PAPER WAIT

JOEL ELSON

Soaring school notebook and filler paper costs have prompted some supermarket retailers to shift back-to-school promotional emphasis from filler paper and notebooks to accessories.

"Lunch pails and backpacks are playing a much larger role as hot features than previous seasons," said Vic Anthony, nonfood buyer at Abco Foods, Phoenix. "At 10% to 15% reduced margins, these items will help create an attractive target area in place of paper products as in the past."

Paper prices have substantially increased over the past year due to several factors. First, there's a growing global demand for paper that paper mills have not been able to meet. At the same time, the declining dollar has led to increased paper exports.

This has made paper harder to find and more expensive to buy. Some retailers polled by SN said prices have gone up 50% to 60%, and even doubled in some cases. At the supermarket level, the paper situation will affect paper prices, stocks and promotions. Abco Foods won't be as competitive with filler paper pricing as in previous years, said Anthony. Margins also won't be as high.

Accessories, as a result, will become more visible and affordable. They will be promoted at some chains at 15% to 20% lower margins. While overall back-to-school varieties at Grand Union Co., Wayne, N.J., will remain unchanged, the retailer will promote 10-packs of pens and pencils, mechanical pencils and highlighters with manufacturer rebates, according to Robert Pikarsky, category manager for back-to-school. Last year Grand Union advertised 200-count filler paper at 59 cents and promoted it in a "super" coupon at 29 cents, according to Pikarsky. But with 200-count filler paper costing more than $1, the chain will reduce its filler paper stock by 10%. Its stock of notebooks and tablets will be reduced by the same amount, Pikarsky said. Retailers polled by SN said, overall, back-to-school profit margins are expected to hold. However, promotion retails in 100-, 150- and 200-count filler papers and 70-count notebooks are likely to come in slightly higher at 79 cents to 99 cents, up from 59 cents to 69 cents, they said.

Some chains stressed, though, that increased paper costs won't have a significant impact on in-store pricing. Big Y Foods, Springfield, Mass., has had several price increases on paper products, but still plans to be competitive in filler paper pricing, according to Jan Winn, director of general merchandise and health and beauty care.

The higher cost of filler paper also isn't likely to affect stock at supermarkets interviewed by SN. Brookshire Grocery Co., an 86-unit chain based in Tyler, Texas, will probably sell the same quantities of paper as it did last year, said Jerry Moore, category manager for general merchandise, GM. But the chain is hoping customers will increase purchases of other school supplies for a better overall gross profit.

Early planning has helped some chains weather the paper pricing storm. Several retailers booked orders ahead of the anticipated increases, which helped ensure lower product costs and adequate supplies.

"Placing orders early protected us and locked us in from spiraling filler paper costs," said Winn of Big Y.

It also helped Nash Finch Co., Minneapolis. "By placing an order [early] I was able to save 5% to 8% before a price increase went into effect," said Monte Wood, general merchandise buyer. But since higher costs have been inevitable for many chains, they are changing their promotions. Brookshire, for example, may present a different back-to-school mix.

"We can't advertise paper at giveaway prices like last year," said Brookshire's Moore. Brookshire will price 200-count packs of filler paper, which is running slightly over $1 cost, at a slim margin. Last year, Brookshire paid 60 cents for 200-count filler paper. During this same time, filler paper retailed for 79 cents and was promoted in ads at 59 cents. Nash Finch is cutting back filler paper loss leaders from six to two items in back-to-school ads and circulars. Its promotion theme also will change. Advertisements will focus on writing instruments and accessories rather than filler paper.

For instance, a Bic $1 rebate will cover the 99-cent purchase price of a 10-pack of pens advertised as a free offer. Also, 16 Crayola crayons will be offered free with the purchase of any other Crayola product, and eight pencils will be offered for free with the purchase of a Mead binder. "We're not going to make a big deal about paper items," Wood said. "They will be farther back in ads instead of appearing on the front page of our four-page BTS circulars." Filler and tablet grade papers represent about 3% of the total paper output at paper mills, and that output has been shrinking, Wood said.

"This is the mills' lowest margin paper. They are producing less and getting a higher return on investment by exporting it," Wood added. "Our retailers will position selections like protractors, Elmer's glue, and packs of pens and pencils at 20% to 25% margins more prominently in store displays, which is still better profit than filler papers," Witt stressed. Faced with the challenge of 50% higher filler paper and notebook costs, retailers supplied by Fleming Cos.' Memphis, Tenn., division will probably pass the increases on, but will likely cut back to fewer loss leader filler paper promotions, said a source at the wholesaler who asked to remain anonymous. The retailers will attempt instead to focus shopper interest "more towards the overall mix since I don't think they are ready to absorb a 50% increase," added the source. The Fleming retailers will promote 70-count composition books normally retailed at $1.39 for 29 cents when a shopper buys 15 additional back-to-school promotional items, including Crayola products, 10-packs of pens and pencils, a lunch kit and other assorted accessories, said the source.