OAKLAND, Calif. -- A bold effort by Safeway here to revamp the way some of its in-store periodicals departments are supplied and managed is sending ripples throughout the magazine distribution industry.
Following a bidding process last month, the retailer has reduced the number of magazine wholesalers servicing stores in its northern California division from 13 to four, and in its Seattle division from four to one.
Presentations for a similar streamlining of Safeway's Denver division took place 10 days ago. Next up for bids at the chain will be Phoenix, then Washington, D.C., and then Portland, Ore.
"The Seattle deal is done; they are moving to one distributor effective Nov. 6.," said a magazine wholesaler. He and several other wholesalers also confirmed the names of four wholesalers Safeway has chosen to divide the northern California division. Safeway executives did not respond to several telephone interview requests.
With magazine wholesalers already consolidating at a significant rate and rumors mounting about other retailers following Safeway's lead, some observers are saying that no less than a complete restructuring of the magazine wholesaling business is imminent.
"We still all have to think this through. This may fundamentally change way distribution will be carried out," said Michael Pashby, senior vice president of the Magazine Publishers of America, New York, an industry trade group.
At stake is a tradition of geographic exclusivity among the 320 or so magazine wholesalers in the United States and Canada. As the industry is currently configured, wholesalers control local distribution of all periodical titles within their territories, to both large chain
stores and smaller independents of all kinds.
Territories are nonoverlapping, and pricing structures are carefully designed to allow comfortable margins for all participants in the distribution chain. Discounting off of cover prices is rare.
This structure means that most large retailers, even within a single market, are served by numerous local wholesalers, each of which employs a store delivery force to manage the racks in a few stores. This means multiple invoices, multiple negotiations and sometimes inconsistent service levels.
Alarmists in the industry worry that Safeway's actions could turn this system on its head, realigning wholesalers not by geographic area, but by the chains they cover. Smaller wholesalers who lose the big-chain business in their territories would suffer competitively, Aware that a decades-old status quo is at stake, the Council for Periodical Distributors Associations, New York, a trade association for magazine wholesalers in the United States and Canada, is rushing a brochure to press that it hopes will dissuade retailers from following Safeway's path.
Its core warning: Magazines have been high-profit contributors for all links in the distribution chain for many years. Cutting out local vendors may backfire by reducing the number of resources and depressing service levels.
"Most retailers are taking hard looks at every aspect of their businesses, trying to cut out waste and costs where they can be identified. A chain with multiple sources of supply might think there are savings to be accomplished there. This may be illusory, especially in magazine business," said John Harrington, president of CPDA.
According Harrington, Safeway and other larger efficiency-minded retailers have been looking for ways to simplify management of the department and control service standards.
"We have noted an interest on parts of larger retailers who have large numbers of wholesalers to try and consolidate. They want to get away from multiple invoices, multiple sources of supply, variable service levels and pricing," he said.
One executive who asked to remain anonymous said magazine publishers and wholesalers have been "slow to respond to retail chains' requests for greater efficiencies," especially in terms of investing in information systems. "Many would not respond to calls for chainwide or divisional billing," he said. "ECR is just now becoming part of the vernacular for us," said Frank Herrera, president of ICD/Hearst, New York, the distribution arm of Hearst Publishing.
Said Richard Alleger, vice president of the magazine division at Rodale Press, Emmaus, Pa.: "This is not a hastily made decision at Safeway. A lot of thought has gone into it, probably over five years."
Once the decision was made, the actions unfolded rapidly, beginning about seven weeks ago, when Safeway asked its magazine wholesalers to prepare bids for consolidating supply in several of its divisions with as few wholesalers as possible.
The process began with the Seattle area, where Safeway selected Adams News. In its northern California division, the contracts went to four distributors: East Texas Distributors Peninsula Division, San Mateo, Calif.; ARAmark Magazine and Book Division, Sacramento; Mother Lode News, Sonora, and Bell Magazine, Seaside, Calif.
Presentations for the Denver division were made Sept. 8.
While members of the magazine publishing community tend to express high regard for Safeway's knowledge of the magazine category, they worry that the change will disrupt a system that has worked smoothly for decades.
"The biggest worry we have is that the smaller wholesalers who have not won the business will ultimately go out of business. There is a risk that we will lose distribution to the small retail outlets," said Pashby of MPA.
Said Harrington of CPDA, "We think it is a trend that will not be in anyone's best interest because it will reduce the ability of the system to deliver and market and merchandise product. It is a system that has proved to be profitable for everybody -- publishers, distributors, wholesalers and retailers."