CONSOLIDATION SPREADING AT MAGAZINE WHOLESALERS

JAMES TENSER

NEW YORK -- Restructuring of the go-to-market system for magazines has accelerated to a breakneck pace in recent weeks, as major chains from four major retail channels confront the question of whether to reduce the number of wholesalers they work with.

Industry sources report requests for proposals have been circulated by nearly every major supermarket, chain drug store and mass merchant chain, in the wake of news in September that Safeway and Albertson's were reducing the number of magazine wholesalers they use in selected markets. In many instances, chains that have not asked for such proposals are receiving them. The retail changes come against a backdrop of rapid consolidation within magazine wholesaler ranks, as major players, such as Anderson News, Knoxville, Tenn.; Martin News, Dallas; Hudson News, North Bergen, N.J.; East Texas Distributors, Houston, and others maneuver for position in the emerging new order.

Several groups of less powerful wholesalers around the country are banding together into regional confederations to share billing and marketing resources, with the intent of meeting the new service demands of chain retailers.

Still other small wholesalers, some of whom see their geographic bases eroding as retail chains shift their relationships, are putting their businesses up for sale while they still have assets worth selling.

"We've seen more change happen in three months than I have seen in 26 years," said Mike Kessler, president of MKA, a magazine marketing consulting firm based in Fair Lawn, N.J. "It is a changed industry."

Added another industry figure, who spoke on condition of anonymity, "I have compiled a list of more than 20 acquisitions which have taken place in this industry during the past six to seven weeks."

During that period, the action has come fast and furious, with new initiatives from a number of major retailers.

The Walgreen drug store chain, Deerfield, Ill., has initiated the process of reducing its roster of magazine wholesalers, said Erik Prascak, buyer of publications, books, cards and periodicals.

"We are in process right now of evaluating all of our markets," he said. "Our wholesalers have been informed. Whether that includes increase or decrease in numbers is not yet certain." Walgreen's intent, said Prascak, is to move the magazine department toward a category management discipline. At Southland Corp., Dallas, operator of the 7-Eleven convenience store chain, magazine buyer Cliff Smith said his company did not necessarily have vendor consolidation on its agenda.

"It is a concern, but we are not attempting to narrow our suppliers," he said.

However, he acknowledged that a separate effort by Southland to re-engineer the way perishable products are distributed to its stores on a daily basis may have an effect on the way magazines are supplied.

"We are developing a supportive distribution concept we call CDC, or consolidated distribution centers," Smith said. "We take our current direct-store delivery suppliers that used to deliver to our stores and have them deliver instead to a third-party CDC operator, who consolidates orders and delivers to our stores."

Currently, CDCs are operating in Dallas and Austin, Texas; Burlington, N.J., and on New York's Long Island, he said. "Numerous others are in the planning stages now. Our goal will be one in every market in the country."

The 7-Eleven CDCs were specifically designed for fresh foods, he said. "But now, with our daily delivery system, we see extending this to magazine wholesalers, rather then hold all titles for a single delivery per week, or twice per week. Our system could have wholesalers deliver product to one CDC every day of the week, rather than deliver to 234 stores in Dallas-Fort Worth alone."

Because Southland is encouraging magazine wholesalers to make deliveries to the CDCs, that represents a coming change in the delivery process for its 3,000-plus stores. The potential rub comes when two wholesalers seek to deliver through a CDC.

"We have two wholesalers -- one in Fort Worth, one in Dallas. We have told them we would be happy to accept two deliveries per day -- one from each of them," Smith said.

Meanwhile at Southland's chief rival, Circle K, Phoenix, Greg Jones, executive director of merchandising, said the issue of vendor consolidation is "not currently being addressed on magazines actively."

However, the chain, which operates some 2,500 company-owned and franchised stores throughout the Sunbelt, is "evaluating principles of supply-chain management," Jones said.

"We are naturally just as interested as any other channel in improving the effectiveness of delivery to the stores. Any time we can find ways to do that we are interested," he said. Officials at major mass merchandise chains did not respond to requests for clarification of their current position on the reduction of magazine wholesalers, however as numerous industry members observed, Wal-Mart, Kmart and Target, due to their wide geographic coverage, each uses upwards of 200 magazine wholesalers.

Since the Safeway actions first came to light in September, said a source who asked not to be named, "Virtually every major supermarket chain, every major mass merchant and some of the drug chains are exploring this actively. There have been very few announcements to date, partly because the longer they wait, the more the situations change."

"The retail community is making an effort to streamline and make itself more efficient," said Mike McGeeney, corporate senior vice president of sales, marketing and chain relations for wholesaler Hudson News. "The reason some of us are emerging from this is that we have been professional all along. We have been a believer in this consolidation process for some time."

Meanwhile, major magazine publishers, while deeply concerned with the changes taking place in their go-to-market system, remain on the outside looking in at a process where they cannot exert much leverage. "Is this a matter of concern? Yes, some. But many publishers feel that the consolidation was inevitable," said one magazine publishing executive. "If it had to happen, it could have been worse for publishers. The [wholesalers] who are growing are mostly people with good successful professional operations. Historically, they have worked well with publishers."