Newspaper Supply Chain

John McDonnell Excerpts

Wednesday 19th March 2014 Westminster Hall

[Priti Patel]

I completely agree. That is the reality of what we are dealing with. It is not a new problem; it has been going on for decades. There is a lack of negotiation, and newsagents are just a second thought. Any newsagent will be able to wax lyrical about the poor service they receive. From my experience in my parents’ shop, I have seen the supermarket down the road getting its newspapers first. When the newspapers are taken off the lorry, the independent newsagent is bypassed completely. That is simply not acceptable, but the wholesalers operate a virtual monopoly.

It is astounding that despite the monopoly conditions to which independent retailers are subjected, the Office of Fair Trading decided in 2009 and 2012 against referring the matter to the Competition Commission for further investigation. There is a strong case for opening up the sector and looking at the way those organisations are governed. That outcome is grossly unfair to the tens of thousands of independent newsagents who, as I know, are up at 4 am—before dawn—to serve the public. They work long hours to deliver a service for their customers, but they are forced to accept declining margins, higher charges and appalling service.

In my capacity as chair of the all-party small shops group, I am frequently contacted about this issue. I receive regular communications from newsagents across the country about the problems they encounter as a result of the lack of competition in the wholesale market. If a newsagent is dissatisfied with the products they sell and the terms and conditions they receive, they are hemmed in, because there are not many places for them to go. When it comes to general products, an independent newsagent can go to many cash and carries—of course they can, because there is competition in the marketplace—but they are limited as to where they can go for newspapers and magazines. There is simply no other avenue, which is why so many newsagents feel aggrieved. The market is stacked, rigged against them, and the Minister must review that.

The consequences of a lack of competition in the wholesale market and the dominance of the relationship between the publishers and wholesalers over independent retailers are profound. Notably, the margins that newsagents receive on newspapers are declining, and fast. Just as the cover prices of newspapers are set by the publishers, so too are the margins that retailers receive. When prices increase, the share that the retailer receives does not always follow. Some newspapers, such as The Telegraph and the Express, have accompanied their recent price increases with a pro rata rise in the amount received by the retailer, so that the margin remains the same. Many others, however, have not done so. The Mirror, for example, did not pass on a pro rata rate when prices increased from 70p to 80p in January, with the percentage received by retailers being slashed from 22% to 21%. In Scotland, the equivalent margin fell from 23% to 21%. Since January, it has been reported that one particular publisher has cut the margins received by retailers for 65 out of 138 titles.

It is understandable that publishers and wholesalers are looking for savings and efficiencies; I understand that the marketplace is changing. However, the arbitrary nature of decisions to cut retailers’ margins seems harsh—it is a blunt instrument—and the effect on profitability is pretty stark for independent retailers. I hope that the Minister will look into that aspect of the relationship between wholesalers and publishers.

On top of the fact that margins are being eroded, newsagents face higher costs from what are known as carriage charges, imposed by wholesalers. Originally introduced after the first world war to protect the universal availability of newspapers and their distribution to remote areas, carriage charges have soared over the past 20 to 25 years. I know that because my dad always used to complain about them. Despite the falling volume of newspapers and magazines being sold and distributed, carriage charges are rising and now represent the primary source of profit for wholesalers.

It says something about the effect of carriage charges in recent years when an increase of 2% announced by Smiths last summer was welcomed by some newsagents. That puts the figures into context. The fact that the steep rise in carriage charges has coincided with the signing of exclusive distribution deals between publishers and wholesalers, and with the collapse of competition among wholesalers, adds to the injustice that independent retailers feel—it is the icing on the cake—with a duopoly in place and the OFT failing to take action.

[John McDonnell (Hayes and Harlington) (Lab)]

I think the hon. Lady’s dad was right. We debated this issue in this Chamber 10 years ago, when there were more wholesale distributors. We are now down to two, but they have cut their nose off to spite their face; they have forced the costs on to retailers, and now corner shops are going out of business and circulation is declining. Short-term profit-making is significantly undermining the entire industry in the long term.

[Priti Patel]

I completely agree with the hon. Gentleman. The shops that we are talking about are the lifeblood of many communities. I have seen, over 35 years, a massive change; there is no doubt that we have seen many big changes. Increases in carriage charges are relevant not only to Great Britain but to Northern Ireland. Newsagents there have faced huge increases in the past 12 months alone. I would be interested to hear from the Minister about where there is scope to review the changes to carriage charges.