Shopper’s Friend is closing down. This was confirmed by Paarl Media CEO, Stephen van der Walt, who said a number of factors had called into question the viability of the free-to-home loose leaf advertising model.
Van der Walt says changes in the legislative environment, particularly in the transport sector, had impacted on the business, and increasing calls by unions to kill off the labour broking industry would put the nail in the coffin of this particular distribution model.
Add this to that the fact that it is a highly competitive business, which requires high volumes and low prices to “justify investment”, and the picture no longer looks as attractive as it did just a few years ago.
Besides which, Paarl Media and Caxton have been involved in a long running tussle at the Competition Commission that has seen the two big media players slugging it out in costly and time-consuming battle for dominance in the free-to-home advertising leaflet distribution business.
They also battled at the Advertising Standards Authority (ASA) over an advertising brochure that was used to promote Shoppers Friend as a medium to distribute loose inserts. Caxton took exception to various claims made by Shopper’s Friend, and the ASA was left to decide on the case.
All in all, it hasn’t been an easy ride. So it’s hardly surprising that Paarl Media has taken the decision to “question the viability of the business”.
“Shopper’s Friend no longer forms part of our core business,” says Van der Walt. “It doesn’t align with our strategy and so rationalisation is required. It’s a baby amongst elephants.”
The ‘elephant’ Van der Walt refers to is the fact that Paarl Media won a government tender to print, bind and distribute over 58 million workbooks to schools across the country (NOT textbooks, Van der Walt is at pains to explain.). It’s a massive undertaking, using the company’s various printing works and its logistics company to ensure delivery of these vital educational tools.
To date, Paarl Media has delivered 98.7% of the workbooks. The outstanding 1.3% of surplus stock is there to ensure pupils who move schools will still have workbooks, wherever they go. To put the volumes in perspective, Van der Walt says the number of books distributed would reach to the moon and back SIX times.
Shopper’s Friend is dwarfed by an undertaking such as the workbook project and Paarl Media’s planned expansion into Africa.
“When we launched Shopper’s Friend, we saw an opportunity to provide clients with a free to home delivery system. It’s an outsourcing game, where we needed to reach over a million people. That meant distributing street by street, and bibs for the agents plus distribution via trucks. This required numerous arrangements with sub-contractors and contract workers.
“But it was also seasonal, in that it took place three days a week. In the southern hemisphere, unlike in the north, we have one ‘peak’ a year – the run from October to December. We don’t have a winter high and a summer high.
“We also offered a more sophisticated mechanism in terms of distribution that would track agents so we could eliminate dumping. We could physically map and track agents,” Van der Walt explained.
But the model became increasingly expensive as the environment changed. And Shopper’s Friend simply couldn’t meet its customers’ price expectations.
Transport legislation now requires that the trucks have a canopy, benches, safety belts and a certain weight over the axles. A trailer would carry the materials. This means upgrades, and increased costs. “Labour brokers are going to have to look at the way they operate too, and that will lead to increased costs,” says Van der Walt.
Add to this mix the fact that Paarl Media’s acquisition of Primedia@Home for distribution brought into play a long-running dispute with Caxton, which brought in the Competition Tribunal, and Shopper’s Friend is no longer the attractive proposition it once was.
In short, Paarl Media bought Primedia@Home and, Van der Walt says, “did the right thing” by reporting the acquisition to the Competition Commission, despite it being under the threshold that requires reporting. The deal was given unconditional approval. However, Caxton objected to the merger and asked the Competition Tribunal to review the deal.
The Competition Commission then reversed its decision, saying the transaction would substantially lessen competition in the market for knock and drop leaflet distribution.
“When the Competition Commission completely reverses its own decision on the same set of facts, the resulting commercial anarchy bodes ill for economic growth and jobs in future.
“Any attempt to undo the merger will mean the loss of over a thousand jobs. With this inexplicable reversal the reputation of the Competition Commission suffers a grievous blow,” said Van der Walt at the time.
“The issue with Caxton and the Competition Tribunal gave our clients a massive perception problem,” says Van der Walt now. “I must confess that it weighed heavily on our minds. It’s been going on for over 18 months. You have to ask if it’s worth it. How do you operate in this kind of environment? ”
You don’t. Or rather, not optimally. “When we looked at all of this, plus our strategy that is taking us into Africa, and the logistics that what we’re doing in Africa will require, well, Shopper’s Friend has to close,” Van der Walt says.
This does mean retrenchments but Van der Walt says “core skills will be retained”. He says retrenchments will be “less than 100 but more than 50”. But unfortunately, those with ‘non-core” skills will be the ones to go.
Van der Walt says clients of Shopper’s Friend have been told, and the company will honour existing contracts until a suitable alternative is found.