To the door

Newsagents have been doing home delivery for years. But increasingly, newspapers are considering whether creating their own home delivery networks makes sense. More efficient home delivery, it’s hoped, can increase circulation and improve the stability of sales.

Some newspapers do extremely well with home delivery. The Daily Mail is well over 20% home delivered, says Neil Jagger, circulation director at Mail Newspapers. He believes the Telegraph has got close to 40% – while the Daily Star, primarily an impulse purchase, has only a couple of percent delivered. That puts the Mail pretty much in the middle of the range for nationals.

"We sit round about 27 or 28%, based on straw polls," he says, "though there’s always a bit of guesswork involved."

You might not think of the FT as prime material for home delivery; a vast amount of its circulation goes to city offices. But in fact, it’s grown a tidy little home delivery business, which Martin Ashford, its UK circulation director, says "is a major thing for us, and a source of good growth."

The FT’s total UK and Ireland circulation stands at 136,000, of which 6 to 7% is subscription based. But Martin Ashford says, "If you take out the multiple copy sales and look just at the newstrade sale, which is 90,000, it’s more than 10%." And home delivery is significantly higher in London, where the FT’s delivery network is densest.

Martin Ashford notes that home delivery is the usual method of distribution in many other countries – though traditionally not in the UK, perhaps because the newsagency trade has been comparatively strong here.

Regional papers are also promoting home delivery, often filling in with their own service where newsagents don't provide a service. Some have also taken over routes from agents who are retiring or ceasing delivery. Here, the NFRN’s Homelink also provides a route to market – used as an intermediary through which orders from individuals can be passed to newsagents. At the South Wales Argus, 50% of circulation is now delivered.

Home delivery is certainly not a new idea – Rob Rice, home delivery canvassing manager at the South Wales Argus, has been increasing his delivery numbers over the past eight years. Martin Ashford says direct delivery for the FT was set up more than ten years ago, though initially it was seen purely as a service for a few customers, rather than as a separate business opportunity.

Changing times

However a changing society appears to be changing the demand for home delivery, if still mainly at the margins. The FT has probably seen the most radical rethink of delivery systems; it’s been forced to it by earlier opening hours on the stock exchange. And Neil Jagger says that, "The more we move towards flexible hours and working at home, the greater is the opportunity for home delivery." If readers are no longer commuting, they’ll not be picking up the paper at the station.

And they may not be picking it up in the High Street, either. While demographic and social changes get most of the headlines, Martin Ashford thinks property prices will hurt many retail newsagents. The price of retail space is rocketing, and newsagents can't compete with coffee shops in profitability per square foot. If he’s right, there may be no High Street newsagents left in some towns in a few years’ time – in which case setting up a decent home delivery network could be one of the smartest things a newspaper can do.

Managing costs

However, as Peter Wagg of the NFRN warns his members, home delivery has to be properly costed or it can be ruinous to the operator. Some newsagents are charging far too little for the service. Neil Jagger agrees. Subsidy isn't sustainable in the long term, he believes; "Make sure that you cover the cost of delivery by charging your customers the right amount – otherwise you’re not going to have a home delivery network for long."

However, some newspapers provide home delivery for free. For a newspaper, standalone profitability of the home delivery network is not vital. If home delivery increases the circulation, and hence advertising rates, then a subsidy can be justified – the newspaper is gaining additional income, though not within the delivery network itself.

Making it pay

The size of newspaper delivery networks should not be underestimated. Martin Ashford points out that with three million deliveries a year, FT Direct is "roughly in the same territory as Ocado," Waitrose’s delivery service. Of course, the average value of an Ocado delivery is many times the value of a newspaper – and it’s this that is the major limit on development of home delivery for the FT.

While central London works well for the FT, in other areas "the lower density of drops certainly makes the economics harder," Martin Ashford admits. "It’s subscale in some of the outer areas."

This is where newspapers operate at a disadvantage to newsagents, since they can't put other products through the network. A newsagent, on the other hand, can add magazine subscriptions or a second newspaper to the drop – gaining important incremental revenue. Martin Ashford believes the prospects for FT Direct would be transformed if the business could get larger volumes by carrying other UK national papers. So far, none have joined, but the FT is holding conversations with some of them.

Customer acquisition ...

Besides costing out the delivery network, newspapers also need to account for the cost of customer acquisition. These costs can vary dramatically. For instance, at the South Wales Argus, twice yearly promotions pay a £5 bonus to the youngsters who deliver the paper for each subscription they can sign up. The additional costs are minimal – leaflets are produced in house, and there are some competition prizes. Telephone canvassing is used on a more continuous basis to bring in new subscribers; again the costs are fairly low. But, with a cover price of only 38p the Argus can't afford – and doesn't need – a glitzy campaign.

The Financial Times too has some low cost acquisitions, where subscribers come from the website, at minimal cost. But Martin Ashford says outbound telephone canvassing, particularly as a follow up to direct mail, is a more potent – though more expensive – means of gaining customers.

Introductory deals usually offer a customer discount; a number, like the Daily Mail, offer a sweetener at the end of the initial period, such as a Marks & Spencer voucher. Neil Jagger admits that for the Daily Mail, the cost of acquisition is high; "but look at the lifetime value of these customers," he adds. "A customer is worth £200 annually to us in advertising terms – and this costs much less than that."

... and retention

Customer retention with introductory offers can be quite low. Rob Rice says that in promotions, about 18% of readers fall off after four weeks; he characterises these as "the paper just isn't their cup of tea." After 12 weeks – once the promotional offer (a pound off the retail price for ten weeks) has ended – 40% of customers will have fallen off. So for next year, the paper is considering extending a further 50p off offer for the next 10 weeks, to see whether the eventual retention can be increased from 60%.

The Daily Mail sees around 25% of customers on the promotional schemes drop off over three months. The FT does slightly worse; Martin Ashford says, "We may only retain 30% of our customers when it clicks over to a full rate subscription" after the three month introductory offer. But once customers are through the initial period, they usually stay for a couple of years – and that is where the investment in marketing is recouped.

Delivery schemes

Delivery schemes work in various ways. Many regionals still use the traditional paper round with youngsters walking or cycling the route. The FT, on the other hand, outsources its delivery to a company which uses subcontracted owner drivers, working from a central warehouse in Barking. (In fact, since the first copies go out at midnight and the aim is to practically guarantee delivery by 7am, it couldn't legally use children to deliver.) The same company also delivers the International Herald Tribune, Wall Street Journal, and USA Today – getting some of the economies of scale that wouldn't be available to the FT on its own.

The timing of print runs is crucial. Neil Jagger points out that for the Daily Mail, an early morning delivery is out of the question. He says, "The prohibition as far as we’re concerned is simply our print time. We finish at 3.30am and you can't get into anybody’s distribution chain then. The FT prints earlier than we do – but they’re not bothered about football results." He’s not likely to ask his editors to miss those out!

Problems with Homelink

While both the NFRN (with Homelink) and the newspapers appear to agree that home delivery has an important role to play, they don't seem to agree on who should be doing it. Some newspapers are critical of Homelink since it can't guarantee coverage; Martin Ashford says, "It isn't a proper network as there are no SLAs (service level agreements)." He says while Homelink might work elsewhere, it’s very difficult to get service in central London – which of course is a crucial area for the FT.

Neil Jagger says that his information shows only 70% percent of Homelink orders for the Mail actually start. "We are able to secure orders, but in many cases retailers are unable to supply." And he believes that newspapers are still spending too much time on what he calls "amateur retailers", because the quality of delivery services varies so greatly. That’s echoed by many regional newspaper circulation managers. Many are more than happy to support their best retailers, but now have their own distribution as a backup for areas where no newsagent is offering the service. The South Wales Argus even has a policy of buying up rounds for a nominal sum where the newsagent wants to discontinue deliveries, rather than lose the extra sales.

Apart from practicalities, though, newspapers want to take more control for strategic reasons. Neil Jagger notes that with traditional home delivery through a newsagent, all the information on customers is held by the retailer, making it difficult for the newspaper to exercise effective CRM. And Martin Ashford points out that, "The FT’s brand is in the hands of its distributors" - so even though it doesn't run the home delivery service itself, the newspaper wants assurance that the selection, training and motivation of staff will be top notch.

Rob Rice also believes the paper should have a direct link to the customer. He says, "Cancellations and amendments are phoned directly through to our office on a freephone number – there is no middleman." This puts the Argus firmly in charge of the customer relationship.

Supporting the trade

It would be wrong, though, to imagine that the relationship between newspapers and agents is necessarily antagonistic. Archant, for instance, has been very careful with the Eastern Daily Press and Norwich Evening News to offer home delivery directly, but to continue at the same time to support newsagents who are running their own home delivery rounds.

The FT too is aware of the sensitivity here. Martin Ashford says the focus is on single copy orders going to individuals. "We’re trying not to tread on the newstrade’s toes" by taking company deals, he claims.

He believes the FT did ruffle feathers in the newstrade when circulation was headed downwards, a few years ago. Newsagents saw their sales of the paper dip, and assumed it was due to FT Direct taking off their sales, rather than to circulation issues. Since last year, newsstand sales of the paper have been rising, and this seems to have defused the issue.

Although there’s a lot going on in home delivery, there doesn't appear to be much technological change. Even satnav isn't really necessary, says Martin Ashford, pointing out that, unlike delivering parcels, newspaper distribution is steady work; once the driver has found the destination for the first time, he can just carry on delivering for months or even years. In fact, he believes the most important factor in getting home delivery right is just getting the right information up front - "We do ask questions like what colour is your front door," as well as offering a choice of whether the newspaper should be delivered through the letterbox, or half way through the letterbox.

Home delivery so far also hasn't linked in to other CRM initiatives such as reader offers. That’s partly due to the data ownership issues Neil Jagger identified. But he is now beginning to work more actively with data, getting information from retailers on people who have newspapers other than the Mail delivered to their homes. An offer can then be made of the Mail at half price for three months, alongside the other paper.

Home delivery certainly can work very effectively to lock in circulation. Rob Rice says, "Eight years ago we had 6,000 subscribers on a circulation of 30,000; now, we have 50% of our total 28,500 circulation on home delivery." It’s not proven, but would circulation have fallen much more than 5% over that period if the home delivery strategy hadn't been in place?

It’s still a moot point how far home delivery can be developed. Newsagents, while to some extent caught in a pincer movement between the internet and home delivery, are still an important shop window for newspapers – Martin Ashcroft points out that casual sales of the FT increased recently during the Northern Rock debacle. That wouldn't have happened with a 100% home delivered paper.

And he says of FT Direct, "There are real issues in terms of can this roll out further, do we want it to roll out further, can we use what we’ve achieved as a base for a better distribution system?" A delivery franchise concept could revolutionise the way papers are delivered – giving newspapers much more control, while potentially building the more professional newsagents into the system.

"It’s not something that we as a single publisher can crack," he says, "but I hope that between us as an industry we can get something done – it would be brilliant."