Tesco

Tesco has become an increasingly important force in magazine retailing. Tesco buyer David Cooke claims the group now has a 13½ percent market share on magazines - "not quite as big as the combined Smiths but they're in our sights, though there's a way to go still."

Mike Mirams of COMAG says that Tesco, as a magazine sales outlet, is now bigger than Smith's High Street; and for IPC, Tesco is the single largest multiple retail customer.

Ian Locks of the PPA says "Tesco is undoubtedly the leader of the pack in terms of magazine sales and the seriousness with which they pursue them."

But how important are magazines to Tesco? Out of what's expected to be over £40 billion turnover this year, news and magazines will contribute about £400m – just one per cent. About half of that goes to news, though that's mainly through the Express and Metro outlets – the magazine sector is more important in the larger stores, which are skewed about 60-40 towards magazines.

But Tesco still appears committed to the sector. It's getting good growth out of it – magazines are growing at 7-8 percent once new store openings are included. David Cooke says "That's pretty decent growth in a market that's flat", though he admits Tesco doesn't know whether it's stimulating new sales, or just taking market share away from other retailers.

Range policy

All the supermarkets are now selling magazines. But Tesco has differentiated itself over time. Jim Bilton, managing partner at Wessenden Marketing, an independent marketing consultancy, says "they've really been extending their range over the last few years, and that sets them apart from the other supermarkets." That's been particularly the case in the larger outlets.

David Cooke put some numbers on the range extension. "In May this year, we put an extra 20 percent on our range – an extra hundred titles in all." That took the range from 480 titles to 580. The range extension should add an incremental £3m to Tesco's turnover and gives Tesco the largest range of any of the supermarkets. It's still less than the average high street WH Smith outlet, which stocks 900-1,500 titles. But then Tesco isn't looking to be a destination retailer for print media – which Smiths is.

Cooke also points out that the range extension is focused. "We've increased it mainly in specific sectors – leisure, current affairs, and lifestyle." For those who remember when the major choice in supermarkets was between Good Housekeeping and Family Circle, that's a big change.

Mike Mirams sees this extensive range as a key differentiator and a key opportunity for COMAG; "Tesco has been much more active in extending its range than other retailers," he says. And Kevin McCormick, circulation director at IPC, points out that Tesco's move into other new product areas will help publishers too. "As Tesco moves into new categories, that presents us with a new opportunity to sell related magazines." He's intrigued by Tesco's move into equestrian products - not a traditional supermarket area.

Tesco's policy has been to hard range its titles – as do all the other supermarkets – but recently it has been trying to do more with its supplementary titles. David Cooke explains, "We have an optional list of 300 titles that stores can supplement from. We've left some vacant slots in the range for optional titles."

Tesco has also been trying to manage the diversity of its outlets better. For instance it has identified stores with high ethnic populations and started providing relevant titles. "We're trying to do ethnic better," says Cooke. "We put 30 Asian titles into our Slough store last August, and we've rolled out to ten stores so far." He sees stores with a strong Polish community as another opportunity.

Mike Mirams believes Tesco is trying hard to get the right balance between head office efficiency and local sensitivity – retaining control of purchasing while allowing local management to serve their customers' specific requirements. "They do try to adapt to local conditions, but it's driven from head office. Even so, in this regard they're ahead of all the other supermarkets."

But, David Cooke says, although Tesco has expanded its range, many customers still don't think of Tesco as a magazine retailer, or expect the range to be limited. "We need to challenge people's views of what magazines we do and don't stock. And we need to highlight magazines in store a bit better."

Tesco has just started a project that will look at signage and promotions for the news and magazine sector, to assess how they can be improved. But the desire to promote magazines better has to be tempered by corporate policy.

"We don't want to litter the store with promotions," Cooke says. "We need to make sure the Tesco brand is strong," so, to some extent, that limits the brand messages from publishers to a subsidiary role.

There's another limitation on the magazine sector, too. So far, the range extension has taken place without giving the section more space in store. "We're putting more titles on the same shelves," says David Cooke, "so we're making the existing space work harder." For instance, Tesco is now not holding stock on the fixture. That enables more titles to be carried but with fewer copies of each on display. "If we want to expand the range further, we'll need more space," he admits.

That brings the sector into competition with Tesco's other product ranges. It's a battle David Cooke feels he can win, since, though magazines are not huge in terms of Tesco as a whole, the area is one of the biggest hard lines in store.

Publisher perception

Publishers who sell to Tesco appear to regard the firm warmly, despite its reputation as a tough customer. Mike Mirams of COMAG admires their openness and willingness to communicate – but also their commitment to clear goals. "We talk to them an awful lot – at all levels. They're very open, and very focused. They'll say to us at the start of the year, these are our objectives. And there's a very clear business focus on what we're going to do together to achieve them."

Kevin McCormick also admires Tesco's professionalism. "I think there's a very open working relationship; Tesco is able to be very clear with IPC and Marketforce about its business objectives. And they're willing to listen to us when we need their support."

But there's also a lot of respect for the fact that Tesco will put real resource into the job. Tesco has a whole team, not just a single buyer, working in the news and magazines area – it's well able to support and control its expanded range of titles.

Kevin McCormick believes that support for the sector comes right from the top. He says "magazines are an important category for Tesco and I think there is senior management buy-in. That's why we have the size and quality of the buying team within Tesco."

Jim Bilton also admires Tesco as a retailer, and he believes one of the company's key strengths is the amount of data it gets from its Clubcard programme. "It provides some really important data on where sales of a title come from." That helps Tesco, but the data is also made available to publishers who want to understand their readership better. They have to pay for it, of course, but it's provided on an arm's length basis by dunnhumby – there's a clear ratecard and no horsetrading involved.

Tesco has also done its own research on what customers want and sometimes comes up with unexpected results. In 2005, research showed that, while many women were happy with the range of magazines, their male shoppers wanted more relevant titles – not so much lads' mags as more depth in such sectors as motoring. As a result, Tesco is now offering single-car titles, not just Top Gear.

But the core of the range remains TV listings, women's interest, and children’s magazines. Though David Cooke says "anything that's weekly will do well for me," he thinks Tesco superstores have a high share of the children's market. "With kids, we probably have a share of 15-16 percent, ahead of our overall market share, because we have family shoppers." The BBC CBeebies magazine has done particularly well – and of course it's weekly, too.

Tesco has been seeing real growth in magazine sales, and it hasn't just been creaming off the top titles. Indeed Ian Lock, of the PPA, believes that "supermarkets have driven a lot of new titles, particularly weeklies" so potentially Tesco has helped develop the market. That creates a good opportunity for publishers to increase their copy sales.

What Tesco wants

But, what do publishers need to do to maximise their opportunity? David Cooke says, "first, get the product right, and then make sure it's available. We don't make magazines and the publishers haven't got shops, so we do need to work together!"

But Mike Mirams warns it's not quite that easy. When Cooke says "available" he has some quite specific – and challenging - targets in mind.

"Process is crucial," says Mirams, "this is a complicated category for any retailer to handle, and we have to make it easier." There are a number of angles to this, including IT systems and information, but logistics is the crunch issue.

Jim Bilton says that "a big Tesco priority is to get the supply chain right, to get the back end right and get it to lock in to the range they specify. That makes availability and range the two big issues." So publishers can't just trust their wholesalers to get it right – they need to be actively involved in the process. For instance, Tesco has been at the forefront with regard to sales-based replenishment (SBR) – putting an end to the 'monthly dump' of copies and requiring more, and more frequent, service.

Kevin McCormick says, "we have to work with Tesco to find a way to maximise sales, but ensure we achieve optimum availability and that no longer means supplying all the copies on day one." That can be a difficult balancing act and Tesco has very specific targets to meet, measured by key performance indicators.

Mike Mirams warns that "it can be difficult for some magazine publishers to meet the kind of targets that Tesco expects. And the volatility can be quite extreme, compared to food for instance, with promiscuity between different magazines in a sector and the fact that it's a casual purchase. So that creates waste." Publishers who supply Tesco can no longer try to manage the print run to provide only just enough copies – they need to have surplus stock for contingencies.

Ian Locks says this makes Tesco's growth a mixed blessing. "Tesco can increase your sales – but it can also increase your waste." He believes 280m copies a year are wasted in this way, and that obviously increases the publisher's costs.

The trouble with magazines …

Jim Bilton says, though, that Tesco has done well to make sense of the sector. Supermarkets, whose traditional business is food, find magazines a complex product to sell. It's not just having to deal with the fact that each month's copy is effectively a different product – unlike a sausage which remains exactly the same product all year – or the volatility of sales, but the fact that the supply chain is not simple.

"From a buyer's point of view," Bilton states, "it's a horribly fragmented sector." There are a number of distributors, instead of a single national one, and because of the division of work between distributor and publisher, accountability is an issue. "In other product categories there is one national supplier you can beat up if things don't go right." That's why Tesco is so demanding – and both publishers and distributors need to be aware of the whole supply chain, and be ready to work with Tesco on the issues.

Supply chain dynamics

Of course that's true across the supermarket sector as a whole, but Tesco appears more rigorous than some of the other chains in its approach.

Of course Tesco stirred things up a while back by advocating national distribution as a means of rationalising the supply chain. However, it seems to be taking a pragmatic approach now, perhaps reckoning that it is more likely to get good service by working with the existing distribution setup than by trying to demolish it.

Ian Locks believes Tesco is less concerned with the nature of the supply chain itself than with the issue of delivery and availability. "They want better service, and they appear to be less concerned with who provides it than with getting the service levels." The political debate on distribution arrangements is no longer of interest to Tesco, he believes – though it remains a key issue for his members.

In terms of promoting magazines in-store, publishers may find they have relatively little leverage. Cross promotions, for instance, appear attractive in theory but are "quite difficult to arrange" in practice, says Mike Mirams. On the other hand, he believes conventional promotions can work well with Tesco. Paying for promotions "is not an issue", he says, as long as the publisher gets a good return on investment. And since Tesco is realistic about the value of promotions, and doesn't try to squeeze the publisher too hard, it tends to deliver a good return.

Kevin McCormick says publishers don't have much power over what other magazines Tesco might take, or how they will be displayed. "Tesco makes its own decisions on range and adjacencies, though they are open to our input." Instead of being entirely focused on trying to compete with other magazines, he believes publishers are better served by also focusing on supporting Tesco to grow the overall category, trying to get the right mix of titles to maximise Tesco's magazine sales as a whole - even if that may mean selling a slightly different mix of titles than through other outlets.

While Tesco has a reputation for slicing margins to the bone in the food sector, Jim Bilton says that's not the case in magazines. Since Tesco is dealing with wholesalers, not with the publishers themselves, margins aren't open to free negotiation. And since, generally, there's no price cutting in magazines, trade funding isn't an issue. That's borne out by Mike Mirams who says, "margins are not the big issue with Tesco – it's really about driving sales."

Mike Mirams believes "Tesco wants to be a good outlet for us to supply." Perhaps he wouldn't say that of all the supermarket chains.

But there are potential downsides to Tesco's increasingly strong position. First, the supermarkets generally have destabilised WH Smith's high street stores – and a strong Smiths is vital for the publishing sector, says Jim Bilton.

But equally, despite new store openings, Tesco's total space is limited and each category not only has to earn its keep, but to compete against the others. As Tesco introduces new non-food categories, such as electricals and garden furniture, and the percentage of non-food increases, magazines may come under pressure to justify their space.

So that, though it's growing nicely at the moment, if Tesco ever does need to cut its magazine range, the effect on publishers would be dramatic. Jim Bilton's in no doubt about the risk - "it makes Tesco long term pretty scary!" he says.