is an unknown.
What is known, as you have said is that Woolworths have negotiated to operate without the same setup or operating costs as newsagents. This is something that has been successfully negotiated.
I take it from your comments that newsXpress, (and all other groups for that matter) would only be interested in talking to Tatts if you thought the newsXpress group received something in return?
I’m not NewsXpress or any of the groups Amanda and I don’t see why any of them would be interested in talking to Tatts unless they were seeing something in return that didn’t involve addittional costs to their members. If the group has to put the effort in of weeks or months of negotiations and possible legal costs why wouldn’t they want that back ?
The commission side of things isn’t so much the thing that needs to be looked as Tatts will come up with another way to nip some more of it back (like the extra 0.05 % with the new digipos). However handing over prime retail space and then paying rediculous money for an image that they should be paying for themselves is what the associations and then by default any group that was so interested should be looking at. However it won’t happen as MArk has pointed out as the ANF is basically toothless and useless and the marketing groups don’t have enough push by themselves.
Amanda,
I did not say I know, I said: I do not believe for a second that is available, not even for supermarkets.
There is no model in the world for 2% or 3% points more commission from what I am told by lottery retailers I have spoken with in the US and UK.
Negotiation is all about providing a benefit to justify better terms. I cannot see what any group of newsagents could offer unless it was what Tatts wants – greater consistency. Note: I think they are wrong on this, they ought to only reward sales growth and stop obsessing about consistency but it is their business to lay down the rules.
Each of the the marketing groups is a business. Yes, even Newspower – it has employees and others who are paid for their time. All the groups have labour costs and other overheads. It is natural that any work is considered in the context of the return for the business – in addition to the benefits for the members. That said, newsXpress invests heavily in activity for which it receives no return. newsXpress members see this when the compare shares its P&L at its second annual conference in September. Further, the shareholders of the newsXpress business have never received a dividend from the business. Even though it is a business, it really is run more as a co-operative.
I think the bigger challenge for newsagents is in chasing traffic and revenue beyond what is traditional today. I see no commercial upside in lottery sales.