WH Smith angers the market with Tesco deal

A Powerful coalition of publishers and retailers is set to report WH Smith to the Office of Fair Trading for allegedly creating a monopoly in magazine distribution.

The concern centres on a deal struck between WHS News, the wholesale distribution arm of the retailer, and Tesco. Under the arrangement, WHS will exclusively supply the magazines to all of Tesco's 660 British stores from spring 2001.

It is also understood that WHS, which is run by Richard Handover, is now in talks with Asda and Sainsbury's about securing similar arrangements.

However, the deal has alarmed publishers and independent retailers, who claim that it could threaten around half of the 39,000 independent newsagents in Britain, from which around 45 per cent of magazines are sold.

Last Thursday, trade bodies representing magazine publishers, wholesalers and news agents held a meeting to thrash out a programme of action. It is understood that they are now seriously considering reporting the matter to the competition authorities.

Said one insider at the meeting, who asked not to be named: "We are very alarmed as WH Smith has turned the whole market upside down.

"Magazine distribution has always been done on a geographical basis, where a wholesaler covers a particular region. But WH Smith's deal means that in a stroke, a major volume retailer will be taken right out of the food chain.

"Wholesalers will have to pass on the cost of losing the business to the supermarket to the smaller retailer."

The source predicted that some retailers will decide that it is not profitable to continue selling magazines.

Ian Locks, chief executive of the Periodical Publishers Association, one of the groups represented at the meeting, said: "I don't know whether WH Smith will back down, so we are now looking at different models and scenarios." Asked if he planned to report the matter to the Office of Fair Trading, he said: "If we did, it would be as joint industry initiative."

David Daniel, corporate affairs manager of the National Federation of Retail Newsagents, said: "We are very concerned as the deal has very wide implications. As well as hitting the retailers it will also hit publishers.

"They will suffer the knock-on effect because many specialist publications are only stocked in independent stores. This could affect around 3,000 magazines, so it is also very much a consumer issue as well."

David Taylor, WHS's supply chain development controller, denied that the deal was bad for competition and would hit small retailers.

He said: "All the modelling we have done shows that independent retailers will retain their market share."

He added: "Distribution to the independent sector accounts for 40 per cent of our business so they are thoroughly committed to the sector."

And he said that distribution had no bearing on how retailers perform: "The way in which product is supplied is irrelevant to the share the retailer gets. A retailer stands or falls by its consumer offer."