CONVERGENCE AT THE RACKS

MARK HAMSTRA

Many supermarket operators are successfully navigating the evolving and challenging publishing landscape.

Alternative leisure activities like the Internet and cable television are carving chunks out of consumers' reading time, and publishers have been offering deep discounts off newsstand cover prices for subscriptions, helping drive a decline in retail sales.

But by using category management tools, employing some cross-merchandising techniques and forming closer ties with their wholesale suppliers, some supermarket chains are bucking sales trends and seeing healthy gains in the category.

Richmond, Va.-based Ukrop's Super Markets, for example, reported magazine sales growth of about 4% to 6% in 2000, compared with the prior year. Cross merchandising of magazines is a staple of the company's strategy, and the chain also has benefited from merchandising locally popular titles in its assortment, according to Delores Chewning, category manager for general merchandise at Ukrop's.

She said pet-related titles are occasionally placed in the pet-food aisles, for example, and sometimes during the holiday season cooking-related publications are merchandised in the baking aisle. The chain also uses a 16-pocket spinner for health and fitness magazines in the natural and organic foods section. In addition, Ukrop's sometimes conducts some marketing programs in conjunction with Prevention magazine related to health and wellness.

The company's wholesale supplier, Anderson News, Knoxville, Tenn., does all the merchandising and keeps the shelves stocked. Such involvement by the wholesaler is more costly to the retailer, but Chewning says the investment pays off.

"It's profitable, and you have to realize that it's labor-free," she said. "So when you look at its margins, and then realize that it's labor-free, it means a little bit more."

She also attributed Ukrop's sales increase last year to the introduction of O, Oprah Winfrey's new magazine, which was considered one of the publishing industry's most successful launches. Ukrop's has a policy against carrying magazines with racy content, such as Cosmopolitan and Maxim, "so when something like Oprah comes along, it benefits us a lot more than it might benefit others," Chewning explained.

Ray Wallace, director of general merchandise and health and beauty care at Cub Foods Atlanta, a 21-unit franchisee based in Lithia Springs, Ga., said his company had about a 12% gain in periodical sales in 2000, which was about evenly split between books and magazines. He attributes much of the success to the company's redesign of the department last year and to working closely with wholesaler The News Group, Fort Mill, S.C.

"There are so many individual titles that now that you really have to be tuned in, or least have a supplier that's tuned in," he said. "You can't sit in an office and pick out the titles. You have to have a support group that can keep your planograms and your product mix correct."

Ethnic titles in particular, he said, have become more prominent in the company's stores, seven of which are in inner-city locations.

Bill Bishop, president of Willard Bishop Consulting, Great Barrington, Ill., cited Wegmans Food Markets, Rochester, N.Y.; Stop & Shop, Quincy, Mass.; and Marsh Supermarkets, Indianapolis, as examples of other retailers who have enjoyed successful magazine sales, largely through cross merchandising.

"Retailers are taking a new interest in [cross merchandising]," said Bishop. "What it does is to really reinforce the departmental positioning in some of the destination categories."

Not all such ventures have been successful, however. One major chain that tried some cross merchandising abandoned the idea when its supplier couldn't keep the display racks stocked, according to David McConnell, president and chief executive officer of the General Merchandise Distributors Council, Colorado Springs, Colo. The chain, which he declined to identify, reported an initial lift in sales from the cross-merchandising efforts, he said, but it has since switched to floor displays in stores where space allows.

McConnell agreed that several chains have been successful at cross merchandising, including Cincinnati-based Kroger. He also said he recently noticed a King Soopers in Colorado that offered about 20 women's titles near the cleaning products.

McConnell said there has been strong retailer interest in magazines, but he said store operators need to have a better understanding of their sales data in order to effectively merchandise the category. He said scan-based trading, which would assist retailers in keeping track of which individual issues were sold, would help retailers squeeze additional profits from their magazine departments.

"Frankly, I challenge the MPA [Magazine Publishers of America]," he said. "I don't think [their members] are moving fast enough on scan-based trading. My concern is that they've got a lot of valuable real estate in food stores, and if they don't begin to show that they are profitable for the retailers, they may begin to lose space in some key retailers."

The MPA appears to be taking steps in that direction. Bishop, who works with the MPA's Magazine Retail Advisory Council (MRAC), said that by this month MRAC was scheduled to produce a white paper that will serve as a guide to properly conducting scan-based trading of magazines.

Some in the industry, however, said they still see scan-based trading as being a more distant goal.

"I think it's going to come, and it's going to be beneficial when it does, but I think it's still three to five years out," said Jim Gerth, group director of newsstand sales for EMAP-USA, Los Angeles, a publisher of several automotive, sports and men's titles. "There has to be some type of standards or best practices set up for everyone to agree on."

Meanwhile, wholesalers say they are benefiting from their increased data-gathering abilities. Mike Cook, president of The News Group, said wholesalers are getting a much broader picture of the market because of their consolidation.

"It helps us in seeing trends and trying to put out product that's moving up in sales," he said. "There's more focus on consumer demand rather than putting out what the publishers want to push. I think that's helping decide what the consumers want to buy, and that's always good."

The MPA touts the profitability of the segment for retailers, citing a 1998 survey in which it found that "realized gross profit" for magazines is about 32.5% of sales at chain retail stores. The survey also found that magazine gross margin return on inventory investment for supermarkets averaged 4.49, and that magazines contribute about 4% of supermarkets' store operating income while comprising only 1% of sales.

"We're looking at trying to communicate better with the retailer," said Anne Finn, vice president of consumer marketing for the New York-based association. "Whatever we can do to support periodicals at retail, we are there to do."

One upcoming event that could serve to promote retail magazine sales is a campaign called "Get Caught Reading," which the MPA is involved in with the Association of American Publishers, which represents the book industry. This year's promotion, which will be touted at the Food Marketing Institute Show in May, will involve advertising and in-store signage featuring celebrities reading books and magazines.