MEGA CHAINS AGREE TO DEAL WITH PRIMEDIA EXCLUSIVELY

LARRY LITTMAN

CINCINNATI -- Kroger Co. here and Albertson's, Boise, Idaho, seek one source of distribution by signing exclusive agreements with New York-based publisher Primedia for the free directories and other publications found in most vestibules of supermarkets around the country.

The April 6 signing with Kroger boosted Primedia's network distribution of its Apartment and New Homes Guides by 14% to 17,500 outlets, according to the company. This deal followed an announcement earlier this year in which Primedia said it increased its distribution network by 1,300 locations in the South and West through a similar signing with Albertson's.

An official for Albertson's said American Stores Co., Salt Lake City, which had merged with Albertson's last year, was using DistribuTech, Norcross, Ga., the distributor for HPC Publications, the Primedia company that publishes the apartment and new homes guides. "So we decided to go with one source," he said.

Kroger declined to comment on its arrangement with Primedia.

For retailers, the distribution of these publications allows them to provide their customers with a free service and be paid for it by the companies. Contractual agreements vary. Primedia's arrangement with Kroger and Albertson's calls for a set fee, long-term contract, said David Crawford, vice president and director of DistribuTech, Norcross, Ga., the distribution division of Primedia's HPC Publications.

According to the company, DistribuTech annually delivers over 24 million HPC magazines to over 42,000 locations. The publications are displayed in the pockets of racks designed by Primedia. They are also managed and organized by DistributTech. The distributor also leases pocket space in the racks to more than 1300 non-HPC free publications.

Crawford noted that grocery stores account for 40% of their distribution; mass merchandisers, 35% and convenience stores, 25%.

"As these megaretailers are consolidating, they have to find ways to simplify management. Centralizing these arrangements is one way of doing it and it gives the retailer more leverage in dealing with other operations," said Bob Hilarides, a partner of the consulting firm Cannondale Associates, Wilton, Conn.

Primedia said its agreements with Kroger and Albertson's gives the company between 65% and 100% coverage of the retail outlets available for distribution in many markets and replaces its leading competitor, United Advertising Publications, Dallas.

"As a result of these two key distribution deals, our competition has lost much of its traditional distribution network in these markets" said Tom Rogers, chairman CEO of Primedia.

However, Lee Mednikow, executive vice president of Advanced Distributing Co., Dallas, the distributor division of United Advertising Publications disputed Primedia's distribution coverage figures and the tone of the announcement.

"The Primedia announcement gives the impression that we lost these accounts," said Mednikow "In the case of Albertson's, we did not want to go into a lot of the stores gained by the company following the merger with American Stores. Previously, the distribution was done locally. They wanted to consolidate it and have one program. We wanted limited investment so we chose not to continue the arrangement."

He also questions the 65% to 100% coverage figure that Primedia is reporting. "First of all, there are a lot of retailers that do not have formal contracts, but they still have free publications. Second, with Kroger, we still have existing agreements with many Kroger stores, some of which go into 2004. In many of these we have first refusal rights, so at that time we will decide whether we want to meet their offer." Mednikow did admit, however, that "we have been moving away from supermarkets.

"In 1990, about 70% of our distribution was through supermarkets. But the supermarkets' rates are escalating and other outlets -- book superstores, coffee shops, office-supply chains, and restaurants -- are springing up with much more reasonable rates. There is a point in which the investment in supermarkets is not warranted. Many of the types of stores that exist today did not exist in 1990, and we can replace one supermarket with three or four other outlets at a lower rate."

"Prices are getting to a level where it doesn't make sense anymore," said Chip Gilbert, director of National Media Systems, the wholly owned subsidiary of Norfolk, Va.-based Trader Publishing, another company in the free publication business. "There are no circulation figures to justify these costs. And many publishers are looking into less expensive outlets." He predicted a lot of empty pockets in supermarkets' free publication racks as a result of such deals.