James Evelegh takes a look at the VFD sector and solicits the views of Archant Anglia’s group distribution manager Steve Shepherd, the editor of The Hunts Post Paul Richardson and Martyn Gates, director of newspapers and consumer magazines at the ABC.
VFD and my old stomping ground of controlled circulation have a lot in common. Both offer free product to the reader, rely almost entirely on advertising revenue and are totally invisible to all but the recipients. Yet the majority of regional newspapers fall under the VFD banner just as a majority of total B2B circulation is "controlled".
VFD (Verified Free Distribution) is the audit scheme run by the ABC to verify the distribution claims of free newspapers, specifically defined by the ABC as a "single newspaper through a single letterbox." There are approx 700 titles in the sector of which about 90% are VFD audited. The largest title, in terms of distribution is the Manchester Metro News with a circulation in excess of 300,000. Distribution relies on tightly controlled networks of distributors and supervisors. Some of the larger publishing groups run their own in-house delivery operation whilst others outsource to companies such as Circular Distributors (CD) and The Distribution Business. Archant Anglia uses a combination; its titles in its western sector (including The Hunts Post) are distributed by CD and its eastern sector titles are distributed by an inhouse team numbering approx 3,000 distributors and 200 supervisors, managed by Steve Shepherd and his three distribution managers.
To the uninitiated the VFD rulebook is an eyeful. Speaking as a veteran of the ABC Business Press rules, hardly a page turner themselves, I had to confess to being somewhat disoriented by the end, such is the emphasis on procedural checks and balances. There is good reason for this, as Martyn Gates of the ABC explains: "The industry agreed rules require publishers to prove their distribution claims. In other print sectors, where copies are sold, audit trails are more obvious. The audit trail for VFD mirrors the same comprehensive checks and balances that distribution managers would normally employ in their business." As with any ABC certification process, the primary purpose is as an independent confirmation of a publisher’s circulation claims. Beyond that, Gates says that the VFD is essentially a "numbers game." Whereas the ABC certificate for a controlled circulation title bands circulation into many different types, the merits of each of which are argued over furiously by competing publishers, the VFD certificate usually runs to just two sides (the first of which is the title page!). A few years ago the VFD was seen by some in the industry as being a bit of a paper tiger, but Steve Shepherd now believes that, under the stewardship of Gates and Jayne Ferguson of Northcliffe Newspapers the VFD is now punching its true weight.
Again, in common with controlled circulation publishers, VFD publishers have few alternative revenue streams to fall back on, so face an ongoing battle to achieve the right balance between costs and advertising revenue. Two recent trends have made substantial impacts in these areas: the growth of the leaflet business and the increasing amount of health and safety legislation.
There are four strands to this legislative "assault". The national minimum wage and the working time directive which sets down a right to paid holiday both had a major effect on costs. Shepherd estimates that the now mandatory holiday pay costs his company an additional £90k per year. The third strand is one actually initiated by the industry itself as a response to the Soham murders of 2002. In the light of those tragic events many in the industry woke up to the fact that many of their child distributors were potentially being put at risk, specifically when there was a requirement for them to go into the supervisor’s homes. A number of publishers are in liaison with the Criminal Records Bureau (CRB) about the possibility of getting supervisors and their spouses vetted in the same way that teachers are. Perhaps with bitter memories of the post Soham backlog, the CRB is a little nervous of the extra workload that this would represent. The fourth strand is the expected European ruling on minimum bag weights. Archant Anglia is trying to spread the cost by starting to invest now in trolleys for their distributors. Talking with Steve I get the impression that the industry is quite philosophical about these changes, but the fact remains that distribution costs for the regional frees have increased considerably over the last five or six years.
Given the increased costs of distribution it is just as well that leaflet distribution has taken off to the amazing extent that it has. Leaflet marketing has enjoyed phenomenal growth over the last few years and the VFD sector has taken a sizable slice of the action. In 2004 Superdrug alone is expected to distribute 12m leaflets through VFD titles. The leaflet scheme is essentially a loose insert system whereby leaflets are inserted into either full distribution runs or on a selected rounds basis. The big national campaigns are usually run by big retailers such as Wickes, Somerfield, ASDA, Homebase, B&Q and Superdrug. Typically they will book campaigns through one of three booking agencies (Circular Distributors, National Letterbox Mailings and The Leaflet Company). These agencies will then construct the campaign and select the newspapers distribution areas that best match the brief. Quality control and validation of distribution takes two forms. Firstly there is the VFD Leaflet Scheme which does not validate actual distribution of leaflets but confirms that there are procedures in place to manage leaflet distribution effectively. The second is organised by the clients themselves and is typically operated by one of two companies: Stepcheck and The Front Door. Most of the companies that run national campaigns also operate "penalty and incentive schemes". These set targets for delivery efficiency and item recall and performance is measured by Stepcheck or The Front Door. If these targets are met or exceeded then the distribution teams are rewarded, usually with store vouchers. If they are not met then there is an agreed financial penalty for the publisher. In addition to the penalties and incentives most of the large clients will also present awards to the best performing distribution operations. When I met up with Steve Shepherd in January, Archant Anglia had just won the B&Q scheme with a 100% efficiency rating. Shepherd also notes the positive effect on circulation teams that the leaflet business has produced. Ten years ago Steve would have characterised the average circulation operation as the "small room down the corridor" but now, due to their pivotal role in this revenue stream they have more staff, bigger rooms and the luckier ones might even be above ground level.
Editorially led vs Shopper
Given the nature of VFD, it goes without saying that all VFD titles are advertising led with typical advertising to editorial pagination ratios of 80% plus in favour of advertising. Within that it is possible to identify two broad types of VFD paper: one is the editorially lead title (such as The Hunts Post) and the other is the shopper style paper (such as The Waveney Advertiser).
The shopper style paper offers a very natural fit with the VFD business model. Minimal editorial costs (no comment page, no editorial stance, no campaigning, few if any bylines) mean that the paper is first and foremost an advertising vehicle. A different business model is offered by titles like The Hunts Post. Whilst the advertising revenue is still the goal papers like The Hunts Post travel there by a different route; namely through the offering of a quality editorial package to go with the advertising.
History of Hunts Post
Launched in 1870 as the newspaper of the old county of Huntingdonshire, the paper was a fairly standard paid for weekly newspaper. The mid seventies saw a downturn in the paper’s fortunes, not helped by the fact that Huntingdonshire lost its county council status. To make matters worse the title saw a steady erosion of its circulation as free rivals encroached from the surrounding counties. The early 90s saw a rebirth and The Hunts Post was relaunched as a free weekly. Crucially, according to editor Paul Richardson, the relaunch was accompanied with a new philosophy. The paper now saw itself as "a paid for newspaper that happens to be free." It was this important perception, promoted both internally and externally, that gave The Hunts Post its USP.
Investment in editorial
This commitment to quality editorial can be seen in a number of ways. Paul has cultivated a campaigning style for the newspaper where they will pick up a cause and run with it; be it supporting the local funding campaign for a new MRI scanner, opposing the proposed guided bus service between Huntingdon and Cambridge or fighting for a better deal for victims of local flooding. "It is important to put your head above the parapet," says Richardson, and one "should not be too concerned about losing. If you don’t enter a fight, then people will start to think you are not capable of doing anything."
His journalists are encouraged to get out and about and Paul himself helps raise the paper’s profile with a weekly Huntingdon slot on the local BBC radio station. The readership is encouraged to interact with the paper and each issue will carry two or three items soliciting reader response. Recent editions have carried a joint promotion with BBC Radio Cambridgeshire asking readers to nominate the ultimate iconic figure from Cambridgeshire (eg Oliver Cromwell, Stephen Hawking). All this encourages reader "buy in". The serious intent of the newspaper was also reinforced during the early and mid 90s when, by happy coincidence, one of their regular columnists, local MP John Major, also happened to be prime minister.
Living on past glories is a dangerous thing to do, and Richardson is determined for the newspaper to continue to evolve its editorial offering. Perhaps unusually for a VFD title, last year they invested in a piece of market research undertaken on their behalf by The Communications Clinic. 444 interviews were conducted across a wide section of the audience. In addition to finding that The Hunts Post had 1.8 readers per copy, it highlighted the fact that the paper needed to do more to target young families with children. This group felt that their needs were not being adequately met and Richardson is in the process of addressing this. The solution, he believes, is not in providing editorial aimed at kids (eg comics and hobby sections) but in addressing the information needs of the parents: identifying child friendly facilities, addressing education issues.
Along with Archant’s other free titles in the area, The Hunts Post is looking to expand its circulation. Five years ago, as a result of increased printing costs, the circulation of a number of titles was cut back. Typically they withdrew from some of the more geographically remote areas; in the case of Archant Anglia it was from areas around Norwich. Now that trend has been reversed and the company is looking to claw back lost ground. The drivers of this activity have been aggressive competitors prepared to distribute to these areas and secondly the need to protect and grow the leaflet distribution arm. If Archant is not distributing to an area then they can not pitch for leaflet distribution for that area and will either lose the business to a rival publisher or to the Royal Mail. Furthermore, the area has seen a huge population influx in the recent past and this trend is set to continue. Unlike the other VFD titles in Archant Anglia’s portfolio, where the decision to infil new areas is taken on a relatively straightforward analysis of the costs and the likely increased advertising revenues to be won by the higher figures, Paul Richardson faces a more complex decision because he has a significant paid for element within his circulation. As of the December 2003 ABC figures The Hunts Post had a paid-for element of 3,845 (approx 8.5% of the total). As well as guaranteeing what Richardson deems to be an important retail presence, with an aggressive cover price of 70p it also makes a healthy financial contribution. The dilemma Richardson faces is this: does he increase the free circulation by infilling the new estates even though there is a good chance that it will threaten his paid for base.
Town & Country
Another area Paul is looking into, but another one laden with cost implications, is the possibilities of offering different editions of his paper. The Hunts Post covers the five market towns of Huntingdon, St Neots, Godmanchester, St Ives and Ramsey and the countryside between. Richardson is very aware that his urban readers have a different set of concerns (joyriders, anti-social behaviour) to his country readers (local transport, loss of services).
Apart from complacency, Richardson sees three possible threats on the horizon. The first is the increasing cost of distribution and, as already mentioned, the next likely trigger for increased costs will be legislation governing bag weights. With the VFD market being quite an easy one to enter the possible proliferation of rivals is another challenge increasingly in the area of single sector free sheets addressing such newspaper staples as sits vac, property and motoring. Indeed Paul’s own parent company – Archant Anglia - has launched Jobs Weekly in the Cambridgeshire area, simultaneously trying to take a bigger slice of the market whilst making the sales teams on The Hunts Post work even harder for their commission. The third challenge, though possibly one for the future, is the likely emergence of highly targeted small circulation titles, where the circulation is built on clever use of MOSAIC and other profiling tools. On the subject of using profiling data, Steve Shepherd notes that about three years ago everyone assumed that micro-targetting would really take off in the leaflet sales process, but the reality is that this has not been the case. There are exceptions, for instance Wickes excludes council estates from their distribution, but generally the targeting process has not reached the level of sophistication that some had predicted.
Shepherd sees further rationalisation ahead for the VFD sector with tighter margins making it harder for the smaller independents to survive. In terms of newspaper ownership, he wouldn’t be surprised to see the big five become the big three. On the audit front, Steve would like the VFD Leaflet Scheme to be made mandatory, something the industry has not agreed on. In Steve’s view, "if you’ve got the systems in place then it involves little extra work" and he worries about the activities of a few unscrupulous publishers tarnishing the reputation of the rest. He also thinks it likely that more and more paid titles will follow the route of The Hunts Post in becoming editorially led free titles.
In summary, the VFD sector seems to be in good health, coping well with the increased regulatory burden and riding high on the crest of the leaflet distribution wave. Circulation teams, certainly in Steve Shepherd’s experience are enjoying greater recognition and from Paul Richardson’s standpoint his title is being given extra resource to further evolve the editorial offering.