MAGAZINE SUPPLY CONSOLIDATION GROWS

DAN ALAIMO Additional reporting: JAMES TENSER

A move to consolidate magazine distribution within major chains is spreading with shocking speed throughout the supermarket industry. In September several divisions of Safeway, Oakland, Calif., were first to reduce the number of periodical distributors they deal with. They were followed by five divisions of Albertson's, Boise, Idaho, and Raley's Supermarkets, West Sacramento, Calif. Distribution sources also report that Stop & Shop Supermarkets, Quincy, Mass., and Wal-Mart Stores, Bentonville, Ark., are close to consolidating as well.

Other major chains, such as Ralphs Grocery Co., Compton, Calif.; Dominick's Finer Foods, Northlake, Ill.; Lucky Stores, Dublin, Calif.; Save Mart Supermarkets, Modesto, Calif.; Vons Cos., Arcadia, Calif.; and Winn-Dixie Stores, Jacksonville, Fla., are monitoring the situation as it develops, the sources said. Some are soliciting proposals from vendors, they said. "These changes are being made to consolidate the handling of all aspects of magazine and book receiving, returns and sales, and they are not a reflection of the job being done by those wholesalers being discontinued," wrote Stan Carter, marketing accounts manager at Albertsons, in a Sept. 18 memo to magazine and book wholesalers. "Additional centralization can be expected," he added. Carter faxed the memo to SN, but was unavailable for an interview. For Safeway, Albertson's and Raley's, the changes will become effective between November and January.

This far-reaching consolidation is taking place with astonishing speed in an industry where change usually comes at a very deliberate pace, supermarket industry observers noted. It is happening, in part, because wholesalers reportedly have been slow to comply with the supermarket industry's Efficient Consumer Response initiatives. "Many [publishers and distributors] would not respond to calls for chainwide or divisional billing," said an executive who asked to remain anonymous. "ECR is just now becoming part of the vernacular for us," said Frank Herrera, president of ICD/Hearst, New York, the distribution arm of Hearst Publishing. But John Harrington, president of the Council for Periodical Distributors Associations, New York, said distributors have worked to strengthen their services. "There is always some concern about the number of sources of supply and the number of vendors that the retailers have to deal with," he said. "I think a response was happening. In the meantime, it was still a very profitable category for them and it supported the rest of the store in a lot of ways. A number of wholesalers are testing electronic data interchange." Other executives in the periodical distributing business, which is already in the process of consolidating, contend that the distribution changes will have adverse consequences for the entire magazine business. "Before we see the effects, the changes will have happened already across a broad area of the country," said Michael Pashby, senior vice president of the Magazine Publishers of America, New York. Safeway's Seattle division was the first to move to the new system, trimming its list of periodical wholesalers from four to one, Adams News Co., Seattle, in early September. The northern California division followed shortly afterward, going from 13 vendors to four: the Peninsula division of ETD, Houston; ARAmark Magazine and Book Division, Sacramento, Calif.; Mother Lode News, Sonora, Calif., and Bell Magazine, Seaside, Calif. The chain's Denver division then went to one distributor, Anderson News, Knoxville, Tenn. But in that area, Anderson had bought up all the smaller wholesalers in Colorado in the last few months, said magazine industry sources. The Portland and Phoenix divisions have solicited bids from distributors and will make decisions shortly, the sources said. The Eastern division, based in Lanham, Md., has been using only two wholesalers for a few years, said John Deckard, spokesman for the division. "We are already down to a minimum number of vendors," he said. Officials at Safeway's corporate headquarters declined to comment on the changes. Consolidations at five of Albertsons' 13 divisions will be effective Dec. 4, according to Carter's memo. The western Washington division will use only Adams News, while the northern California division will buy only from ARAmark. Albertson's Florida, Rocky Mountain and Phoenix divisions will be serviced by Anderson. Some of the company's Max Foods stores are included in the consolidation. There are two exceptions: Meader Co. in New Mexico and FEC News, Lake Worth, Fla., which will continue to service Albertson's stores, according to the memo. Raley's went from six vendors to one, CalWest Periodicals, Oakland, in mid-September, said Dan Black, buyer. "We did it for the economical value to Raley's and Bel Air. It will take effect on Jan. 1," he said. Raley's had no problem with the service provided by the other vendors. "They have been doing a good job for the stores that they were handling," he said. Stop & Shop spokeswoman Mary-Jo Anderson said, "In general, it is something that we are very interested in and we are exploring the possibility of reducing the number of vendors with whom we deal." Other chains, including Vons, are watching these developments closely. "We will determine what to do at some point in the future," said spokeswoman Monet LeMon. "At this point we are not in the process of consolidating and we don't have any immediate plans to do so. However, we are doing some things internally to streamline billing," she said. Although distribution sources said Winn-Dixie is moving toward consolidation, Mickey Clerc, director of public relations, would not comment, except to say, "Winn-Dixie is looking to buy merchandise at the lowest price so we can pass it on to our customer." Meanwhile, news about the vendor consolidation among supermarket chains has rocked the periodical distribution business. "In terms of our industry, this is a very significant earthquake," said a magazine distribution source who asked not to be identified. "In the final analysis, it could end up with perhaps the retailer gaining margin, but losing sales and service. The question then becomes, will the increased margin offset what they are going to lose in sales and services?" said the source. "It's going to change the whole nature of the industry and I think it is an open question whether it turns out to have adverse or beneficial consequences. My instinct is that it is going to be adverse for everybody in the distribution chain," said the source. Because the changes are happening so quickly, and the volume involved is so large, there are likely to be short-term problems in copy allotments and other shipping logistics, said Bud Truebenbach, president and chief executive officer of Pacific Periodical Services, Tacoma, Wash. "I'm not so sure that there are not going to be some lost sales," he said. A complete restructuring of magazine wholesaling is imminent, said some observers. "This may fundamentally change the way distribution will be carried out," said Pashby of MPA. At stake is a tradition of geographic exclusivity among the 320 or so magazine wholesalers in the United States and Canada. As the industry is currently configured, wholesalers control local distribution of all periodical titles within their territories to large chain stores and smaller independents of all kinds. This structure means that most large retailers, even within a single market, are served by numerous local wholesalers, each of which employs a store delivery force to manage the racks in a few stores. This means multiple invoices, multiple negotiations and sometimes inconsistent service levels. Some people in the industry worry that the chains' actions could turn this system on its head, realigning wholesalers not by geographic area, but by the chains they cover. Smaller wholesalers who lose the big-chain business in their territories would suffer competitively. Another issue involves wholesalers who have been given special discounts because they operate in areas where unions or other problems contribute to higher costs, said a magazine industry source. This could give them an advantage as they move into other areas and have legal ramifications, the source said. Aware that a decades-old status quo is at stake, CPDA, which is a trade association for magazine wholesalers, is rushing a brochure to press that it hopes will dissuade more retailers from consolidating. Its core warning: Magazines have been high-profit contributors for all links in the distribution chain for many years. Cutting out local vendors may backfire by reducing the number of resources and depressing service levels. "Most retailers are taking hard looks at every aspect of their business, trying to cut out waste and costs where they can be identified," said CPDA's Harrington. "A chain with multiple sources of supply might think there are savings to be accomplished there. This may be illusory, especially in the magazine business." Safeway and other efficiency-minded retailers have been looking for ways to simplify department management and control service standards, he said. "We have noted an interest on the parts of larger retailers who have large numbers of wholesalers to try and consolidate. They want to get away from multiple invoices, multiple sources of supply, variable service levels and pricing," said Harrington. While members of the magazine publishing community tend to express high regard for Safeway's knowledge of the magazine category, they worry that the change will disrupt a system that has worked smoothly for decades.