Newsagents balk at rising charges

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WH SMITH, the retail chain and newspaper distributor, has infuriated newsagents by telling them that they face a big increase in delivery charges.

More than 20,000 newsagents face paying an extra £13m a year to newspaper wholesalers, including WH Smith and John Menzies, according to Retail Newsagent magazine.

The new charges threaten the existence of many of the smaller newsagents and seem certain to adversely affect the proposed sale of Forbuoys, the large newsagent chain put up for sale by Gallagher, the tobacco and spirits conglomerate.

One source close to the Forbuoys sale discussions said that the new charges might shave between 20 and 25 per cent off the chain's operating profits of around £6m on turnover of £300m.

Peter Norris of Kleinwort Benson, who is handling the sale for Gallagher, said he was still hoping for a price of more than £40m for the Forbuoys chain. Forbuoys has 700 confectionery, tobacconist and newsagent outlets in Britain and is understood to be the likely target of a management buyout.

Mr Norris said that the increased business spin-offs from the National Lottery could be enough to offset the adverse impact of WH Smith's move. But others think the sale price could be hit by as much as £10m.

The new distribution charges, known in the trade as carriage charges, were originally imposed on retailers to subsidise distribution to places that were uneconomic to supply.

At first they were a minor irritant and only represented a fraction of a newsagent's costs. But in 1988, newspaper publishers changed the distribution system so that newsagents were forced to buy their newspapers and magazines from a variety of wholesalers instead of a single one.

The newsagents were therefore forced to pay more than one set of carriage charges and claim that these were sometimes used to enable wholesalers to undercut each other by tendering estimates to publishers at ridiculously low margins.

The latest increases result from a recent decision that obliges wholesalers to supply newspapers to a whole new range of retailers, including supermarket chains and petrol stations.

This they have done by taking advantage of a clause in the Newspaper Code that enables wholesalers to levy carriage charges "which reflect the commercial and economic distribution costs in the handling of national newspapers". Some wholesalers took advantage of this clause to apply higher carriage charges to new entrants than established retailers were paying. Now, in accordance with the Code, they intend to "converge" their charges, which means increases for established retailers. The wholesalers say they now supply 10 per cent more outlets, which adds substantially to their costs.

But the real problem appears to be the way the newspaper and distribution industry is now organised. In the last six years, the number of newspapers sold per day has fallen from 15.6 million to 14.3 million but the number of wholesalers distributing them has increased. According to Retail Newsagent, the turnover of the average retailer has fallen from around 360 newspapers a day to 160. And each wholesaler is having to cover a larger area, adding to transport costs.