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PERIODICAL 'MEGA-WHOLESALERS' GAIN CLOUT

NEW YORK -- The restructuring in the magazine wholesaling business shows no sign of slowing down after five torrid months, as more retail chains weigh the merits of consolidating their sources of magazine supply.Small regional wholesalers watched in dismay last month as Wal-Mart Stores, Kroger Co., Ralphs Grocery Co., and Lucky Stores joined the growing list of retailers who have taken steps to reduce

James Tenser, Dan Alaimo

December 11, 1995

4 Min Read
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JAMES TENSER Additional reporting: DAN ALAIMO

NEW YORK -- The restructuring in the magazine wholesaling business shows no sign of slowing down after five torrid months, as more retail chains weigh the merits of consolidating their sources of magazine supply.

Small regional wholesalers watched in dismay last month as Wal-Mart Stores, Kroger Co., 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 businesses that can cover wider geographies. These companies 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 positions 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 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 wholesaler of periodicals, has been a big winner in recent months, winning exclusive deals with such chains as Ralphs, Smith's Food & Drug Centers, Wal-Mart and Safeway, according to various reports.

ARAmark has been aggressive in its pursuit of new chain business, as have other multiregional powerhouses like East Texas Distributing, Houston, and Anderson News, Knoxville, Tenn. 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 region.

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 was 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?' "

The wholesaler said that at least for the transition period, the new agreements are leading to some "bizarre" economics. "The city of Reno, Nev., is now being serviced by three magazine wholesalers," he said. "Two of them are driving trucks across the Sierras to do that."

How this configuration will help retailers achieve their efficiency goals is more or less clear, depending on whether one's company is a shark or a minnow in the periodical sea.

As the mega-wholesalers 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.

Robin Kidd, grocery, drug and general merchandise coordinator for Kroger's Mid-Atlantic marketing area in Roanoke, Va., read parts of one such letter to a reporter:

"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.

"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."

Kroger's Mid-Atlantic marketing area, which previously dealt with 18 magazine vendors, including Anderson, has 121 stores. Since actions at Safeway and Albertson's brought the issue to light last August, the banner of vendor rationalization has been taken up by numerous retailers in four major trade classes: supermarkets, discount chains, drug chains and convenience stores.

The wave of changes has so alarmed smaller magazine wholesalers that their industry association, the Council for Periodical Distributors Associations, is addressing the issue head-on in its January 1995 newsletter.

In an advance copy provided to Brand Marketing, CPDA Chairman Jim Brunkhardt, a principal of Kansas City Periodicals Distributors, outlined a go-to-market system consisting of some 330 wholesale distribution points nationwide, distributing 3,600 magazine titles worth $3.9 billion at retail, through 180,000 retail outlets in the United States.

"If the delivery network described above were capable of doing this for just the handful of magazines that are displayed in most major chain stores' checkout displays on a regular basis, it would be likely to be considered a remarkable achievement," he wrote.

"But the fact is that it is done for a constantly changing mix of titles [adjusted seasonally and regionally] for an ever-different list of retail stores several times a week, every day of the year, month after month."

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