EXCLUSIVE: Sainsbury’s offered magazine margin and returns deal by Frontline to ‘salvage’ category

Wholesalers, distributors and multiples are working on a ‘secret’ deal to ‘salvage’ the magazine industry through changing returns and margin terms.

Better Retailing understands that distributor Frontline offered Sainsbury’s a deal whereby it would be credited for unsold copies not just based on its returns, but also on its EPoS recorded sales, with the difference being credited back to the supermarket.

In return, Sainsbury’s is to accept a margin cut on magazines down from the industry standard of 25%. Sources claimed its new margins would be 21-22%, though this was strongly contested by Frontline. Other distributors including Seymour and Marketforce were alleged to be aware of the deal.

Frontline Group chief executive Frank Straetmans said Better Retailing’s coverage was ‘misleading’ and described claims that its talks with Sainsbury’s were secret as ‘completely inaccurate.’ Asked about the margin cut, Straetmans said terms were ‘commercially sensitive.’ The chief executive told Better Retailing: “We are in constant dialogue to seek an industry solution to help retailers manage the category.”

Smiths news and Menzies Distribution also released a statement to ‘dispel rumours’ and ‘confirm their commitment to a universal supply chain.’ It said that while larger retailers had ‘expressed concerns’ over ‘managing the category’ during the crisis, there were ‘no co-ordinated plans’ to alter ‘standard margins’. It said that ‘tailored supply arrangements for multiple retailers’ are ‘an established feature’ of the industry. Menzies Distribution chief executive Greg Michael said there was “nothing secret or underhand” in these supply arrangements with multiple retailers. The statement made no comment on claims of a change to EPOS based returns crediting. Describing its commercial terms with multiples, Michael commented: “Nobody benefits if, as an industry, we are not listening to our customers or open to new ways of working.’

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Confidential sources confirmed supermarkets had warned distributors they were considering axing the magazine category during the pandemic due to staffing issues preventing magazines from being returned on time, resulting in high shrinkage in the category.

They said this was due to Smiths News withdrawing its InStore merchandising service at short notice from Sainsbury’s sites. Similar failures by Menzies’ merchandisers to handle magazine returns for Aldi led the discounter to remove magazines last year.

One confidential source described the deal as allowing Sainsbury’s to ‘bypass’ standard returns procedure by introducing  “pay and scan by the back door.” Another claimed it represented the largest change to the magazine category in more than a decade.

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Other multiples were alleged to be ‘furious’ about the deal only originally being offered to Sainsbury’s, though this was strongly contested by Frontline Group. Sourced claimed other multiples are now looking to renegotiate their own supply terms on a similar basis to Sainsbury’s.

Sources added the move is likely to have ramifications for independent stores, with one describing a lowered margin in Sainsbury’s as “the first domino” and suggested the NFRN should again challenge retailer carriage charges to protect margins in independent stores.

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The changes in terms come after publishers, distributors and wholesalers reported significant volume drops from sites closed due to the pandemic.

However, the convenience sector reported significant growth as part of the trend of customers shopping local.

Find out more on our coronavirus information hub for retailers