MAGAZINE PLAYERS VIE FOR CATEGORY ROLE

JAMES TENSER

NEW YORK -- Category management has arrived in the magazine aisle.

In recent weeks, companies as diverse as ICD-Hearst and Time Warner Co.'s TDS, both national magazine distributors, mega-wholesalers Hudson News and ARAmark Magazine and Book Services, and publishers Ziff-Davis and Conde Nast, to name just a few, have stepped up with new programs aimed at retail chains.

"This industry is literally reinventing itself," said Mike Gummeson, president of ARAmark Magazine and Book Services, Los Angeles, one of the nation's largest wholesalers. "We are enormously excited about the category and the role we can play with retailers to drive category growth."

Frank Herrera, president of ICD-Hearst, New York, said his company is working on its pilot program with an unnamed, multi-chain supermarket operator. "Category management is the hot button for a lot of retailers," he said.

New York-based TDS is now actively testing its category management model with several large grocery retailers, said Cameron Cloeter, senior vice president of sales. "The category is shifting from supply-driven to consumer-driven," he said, adding that TDS is now experimenting "with a whole lot of ideas and techniques," in its attempt to build a new model for managing the publications category.

"We consider ourselves among the leaders in this movement," said Frank Manziano, associate director of operations for Ziff-Davis Publishing, New York. "Most of us, like other publishers, have been focusing on the wholesaler channel traditionally,

but now we are also expanding into the retail side."

The industrywide awakening is the latest stage in the extraordinary re-engineering of the entire go-to-market system for magazines in recent months, say participants.

Recent upheaval in the magazine business began with Safeway Stores' announcement last August that it would reduce its count of magazine wholesalers. The trend spread rapidly to impact nearly the entire food, drug, mass merchandiser and convenience store channels.

In their determination to survive the shakeout, a few wholesalers bid very aggressively for the chain business, sometimes promising performance improvements that left some observers scratching their heads.

"Those wholesalers took gambles and they have experienced unbelievable growth. Now some are having problems handling the growth," said Alan Heyman, director of Fountainhead Communications Inc., Doylestown, Pa., a firm that provides store geo-demographic data and consulting services to the magazine industry.

For wholesalers like ARAmark, Hudson, Anderson News and East Texas Distributors -- who have been among the biggest winners so far -- dealmaking with retailers has been a calculated risk. Heyman estimated that between 65% and 85% of single-copy magazine sales currently are sold through the top 50 retail chains. Twenty years ago they controlled between 10% and 20%.

"Wholesalers have given away a lot of margins to keep the business," said a source who asked to be anonymous. "They have expended future profits and some current profits to securing the business, to be in business. Their problem going forward is, can they put the kind of management tools in place to make happen what needs to happen?"

ARAmark is making the investment in category management expertise, said Gummeson, a former brand manager at the Campbell Soup Co., who brought his packaged goods expertise to ARAmark 10 weeks ago.

The impact of his arrival was felt almost immediately. On April 2, ARAmark reorganized itself from 18 distribution companies into five regions, which were laid out, he said, "to match customer footprints."

"The best asset we have is the product itself," said ICD's Herrera. "No other item in the store is both a product and an advertising medium, making magazines uniquely informative," he added.

Said Michael Pashby, senior vice president of the Magazine Publishers of America, New York: "The person who is going to be the category manager is going to be the winner in this whole process. Because that is who the retailer is going to rely on."

The emergence of the mega-wholesaler is just fine with Curtis Circulation, New York, a national distributor that handles mostly main-line titles.

"I think you'll see some larger wholesaler groups with resources setting up marketing departments, and they will manage the categories effectively," said Rick Wetzel, vice president of sales and marketing. For publisher Ziff-Davis, the strategy lies in becoming very proficient at managing a specific publications niche -- computer magazines, said Manziano.

"Someone will need to step up in the next six months -- maybe one of the national distributors, maybe not -- and answer the questions: 'What really happened, are deliveries being made?' " said Michael McGeeney, a former executive at Hudson News who now runs a consultancy firm in Summit, N.J.

"Publishers are giving them a vehicle for going to their advertisers with new ways of target marketing and cross merchandising to achieve their own strategic objectives," said ARAMark's Gummeson. "If we can get the logistics to that level -- the right issue at the right time, alongside the right product -- the opportunity is enormous."