Efficient Consumer Response has finally reached the periodicals departments in major supermarket chains -- and it has struck with a vengeance.
Since actions by Safeway and Albertson's to reduce their rosters of magazine wholesalers came to light last August, the banner of vendor consolidation has been taken up by numerous retailers in alternative channels: mass merchandisers, drug chains and convenience stores.
Leaders in the other three trade classes, including Wal-Mart Stores, Walgreens and 7-Eleven, are all making or studying reductions in their rosters of magazine wholesalers. But nowhere is the change spreading more rapidly than in the supermarket business.
"It is within the concept of ECR," said Robin Kidd, grocery, drug and general merchandise coordinator for Kroger Co.'s Mid-Atlantic marketing area, based in Roanoke, Va. The division, which has 121 retail stores, recently said it would consolidate its 18 periodicals vendors down to a single supplier, Anderson News, Knoxville, Tenn.
"If you can have one supplier that bills you with one bill and who services you and all of your stores, that is obviously more efficient than
having 18 different suppliers bill you, and having to send out 18 different checks," Kidd said.
Most other retailers contacted by SN were reluctant to address the changes for the record, although several confirmed pending changes in their periodicals departments. Officials at Kmart and Walgreens each have confirmed that they have taken the matter under study.
Small regional wholesalers watched in dismay last month as Kroger, Ralphs Grocery Co. and Lucky Stores joined the growing list of retailers who have taken steps to reduce their rosters of magazine wholesalers in some markets.
In most cases the business is being won by a handful of "mega-wholesalers," larger companies that can cover wider geographies. These firms are understandably much happier about the changes being wrought in the go-to-market system for magazines as they see opportunities to enlarge and consolidate their position in what has been a fragmented industry.
"This process has been driven by the retailers because of a breaking down of barriers that have existed. Our company was pleased to be in a position to step up to satisfy the needs of some retailers," said Peter K. White, president of the Magazine and Book Services division of ARAmark Corp., Los Angeles.
ARAmark, which White says is the nation's largest periodicals wholesaler, has been a big player in recent months, winning exclusive deals with chains like Ralphs, Smith's Food & Drug Centers, Wal-Mart and Safeway, according to various reports.
Multiregional powerhouses like ARAmark, Anderson News and East Texas Distributing, Houston, all have been aggressive in their pursuit of new chain business. ETD has won new business from Safeway, Save Mart Supermarkets and Lucky's northern California region in recent weeks. Anderson has been named in four states by Wal-Mart, in several markets by Safeway and by Kroger's Mid-Atlantic division.
All three have been actively buying up smaller wholesalers in a wave of acquisitions that has swept this industry of just over 300 wholesale businesses. Sources close to the industry listed some 20 companies in the western half of the country that have sold out to larger players in just the last 16 weeks. The remaining independent wholesalers, worried about the loss of the geographic exclusivity that has been a foundation of their business economics for decades, are subject to pressure to sell out while their businesses still retain some value.
"I am very concerned about the future of this business and where it is going," said one wholesaler executive who asked to remain anonymous. "The distribution system used to be based on logic. Now logic is out the door."
He added, "I hope retailers will ask themselves this question: 'Why am I throwing away the local wholesaler in favor of a mega-wholesaler who travels 400 miles to service my stores?' "
While the mega-wholesalers compete to skim the cream from the market by signing on chain accounts, smaller magazine wholesalers across the country are receiving more "Dear John" letters from retailers.
Kroger's Mid-Atlantic division sent out such letters to its vendors. "As part of our continuing efforts to assure that we operate in the most efficient manner possible, Kroger Mid-Atlantic has concluded that consolidation of our magazine and book vendors will result in significant benefits in several important areas of operations and sales," the letter stated.
"All Kroger Mid-Atlantic stores will be receiving magazine and book service from Anderson News Co. effective Jan. 15, 1996. We will continue to enjoy business as usual until this change is effective and we expect service levels and inventory levels to remain the same during this time," the letter stated.
Said an executive from a mega-wholesaler, "It was more or less a geographical system. Now that it isn't, the buyers are doing what buyers do."
The executive said he believes the changes are in large part a result of an underlying trend toward wholesaler consolidation that was already under way in recent years. "It's just a trend that is picking up momentum," he said.