BENCHMARKING PROFITS

Dan Alaimo

PHOENIX -- Following research that has reinforced the importance of magazines to the supermarket front end, a study benchmarking the profitability of the category will be discussed during the Retail Conference of the Magazine Publishers of America held here this week.

"Through the Retail Growth Initiative, debuted at last year's Retail Conference, MPA had identified growth challenges and opportunities for the industry to address," said the New York-based association's Anne Finn, senior vice president, consumer marketing. "As part of this, we released benchmarks that prove magazines are a superior category that provide high profit margins and low labor costs for supermarkets." Senior management from publishing companies are meeting with top management at retail chains to share these benchmarks, and to raise their awareness of the benefits of magazines at retail."

When retailers have the chance to consider the benchmarks, "they are going to have a somewhat different attitude toward magazines because the profitability is really quite attractive," said Bill Bishop, president, Willard Bishop Consulting, Barrington, Ill.

In many cases, retailers have abdicated responsibility for magazines to the wholesalers, which is not uncommon in direct-store-delivery categories, and in some cases have cut back on space, he said. "When you look at how the business is today, you can't afford to arbitrarily walk away from any business. [Magazines] is a good and profitable category and, like every category, there are opportunities to improve its performance," Bishop said.

The profit picture for magazines goes beyond that of the individual item. "Magazines are in many respects a catalyst for supermarkets to generate indirect profits," said Peter Kreisky, chairman, The Kreisky Media Consultancy, New York. "There's a lot of very good research that shows that people make incremental purchases because of articles they read in magazines, or recipes they read about, or beauty tips, or home [do-it-yourself] tips. So the things they read about, and the editorials, and the ads they see, those all lead them to make purchases elsewhere in the store."

Cross merchandising is another way of tapping into the indirect profits magazines generate. "When you look at the true gross margin of magazines, rather than the allowances that are paid in, and then you look at the labor cost to a supermarket of magazines, you find that you have higher-than-average margins and lower-than-average labor costs. The net result is that your contribution margin is very attractive compared to the average food store," Kreisky said.