Business Economic Note 26 - Confectioners, Tobacconists and Newsagents

These notes are issued to Inspectors of Taxes to assist them in examining accounts. They are intended to provide a general background to the trade, with some explanation of its most important features. Business Economic Notes are not intended to provide an exhaustive or definitive picture of any particular trade or profession.

Contents

 

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Introduction

This note focuses on independently owned Confectionery, Tobacconist and Newsagents (CTNs), aiming to up-date and indeed replace the original in-house Business Note 4 on the subject, which was issued in 1977. The Business Information Unit is particularly grateful to the National Federation of Retail Newsagents for their assistance in the researches undertaken for this note.

1. General

CTNs have traditionally been one of the most popular type of retail outlet for prospective shop owners. The vast majority of people visit a newsagent's at least once a week - many on a daily basis - making it probably the most frequently visited type of shop in the UK. Even so, for a variety of reasons, indications are that the number of traditional CTN outlets has declined over recent years, even though the number of outlets for newspapers has increased.

The predominant type of business in this sector is the local newsagent which combines the sales of newspapers, cigarettes, confectionery and miscellaneous items. It is with this sort of shop that these notes are primarily concerned. Where a trader specialises in only one aspect of the trade, there may be special features giving rise to differences from the normal run, and these are considered briefly in Section 8 below.

In many CTN businesses cigarettes make up an appreciable part of the turnover, and the sale of newspapers also usually amount to a significant proportion of turnover. The miscellaneous other goods offered by CTNs can encompass a wide range of items. Seasonal items - for example, fireworks around 5 November - have long been a regular feature, although undoubtedly these have declined in recent years as more people have favoured organised firework displays. Video hire is a particularly popular all year round choice. Greetings cards, soft drinks and toiletries are also frequent additions to their range. Depending on local needs and competition, diversification into convenience or grocery stores, off-licences or similar has been a feature. In addition, the arrival of the National Lottery has increased the flow of customers into those CTNs offering this facility, especially at certain peak times.

In part, such diversification is necessitated by the increasing use by many potential customers of 'one-stop' shopping as provided by the large supermarkets. Petrol stations too have made significant in-roads into the CTN's market share. Indeed, the distribution network of newspapers and magazines has undergone profound changes in recent years, which have had a major knock-on effect on the traditional CTN operator. These are discussed in more detail at section 3, but one aspect of the changes has been the deregulation of the supply of newspapers following a report by the Monopolies and Mergers Commission. This was achieved by means of a "Newspaper Code of Practice", which now obliges a wholesaler to supply newspapers to any retailer who can satisfy specified Minimum Entry Level Requirements. As a result, it is estimated that following deregulation in October 1994, up to 9,000 new outlets entered the newsagency trade, giving rise to increased competition to the High Street newsagent.

Whilst the core products of the CTN are in relatively stable demand, the increased number of outlets has undoubtedly diluted the newagency trade. In order to be competitive, long hours of opening are normally essential. Indeed the terms of the newspaper suppliers generally demand 7 days a week opening. Relaxation on the Sunday trading laws and hours of opening have further influenced the operation of many CTNs.

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2. News-Sheet

2.1 Terminology and supplies

News-sheet is the term used to describe a business's trade in newspapers, periodicals (weeklies), magazines (monthlies) and "one shot" issues (for example, holiday editions, feature publications). Evening papers are delivered direct from the producer but the rest are obtained from a wholesaler, who will make daily deliveries to the shop. The number of copies supplied is based on the trader's own estimate of requirements, but this is subject to significant supplementation through additional copies.

With the exception of specialist "firm sale" orders, the majority of newspapers and magazines are supplied on a "sale or return" (SOR) basis. The retailer is invoiced for payment within 4 days of each week's supplies. Credit on unsold items is given at the end of the sale period, which, in the case of monthly magazines, is typically 4 - 6 weeks.

Some regional newspapers allow only a limited percentage of sale or return supplies.

2.2 The distribution of newssheet

Over the past decade, the distribution network for news-sheet has radically changed, with major changes arising in February 1988. when publishers' distributors, as monopoly suppliers, put new style distribution contracts out for tender to anyone who wished to bid for them.

Prior to February 1988, the publishers delivered titles to in excess of 1,000 wholesalers via their distributors. The wholesalers purchased the titles from the distributors at varying discounts off the cover price (the usual range was 35% - 40%) and then sold them to retailers at, typically, the following fixed discounts off the cover price:

  • Weekday papers 25% - 28% (and occasionally 30%).
  • Sunday papers 25% plus an allowance for inserting the colour supplements and so on of 2p which was translated into a discount so the total discount (if the paper had a colour supplement) was around 28% - 30%.
  • Partworks - Maximum 22.5%.
  • Magazines and periodicals 25%, but in some instances, wholesalers of the most popular titles (IPC, Radio and TV Times and others) offered one free copy for every twelve purchased, the '13 for 12' system, which brought the effective discount up to over 30%. This inducement was given solely to magazines and periodicals supplied by a small number of wholesalers, and only applied to the most popular titles. In general, it was the multiple firms that benefited from this feature rather than the independents.

The wholesalers were accordingly left with a net discount, expressed in terms of the cover price, of about 10% - 12%. Some of the regional publishers who sold direct to the retailers offered a prompt settlement discount of up to 2%.

About 400 wholesalers delivered the weekday titles to the retailers, each retailer normally being supplied by one wholesaler for a carriage charge of about £4 per week, and another 900 odd small wholesalers delivered on Sundays, usually free carriage.

From February 1988 onwards, the publishers split the country up into individual post-coded delivery areas and delivered the publisher's titles to a depot in or near each area. The wholesalers - sometimes described as a 'sub-distributors' - contracted for the sole rights to deliver each publisher's titles to the retailers situated in the delivery area. They collected the copies from the depot and delivered them to the retailer. In effect, therefore, the retailer had no choice of supplier. The contract usually specified that the wholesaler had to:-

  • service all the retailers in the area and deliver the titles by a given hour in the morning;
  • supply deliveries on each day that the publisher produces a title - the contract is for a seven day delivery service;
  • ensure that retailers are open on each day that the titles are produced, and supply the distributor with a return of the number of each title sold (= number delivered less returns where SOR applies) and other market information.

The successful bidder was the one who convinced the distributor that the job could be done at the lowest rate', that rate being the net discount off the title's cover price that the wholesaler would retain if sales to retailers were made at the retail discount rate recommended by the distributor. The rate was accordingly the equivalent of the wholesalers' net discount under the previous system, except that it was much less. Reports indicate that the publishers settled with bids of around 4% - 6%, but have subsequently accepted bids of around 8%. If for instance a title's cover price is £1, the retailer's discount being 25% and wholesaler's rate, say, 7%, the figures are:-

Sale to retailer at 75p (£1 less 25%)

Cost to wholesaler 68p (£1 less 32% - 25% + 7%)

Net retained by wholesaler 7p (GPR 9.3%)

Distribution of newssheet

Following the introduction of the new system, all the Sunday only wholesalers and many of the other wholesalers have closed. Four principal wholesalers - WH Smith, John Menzies, Surridge Dawson and Johnsons - currently dominate the distribution of newspapers and magazines with in excess of 72 per cent of the market.

With the major publishers - including News International, Telegraph PLC and The Mirror Group - operating in this way, and each having their own supply areas, retailers may be obliged to deal with more than one wholesaler depot, and in some instances, three or four.

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2.3 Minimum entry level requirements for retailers

The deregulation of the supply of newspapers which came into effect from October 1994 meant that an increasing number of retailers became entitled to a supply of newspapers from the wholesaler by virtue of a "Newspaper Code of Practice", and providing they could meet the minimum entry level (MEL) requirements that were introduced. The principal conditions relating to the MEL requirements for retailers are as follows:

  • A minimum net weekly charge is set at the MEL.
  • The MEL for each wholesaler is published by the wholesaler at half of the average value of newspapers invoiced weekly to existing retailers in the wholesalers' area.
  • Only those newspapers which the wholesaler can supply are included in the calculation.
  • The initial calculation is effective for two years following commencement of the Code; thereafter subject to an annual review.
  • So long as a new retailer maintains an order in excess of the MEL for at least 6 months, the wholesaler must extend Sale or Return facilities, subject to the guaranteed minimum net weekly charge being agreed.
  • Wholesalers have discretion to supply below the MEL.

The direct consequence of the deregulation has been a marked increase in the number of outlets for newspaper sales, with supermarkets and petrol station forecourt shops in particular making their mark.

2.4 Carriage service charges

Faced with very competitive margins, and with contracts running for 3 to 5 years, the wholesalers have imposed higher carriage service charges. Since each publisher's distributor decides on delivery areas and accepts bids for sole delivery rights in those areas without reference to other distributors, the retailers' deliveries of their usual stock of titles can involve several delivery firms instead of one firm. Each distributor levies a carriage service charge. There are currently around 200 wholesale depots, and, depending on their location, a retailer may potentially be supplied by three different wholesalers on weekdays, and three other wholesalers during the weekend. A certain amount of rationalisation between wholesalers has occurred by swapping area in respect of certain retailers.

According to NFRN sources, carriage service charges currently average out at between 1.7 and 2.3 per cent of the newsagent's newssheet account value, with increases being particularly high in recent years. It is now normal practice for wholesale suppliers to increase their carriage service charges to newsagent twice yearly in line with the published Motor Transport Cost Tables

Some wholesalers levy a separate 'data' charge, to compensate them for the cost of complying with their contractual requirement to supply the distributor with sales and market information. In the majority of cases, however, such charges are included in the carriage service charges.

The wholesalers' charges are shown on their delivery invoices as a separate item. Strictly, the charges are ancillary to the purchase costs and should be reflected in the Trading account. If instead they are included in the Profit and Loss account, the retailer's apparent gross margin will be enhanced, with the net profit, of course, correspondingly reduced.

2.5 Sale or Return (SOR) and Boxing out

Most newssheet stock is supplied on a sale or return (SOR) basis, and the supplier will not take back supplies before their recall date, which can vary between one week and three months. In addition, should the retailer miss the deadline for "returns" for a particular item, the entire cost of that item is lost, including, where applicable, the VAT.

"Boxing out" is the practice of delivering more copies of a particular title than the retailer has specified on the 'standing order'. It is a promotional device employed by wholesalers - at the behest of the publishers - to publicise the product, and thereby increase the volume of sales. The retailer's 'standing order' to the supplier specifies the number of each title to be delivered. Where, exceptionally, the standing order items are not on a SOR basis, any copies unsold cannot be returned to the supplier for credit. Any extra 'boxed out' copies are on SOR terms, and the retailer must retain the unsold copies until the supplier sends him a 'recall' note, upon which the retailer can return the unsold copies by a specific date. If the retailer misses the recall date for any reason the right to the SOR terms is lost. Where unsold copies are returned to the wholesaler, the retailer must take great care that the items are correctly packaged and labelled to ensure that full credit is obtained for them.

Some of the regional newspaper publishers, supplying direct, do not allow retailers to return more than a certain percentage of the number of 'boxed out' to them. Others calculate the number of copies that they think a retailer will sell and substitute that for the number on 'standing order'. Whilst initially the extra copies are on SOR terms, if a higher level of sales is achieved, the new figure may become a new order level, and may be on "firm sale" basis only.

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2.6 Vouchers and money-off coupons

Vouchers and money-off coupons are increasingly used as promotional devices of the newspaper and magazine publishers. They can often have a significant impact on the operations of the retailer. It has been suggested that such coupons can now represent something like 10% of some retailers' overall business.

Customers obtain vouchers or money-off coupons most commonly from previously purchased publications, but also in some cases direct from publishers by means of promotional mailshots and similar campaigns.

Generally, the retailer is obliged to accept vouchers or coupons tendered in connection with particular promotions and for specific publications. Coupons can be on the basis of one coupon for one publication, or on the basis that one coupon entitles the bearer to the publication for a specified period of time. Such future period can be considerable.

At the point where the customer presents the voucher in payment (or part-payment) of an item, the voucher effectively has a cash value, and forms part of cash sales. However, the vouchers are of no value to the banks, and their worth is only realised after they have been submitted, usually on a weekly basis, to the wholesaler, who compensates the retailer by giving a refund (cash or cheque), or, more commonly, by means of a credit note in the purchases account.

The method of accounting for vouchers and coupons used by the retail newsagent can significantly affect the trading account of the business. Alternative methods that may be met include the following:-

  1. The retailer records the receipt of the coupons as they are received, and hence they are included in "takings" for that day.
    1. If the coupons are redeemed in cash/cheque, then these will form part of the bank/cash reconciliation between monies banked and takings as shown on till rolls. This method ensures that the true gross margin on transactions is preserved.
    2. If the coupons are redeemed by way of a credit against future purchases from the wholesaler, then the reconciliation is difficult to achieve. In addition, the value of purchases becomes understated, thus inflating gross margins.
  2. The retailer does not record the receipt of coupons at the time they are received from the customer. Under this method daily till rolls will not reflect the full value of papers supplied. The value of the coupons may be recorded either:-
    1. If reimbursed in cash, they are included in the till roll takings when received and banked. Unless an adjustment is made in the accounts to reflect any delay in receiving payment from the wholesaler, there is a likelihood that margins will be understated.
    2. If reimbursed by way of credit against subsequent purchases, then the benefit of the coupons will be realised by way of lower purchase costs in a subsequent period. In effect, both sales and purchases are understated, and the margin between the two is clearly subject to distortion.

Appendix IV illustrates how alternative methods of accounting for vouchers and coupons can impact on apparent gross profit margins.

Whichever method is used, the prudent retailer will wish to ensure that full redemption of all vouchers and coupons accepted is achieved, and is likely to maintain appropriate records to this end.

2.7 Margins on newssheet

A major feature which has impacted directly on news retailers' margins in recent years has been the erosion of their discount margins from 1990. Initially, a reduction in the margin from 28% to 26.5% became standard, but in 1994, a cash per unit system was imposed in place of the pro-rata rate.

Appendix I shows a comparison of GPRs received for a typical range of daily newspaper sales at January 1997 prices and at 1990 prices.

Appendix II shows the margins currently (February 1997) being achieved on the national newspapers, and the Business Information Unit holds detailed information on newssheet margins going back to 1984 which is available on request.

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2.8 Wastage

Traditionally, the retailer estimated the number of copies to sell, running the risk of having unsold copies in order to achieve optimum sales. The newsagent would apply knowledge and experience in coping with fluctuating demands and market forecasting, and expect to suffer from lower wastage levels than a newcomer. The newsagent could supply magazines and less popular periodicals on the basis of regular orders only, and even where they did not take this course they would be careful to stock only those they were confident of selling. The wholesalers' contractual obligations to the publisher, however, and in particular the boxing out practice, significantly remove control over stocks from the newsagent. This, along with incidences of recall deadlines being missed, can have a major influence on the resulting level of wastage.

In addition to unsold items, the newsagent suffers wastage from damaged - and therefore unreturnable - stock.

2.9 Handling allowances

The colour supplements to some Sunday newspapers attract a handling allowance payable to the retailer in addition to the discount on cover price - normally 2p per copy. Increasingly, however, supplements are pre-inserted, so that this source of income for the retailer is reduced. The handling allowance rate of 2p per copy has remained unchanged since the mid-eighties.

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2.10 Newspaper delivery charges

It is common to find a charge made to customers for deliveries, and whilst the total sum involved may not be substantial, it should be identified in the accounts. It may be introduced as a separate item in the Profit and Loss account, or credited to the wages account - i.e. a net wages figure appearing in the Profit and Loss account. Whichever treatment is applied, it is inevitable that at any given date - including the accounting date - some accounts will be overdue, and a debtors entry is to be anticipated.

The NFRN has provided the following theoretical example of how a retailer might cost a home delivery service with a view to determining what to charge for the service.

 
Delivery Cost
Ten deliverers and a collector's wage x 52 weeks £7,000
Trolleys, bags, accidents, insurance, etc. £300
Proportion of vehicle maintenance, petrol, tax, insurance and depreciation £2,000
 
Accounting Cost
One assistant at around £3.50 an hour a day £1,300
Stationery, rounds books, receipts, computer leasing £750
Credit costs, bad debts, solicitor's fees £400
 
Administration Cost
Labour for the first hour of the day, heat, light and wholesaler's delivery charges £2,250

Total Annual Cost £14,000

Apportioning this cost to, say, 500 customers:

  • Annual cost per customer - approximately £28
  • Weekly cost per customer - approximately 54p

A costing is only as accurate as the figures used, so it is essential that each part of the service is fully researched and checked.

Based on this formula, the retailer would need to charge 54p per week to break even. Anything less would mean that the service is not covering its basic cost and would need to be subsidised from other parts of the business.

A recent NFRN survey, however, indicates that the average charge is currently (March 1997) around 35p per week, confirming that the theoretical example should be viewed with caution.

Apart from the usual business records a newsagent will need to keep individual accounts for delivery customers. These often take the form of pages of carbon backed tickets; each page contains a number of tickets pre-printed with weekly account dates. Bad debts from home delivery customers is a common problem area in the newsagent's business.

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3. Cigarettes and Tobacco

3.1 General

Tobacco sales (mainly cigarettes) form a substantial part of the turnover of a CTN business. Typically the average proportion has been around 35-40% of turnover, but there can be quite wide variations, and there are indications that the proportion is declining. A recent Verdict report on CTNs reported an average of 32.5%.

Whilst cigarette sales tend to be relatively constant throughout the year, sales of cigars are likely to be significantly higher over the Christmas period.

The large-scale illegal importation of tobacco - i.e. smuggling - is reported to have had a significant impact on the sales levels and margins of the legitimate trade. Handrolling tobacco is thought to be especially prevalent on the black market, and other forms of tobacco are also reported to be available with popular outlets being pubs, clubs and car boot sales.

3.2 Supplies

Newsagents obtain their supplies of cigarettes and tobacco direct from the manufacturer; from wholesalers; or, most commonly in the case of the independent operator, from cash and carry outlets or wholesale deliverers.

The trade has a system of wholesale pricing based on the nature of the business and its turnover and there is little difference between the practices of different producers. These prices are known as "Q rates". The "Q rate" at which a retailer is able to obtain supplies depends mainly on the level of turnover but there are a few anomalies arising from historical ties or special relationships. At the bottom end of the scale any quantity, however small, can be obtained at Q1 rate; at the other end Q5 has generally been restricted to the largest wholesalers and supermarkets.

There is usually no price advantage in obtaining supplies direct from the producers because the Q rate charged is unlikely to be more favourable than that charged by the wholesaler. Indeed, traders can often get better terms from a wholesaler than from the producer.

Commonly, the cash and carry outlets now offer the Q5 rate to the independent retailers. Cash and carries also operate a "house" or "private" brand over which they have complete control. These brands have enjoyed considerable success and some rank as national brands in terms of market share. An example of this is Nurdin and Peacock's "Red Band" which is sold at a controlled price through their own warehouses exclusively, and which are retail price marked.

Retailers may well purchase extra stocks pre-Budget in order to boost sales for a short period after increases in the tax duties.

3.3 Stocks and credit

The financing of tobacco stock can be a problem because of the high cost. Where supplies are obtained from a wholesaler, the trader usually gets a period of credit from the supplier of anything up to a month (typically payment by the 14th of the month following the month of delivery). Beyond this, the trader will try to avoid tying up money by keeping stocks as low as possible; the usual stockturn is 4 to 5 weeks. Some traders are able to obtain their stocks weekly, under an arrangement with a wholesaler. Increased use of cash and carry wholesalers can be advantageous to many CTN proprietors, as they can purchase their supplies in smaller quantities, albeit on a more frequent basis, but without the credit facility.

The tobacco companies and wholesalers operate a prompt settlement discount. In practice this is not so much a discount for early payment as a surcharge for late payment. Prices on invoices (and in "Q rates") already take account of a prompt settlement discount (of 2%) on the assumption that settlement will be made by the due date. All prices and mark-up rates quoted in these notes are based on the same assumption.

Bonuses may also be payable, in particular to larger retailers, where the level of orders placed for tobacco products exceeds specified thresholds. In some cases these are paid in the form of cash (i.e. cheques usually); sometimes by means of vouchers that can be exchanged for goods.

3.4 Rate of profit on return

The rate of "profit on return" (i.e. GPR) achieved on cigarettes and tobacco is obviously linked to the "Q rate" at which they are supplied.

The following tables give a guide to the average percentage profit on return on purchase prices at 'Q' rates (prompt settlement prices) assuming that the goods are sold at the manufacturers' recommended retail selling prices.

 
  Q1 Q2 Q3 Q4 Q5
Small tipped 3.17 5.31 7.53 8.30 8.56
Standard tipped 2.33 4.40 6.22 6.95 7.25
King size tipped 2.59 4.60 6.45 7.15 7.44
Plain standard 3.28 5.40 7.57 8.31 8.57
Pipe tobacco 5.63 8.30 13.74 15.03 16.28
Cigars 7.42 10.70 16.13 17.11 18.34
Panatellas 7.53 10.69 16.06 17.22 18.33
Miniature cigars 7.49 10.62 15.85 16.67 18.88

The rates of profit on return discussed here are intended to help in making a preliminary assessment of a case or in discussing results in general terms. There is scope, however, for variation in the gross return on cigarettes depending on the Q rates or wholesaler's terms involved. Wherever possible, the actual rates obtained by the taxpayer should be established from a comparison of cost and sale prices.

Appendix III provides a sample analysis of the profit on return achieved by one retailer based on information included on invoices

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4. Confectionery and Ice Cream

4.1 General

A number of the major manufacturers of sweets and chocolate will supply retailers direct and some newsagents obtain their supplies this way. There is, however, often some advantage in obtaining supplies from a wholesaler or cash and carry warehouse where prices may be lower. Many newsagents are tending to change to this source of supply. Cash and carry outlets have the added advantage of being open for long hours, in many cases seven days a week. In addition, they do not have a minimum spending restriction, and therefore enable the CTN trader to keep stocks in the shop to a minimum.

It is very difficult to generalise about rates of mark-up or profit on return on confectionery because there is no standard supply price. The manufacturers publish price lists (similar to Q rates) for their products, and an example of the mark-ups (profit on return) shown in them follows:-

 
  Under 20
outers 		Under 30
outers 		Under 60
outers 		Under l00
outers
Chocolate bar 19 (16) 22 (18) 25 (20) 29 (22)
'Bag' sweets 19 (16) 24 (19) 26 (21) 29 (22)
'Jar' sweets 24 (19) 27 (21) 29 (22) 31 (24)
Multipacks 19 (16) 22 (18) 25 (20) 29 (22)
Tube sweets (4 pack) 20 (17) 24 (19) 27 (21) 28 (22)
Tube sweets 21 (17) 22 (18) 27 (21) 28 (22)

"Outers" are the container or box in which the packets of sweets are packed. Owing to competition within the trade these figures can only be used as a guide. Where products are sold at less than the recommended retail selling price corresponding allowances must be made.

The highest supply price shown in the manufacturers' list is the most a retailer would have to pay; if supplies were obtained from a cash and carry warehouse, the cost would probably be quite a bit less.

Boxed chocolates display marked seasonal peaks, in particular around Christmas time, but also around Mothers Day, Valentines Day and Easter. Obviously Easter egg sales are also a significant feature of the latter period.

4.2 Minimum rates of mark-up

The rate of mark-up rate is affected by the source of supply as well as by the mix of confectionery goods sold. As a rough guide, however, the mark-up on cost can be estimated at around 25% (i.e. a gross profit rate of 20%). The very lowest rates of mark-up one would normally find, where supplies are obtained at top price from the manufacturers, are as follows:

 
Product Mark-up on cost Profit on return
Some chocolate bars 19% 16%
Most chocolate bars 21% 17%
Tube sweets 24% 19%
Loose sweets 30% 23%
Pack sweets 29% 22%
Chewing gum 35% 26%
Ice cream (blocks) 30% 23%
Children's novelty sweets 35% 26%
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5. Lottery Agencies

CTN's may act as agents for lottery companies. The lottery cards may be supplied on a sale or return basis and the commission due to the trader, ranging from 5 - 10% may in most cases be deducted by him before paying the receipts over to the organiser. The trader may also receive a small prize when a customer wins a big prize, typically, £10 when a customer wins £1,000.

5.1 The National Lottery

There are currently 27,000 (this number is likely to increase) outlets for the National Lottery, of which some 13,000 are independent retailers - and predominantly CTNs. The remaining 14,000 outlets are part of multiple chains (including Post Office Counters Limited). These multiples are invoiced centrally and not, therefore, included in this note.

The advent of the National Lottery in November 1994 has had a notable influence on many CTN operations, and this has been supplemented by the National Lottery scratch cards - or Instants in March 1995. From February 1997, the National Lottery became a bi-weekly event, with mid-week draws taking place on Wednesdays.

Apart from the commission received from the sale of tickets or cards, the CTN can attract additional customers into the shop, and, on occasions, benefits from impulse buying by winners who can claim the smaller prizes in the shop.

The uneven pattern of sales associated with National Lottery tickets with the high percentage of sales arising on Saturday afternoons and evenings has presented particular problems to some retailers, with additional staff often being required solely to cope with the rush. As an illustration of this point, if an assistant is engaged for this purpose at the rate of, say, £4 per hour, with National Lottery commission at 5% of ticket sales - i.e. 5p per ticket - 80 ticket sales per hour are required to break even with additional wages paid out. An associated problem that has been reported in this connection is that of increased shop theft as a result of staff's attention being focused on the National Lottery terminal. Furthermore, the build-up of queues in lottery agency shops at certain times can have an adverse effect, with reportedly some non-lottery customers taking their Saturday afternoon business elsewhere.

The peak of business at certain times stimulated by the National Lottery, and the high publicity attaching to the operation, can have significant security implications.

A further downside of the National Lottery success story is the occasional cash flow difficulties of some small retailers being faced with prize winners claiming their winnings first thing on Sunday mornings, when many of the outlets from which the original tickets were purchased are closed.

5.1.1 Commission

National Lottery commission is paid to retailers at the rate of 5% on ticket sales plus 1% of the prizes paid out between £11 and £200. The retailer receives money from sales of tickets - both On-line (National Lottery Game) and Instants (scratch-cards). The amount of commission due is retained by the retailer, with the net amount due to Camelot being collected weekly by means of the Bank Automated Credit System (BACS). Retailers are not required to keep a separate bank account solely for lottery income, although they are recommended to do so by Camelot. The consequent bank charges associated with a dedicated bank account off-set part of the commission received.

Post Office Counters Ltd. receive the 5% commission in respect of individual Post Office retailers, retaining 1% and passing on the remaining 4% to the individual retailers concerned. Responsibility for the distribution of commission to Post Office Retailers lies entirely with Post Office Counters Ltd.

5.1.2 Prizes

Retailers must pay prizes of up to £75, but generally pay prizes up to £200. Some retailers (usually the multiples) request to pay prizes of up to £500; such requests may be agreed by Camelot. Post Offices may pay prizes up to £10,000. Any other prizes are paid by Camelot.

5.1.3 Accounting

The retailer sells tickets as agent for the National Lottery. The only income from the National Lottery that will be included in the retailer's accounts is the commission income described in (5.1.1).

During the week, the retailer sells tickets and pays out prizes within the set limits. All these monies are either retained or paid out by the retailer. There is a weekly settlement due to the National Operator following the end of an accounting week (Sunday through to Saturday). An invoice is generated on the retailer's lottery terminal in the following format:-

Retailer's lottery terminal invoice

Appendix V provides an illustration of the layout of the National Lottery invoices, together with further explanation of detail.

Instants tickets are generally provided to retailers in batches of 200, with a face value of £1 each. (1995 Christmas Bonus cards were provided in packs of 100 with a face value of £2 each). The retailer "activates" a pack by swiping it across the terminal when it is first used. If this is done, the full cost of the pack is accounted for at the earlier of:

  • 15 days after the pack is activated; and
  • the date by which 60% of the prizes in the pack case have been claimed.

If the retailer fails to validate the pack on opening, the 15 day period runs from the date on which the first prize is claimed.

A retailer must pay Camelot each week the full cost of each pack of Scratchcards which has triggered one of the 2 events above in the preceding week.

5.2 UK Charity Lotteries

UK Charity Lotteries (UKCL) launched their LUKCY LOTTO game in March 1991. There are estimated to be in the region of 12,000 Lukcy Lottery outlets, of which some 65% are CTNs. The game involves only a minimal outlay for the retailer, who is not required to pay for the first batch of cards until the second pack is ordered, and so on. Commission rates vary according to the number of tickets sold as follows:-

up to £500 of tickets 5.5%

£500-750 7.5%

over £750 9%

The retailer retains the full amount of the sales value, and receives the commission by being invoiced for the value of the tickets purchased less the appropriate amount of commission. Each batch of 250 tickets also carries £95 of low level prizes, and this sum is also deducted from the invoice. For example, the retailer purchases 500 tickets - at face value of £500. Commission is at 7.5% - i.e. £37.50. A deduction of £190 is made in respect of the low level prizes to be paid out. The total paid is therefore £500 - £37.50 - £190 = £272.50. Proceeds from tickets amount to £500 less the £190 of low level prizes = £310.

A retailer who sells a jackpot winning ticket (£50,000 prize) receives extra commission of £1,000. UKCL help the retailer with publicity and marketing when such a ticket is sold. Unlike the National Lottery, the low level prizes can only be claimed at the shop where they were bought.

UKCL's Scratch'n'Win cards were introduced in March 1995. Cards for this game can be bought from Cash and Carry's in batches of 100. The retailer is invoiced for £100 less £37 or £39 for low level prizes, and £10 for commission - i.e. an outlay of £51 or £53. The retailer retains the gross sales and pays out the low level prizes.

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6. Greetings Cards

Greeting cards can be classified into 3 basic types of card giving occasion:-

  • Christmas
  • Spring seasons - Valentines, Mothers Day, Easter, Fathers Day
  • Every day - Birthdays, Condolences, Good Luck, Congratulations, etc.

Publishers launch their Christmas cards range to retailers early in the year and deliver by July/August for retailers to start displaying from September. The build-up for other special occasion cards is 3-4 weeks, with the bulk of the sales in the last 3 days of the season. Prices paid for cards vary from around 40p to £5.00, although the majority of cards sold fall in the range of £1-1.50. Boxed packs of cards containing from 6-50 cards can work out at around 10p each. Retailers generally operate on high margins on greeting cards - normally 50-60% of the retail price excluding VAT. Generally, wholesalers do not offer sale or return terms, and consequently soiled or damaged cards which can be quite significant often affect the final gross profit margins achieved.

6.1 Distribution of greeting cards

Publishers sell either direct to retailers (DTR), or in the wholesale market. The two channels have distinctive characteristics, so that most publishers use either one or the other but not usually both.

DTR is favoured by most large retail chains, whether multiples, specialist card shops or CTNs. The advantage to them dealing directly with publishers is that they are spared the responsibility of choosing designs which will sell well. DTR publishers may either deliver on a sale or return basis, particularly where seasonal cards are concerned, or else invoice after delivery. The latter arrangement gives retailers the chance to sell their stock before having to settle the invoice.

The wholesale market accounts for around 37% of the overall market by value. It has traditionally been regarded as the lower end of the card market, supplying the smaller outlets such as CTNs, which, because of their lack of buying power, cannot afford to deal directly with the publishers. It also tends to take a more traditional approach with card designs. Wholesale publishers do not take risks with avant-garde designs that they cannot be sure will sell.

Against this, the wholesale market is a more convenient source for retailers with uncertain cash flow. They can buy from wholesalers on a spot basis, whereas if they buy from DTR publishers, they must often book orders several months in advance of delivery.

6.2 Stock Control

Assistance with stock control forms an important part of the relationship between a DTR publisher and its retail buyers. Publishers are usually responsible for keeping in-store displays full and tidy, and for withdrawing poor selling designs. Each design is assigned its own pocket in a display, and when stocks run low the retailer re-orders from the publisher by returning a ticket on which details of the card are recorded. A retailer with a large selection of cards may return 50-100 such tickets per week to a publisher who replaces the stock on a "best seller" basis, with either the same designs or one which has sold better elsewhere. This means that both the publisher and the retailer can be more or less certain that the new stock will sell at least as well as the stock it is replacing.

From a retailer's point of view, the disadvantages of this system are delays in re-ordering; the labour intensive process of checking pockets; and the fact that it gives the publisher a better idea of the pattern of sales than the retailer himself has.

Some retailers use EPoS systems which provide an arithmetic stock control. However there is a limit to the amount of information that a bar code can accommodate. Most bar codes identify a card's publisher and caption, but not its individual design.

6.3 Charity Cards

There are 3 categories of charity cards:-

  • Own Brand - cards published and sold by charities on a commercial basis - usually through their own subsidiary companies in order to minimise tax liabilities - in direct competition with those published commercially. Charities reckon to realise 45-50% of retail price as profit.
  • Royalty Cards - published commercially - of which the publisher or retailer pledges to donate a percentage of sales as a royalty to a charity whose name or logo is printed on the cards. The expectation is that the extra sales generated by a charity endorsement will at least cover the royalty pledged.
  • Cards bought by charities from wholesalers and overprinted and resold by them at a profit. This approach is favoured by small local charities.
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7. Other Sales

The sale of stationery, toys and greetings cards does not usually account for a large part of a newsagent's turnover figure, but they are profitable items and may need to be taken into account. Many small toys - in particular novelty items may be marked up by up to 100% on cost. Other toys, stationery and pens are often marked up by 50% to 60%.

Newsagents often sell minor medical items like elastoplast and aspirins. These will usually be marked up at around 30%.

7.1 Paperbacks

Paperbacks - and in particular the more popular works of fiction, are frequently sold in newsagents, and these are likely to be marked up at 33-50% on cost. Up until October 1995, most books of this type were sold under the Net Book Agreement which, broadly speaking, prevented traders from charging less than the cover price until more than twelve months had elapsed from the latest purchase of the particular title. The demise of the Net Book Agreement has not necessarily led to a change in the pricing policies of the independent newsagents, however, and for the most part they continue to sell at publishers' recommended prices. It has, however, increased competition for the share of the book selling market, not only from the main booksellers who offer top titles at substantial mark-downs, but also from the supermarket chains who do likewise.

In most cases the volume of trade will be relatively small and it will be unnecessary to go into it in any detail. It is worth bearing in mind, however, that books remain VAT exempt, and that therefore separate accounting procedures will be applied for VAT purposes.

7.2 Advertising boards

Many newsagents invite people in the locality to place small advertisements in the shop window or in a purpose-made display board. The receipts from this source are unlikely to be substantial, but nevertheless clearly require to be accounted for.

7.3 Pools commissions

The newsagent is in a good position to collect football pool coupons from customers and is now permitted to be appointed a local agent by one of the big football pool firms. Prior to the advent of the National Lottery, this was, strictly, not allowed, although in many areas a blind eye was turned to such activity. Where this work is undertaken, a commission of, typically, 12.5% is paid. The National Lottery has, however, had a significant impact on this source of income.

7.4 British Telecom phonecards

Phonecards are purchased from British Telecom, the minimum order being cards to the value of £120. The invoice from Telecom is payable within 28 days, and the retailer pays only 90% of the value ordered, the balance of 10% being retained as commission. Postage stamps (which are VAT exempt) are frequently sold in CTNs, with a standard 5% commission earned on sales.

7.5 Agencies for bus passes

London Regional Transport (LRT), and possibly other Transport Authorities, may grant a CTN an agency to sell bus passes. The agency commission is 5% of the face value of the passes sold, which remain the property of LRT as the retailer does not have to buy them. LRT's representative calls monthly, agrees the sales, and arranges payment of the commission.

7.6 Photocopying services

A number of CTNs offer the facility of photocopying services, with many of them operating under the banner of the American company TRM. Under the TRM arrangement, the retailer pays an initial set-up fee - approx. £88 in 1995 - and the installation, service and paper supplies are provided free. Typically, the retailer charges 4p or 5p per photocopy (the amount prescribed by TRM), and the retailer reads off the number of units sold every month, upon which an invoice is based. The bill is based on the sales figure less a discount of between 10 and 25% depending on sales volume.

Faxing facilities, 24 hour film developing services, dry cleaning agencies and florists are further examples of diversification that is a feature of many CTNs.

7.7 British Gas Quantum Cards

As at April 1996, there were around 400 sellers of British Gas Quantum Cards in the UK. (Not in N Ireland, however). Each newsagent receives an average profit of around £8-9 per week for about £600 of sales - i.e. 1 1/2% profit.

Whilst some of the services listed in this section can be highly profitable in themselves, the attraction of customers into the shop is often their principal purpose.

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8. Specialist Traders

8.1 Newsvendors

The street corner newsvendor selling only evening papers is allowed the same discount as the newsagent, but is allowed full sale or return terms by the publishers. The kiosk type or station newsvendor usually sells a range of papers and magazines and is subject to the same terms of supply as the conventional newsagent.

Similarly, news roundsmen are also supplied on the same terms as the newsagent. Whilst the roundsman has no shop facilities with their inherent overhead costs, high transport and labour costs are sustained.

8.2 Tobacconists

The traditional tobacconist always sells other items on which a return much higher than that obtained from tobacco products is likely. The average proportion of turnover relating to these non-tobacco items is one-third, though it will obviously vary from case to case. Apart from confectionery the non-tobacco items are lighters, cigarette cases, small gifts, etc. on which mark-up is unlikely to be below one-third on cost. The Q rate at which supplies are obtained will probably be favourable because turnover is likely to be substantial. If turnover is not substantial, business is unlikely to continue because of the high cost of financing a wide range of expensive stock.

The "kiosk" type of cigarette specialist selling at cut prices relies on high volume trade which enables him purchases to be made at favourable rates. There is no "normal" gross profit rate and each case needs to be considered on its merits. If the trader fails to cover "wages" and get an adequate return on capital, it may be worth enquiring into the terms of supply and the pricing policies.

8.3 Confectioners

Specialist confectioners tend to deal in high class prestigious products (sometimes of their own manufacture) or in particular types of sweets (e.g. rock) at tourist resorts. It is not easy to make a good living out of confectionery alone unless the trader can guarantee a high turnover or high prices.

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9. Shrinkage

"Shrinkage" is the euphemistic term that is frequently used to cover losses from thefts, either by shoplifters or even till snatchers; or by means of staff defalcations. In discussing such losses, it is important to take a view of what is reasonable. The NFRN submits that overall wastage levels - which include damaged and therefore unreturnable goods - can range between 4 and 6 per cent, although there may well be variations between different types of shops. For example, where the shop sells a high proportion of perishable goods, it may be that stock is lost due to the expiry of sell-by dates; or where a newsagent's newssheet purchases comprise a higher than normal ratio of firm sale items which prove difficult to sell.

Of this, around half is thought to be attributable to shrinkage, with a figure of 2 1/2 per cent being cited in a recent VAT Tribunal report (Mumford & Anor LON 86/216) as a reasonable average in a case where the customer base comprised large numbers of school children, and where the layout of the shop made security difficult.

Where especially high levels of losses due to theft are claimed, it is pertinent to ask the retailer what actions have been taken to rectify the problem. An increasing number of CTN outlets have invested in video surveillance systems, for example.

10. VAT Special Schemes

The special schemes for retailers are described in detail in VAT booklets in the 727 series. It is not necessary to go into this in detail but it is useful to know broadly what the newsagent is required to do for VAT purposes. Details are given in the VAT leaflets, and they will not be repeated here. One aspect of the schemes is worth a special mention, however. Newsagents generally supply goods at both standard and zero rates (and possibly exempt rate too) and the special scheme will involve some system of breakdown between categories of supply. Most of the schemes are based on analysis of purchases and the newsagent will therefore often require to have some analysed information about product mix.

In general newspapers and magazines are zero-rated for VAT, but where, for example, a magazine includes a gift or item that is an integral part of the product, a proportion of the selling price becomes subject to VAT at standard rate.

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11. Group Buying Schemes

Members of the CTN trade association, the National Federation of Retail Newsagents (NFRN), can obtain improved terms from their suppliers by purchasing stock through the companies set up by the Federation.

Between them the companies, each with the name 'Bridewell' in their title, cover the UK. Each company operates independently of the others, but their methods of trading are understood to be much the same. Members of the NFRN who wish to take advantage of the improved terms have to join one of the companies, and are expected to place as much business as possible with the suppliers with whom that company deals.

The companies negotiate improved discounts, and so on, with suppliers. The member places orders directly with the suppliers, who send invoices both to the member and to the 'Bridewell' company. The company pays the suppliers and sends a monthly statement to the member showing the amount owing to the company. The company meets its running costs by obtaining a prompt settlement discount from the suppliers, which it does not pass on to the member. The company's trading surplus, if any, is distributable to its members. Each member's share of the surplus is determined by the proportion that the value of the orders placed through the company bears to the total orders placed through the company by all its members in the relevant period. The company, however, has the right to retain part or all of its trading surplus and may well do so if it has no other source of working capital. Accordingly, the amount paid out to members may not bear any relation to the distribution formula. The NFRN estimate that less than 20% of their members affiliate to such schemes, and generally they are limited to businesses having a turnover in the region of £3,000 per week.

11.1 Bonuses paid by supplier

Some wholesalers operate a system of quarterly cash bonuses based on the value of goods supplied. It is usually a "gimmick" on the same lines as trading stamps; the retailer is prepared to pay more for the goods, week by week, than by going to some other wholesaler, because of the quarterly bonuses. The practice makes little appreciable difference to the rate of gross profit provided the quarterly bonuses are credited to sales or deducted from purchases. Where the bonus is credited to sales, it will show a smaller GPR than if it is deducted from purchases. If the GPR is lower than normal, it is possible that part of the explanation may lie in undisclosed bonuses.

11.2 Payments for distribution services

Some distribution companies pay CTN's with newspaper delivery rounds for delivering advertising literature and so on with the papers. The companies may require blanket coverage of an area rather than confining distribution solely to paper deliveries.

12. Books and Records

The Inland Revenue leaflet SA/BK3 - "Self Assessment - A guide to keeping records for the self-employed" outlines in general terms the business records that are required to be kept as a result of the 1994 Finance Act. To reinforce this, the NFRN provides the following advice to its members on the maintenance of books and records:

It is essential that good books and records are maintained from the commencement of a business to its cessation. This is now a statutory requirement.

Such records are included either in a manual or computerised form as follows:

  1. Cash book - ensure all takings and receipts including delivery charges, pools, lotteries, rental, other sales for which commissions are received, insurance claims, capital introduced (stating source), etc. and expenses including drawings, etc. are recorded. These should be written up regularly and cash reconciled weekly.
  2. Bank statements (to be reconciled to cash book at regular intervals).
  3. Paying in books.
  4. Cheque book counterfoils.
  5. Purchases/expenses invoices.
  6. VAT records, including copy of the VAT100.
  7. Till counterfoil receipts.
  8. Identify all transactions going through private bank and building society accounts.
  9. Record fully drawings and note goods taken for own use but not paid for and events that may affect trade and gross profit. Also ensure your accountant is aware of private proportion expenses (e.g. telephone/motor vehicle/light and heat/loan interest). Private motor includes that from home to the shop.
  10. Wage records - staff employed, hours and rates, etc.

The maintenance and system of books and recording should be discussed with your accountant upon initial appointment and should be reviewed at regular intervals.

Suppliers will often produce detailed computerised statements for the retailer. In particular, a lot of invaluable information can be gleaned from the computerised analyses produced by newssheet suppliers.

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13. Examining Accounts

The achieved overall rate of gross profit of a CTN is determined by the mix of the goods sold and it is necessary to take into account the siting of the premises and the nature of the trade before a proper assessment can be made of results. For example, the back street shop relying mainly on delivery sales is likely to have a smaller proportion of cigarette sales and therefore a higher rate of overall gross profit than one selling over the counter in a city office area.

It is meaningless to talk about a "low" rate of gross profit in isolation. The rate of gross profit must be considered in relation to the product mix and it is essential to know something of the nature and location of the business before even the most tentative conclusions can be drawn. A visit to the shop (or a series of visits to shops in a locality) will enable the Inspector to draw inferences from the location and appearance of the premises of the type of market served by the trader.

In cases where the retailer is a National Lottery agent with potentially significant income from lottery commission, it is important to identify how such income has been presented in the accounts. Where, for example, it is lumped in an all-inclusive figure of sales, the gross profit ratio will clearly be inflated.

The use of a model may help in thinking about the relationship between product mix and overall results. An example is given at 12.2 of the results which would be obtained on the basis of different mixes of sales. Any such model is bound to be oversimplified but where it is tailored to fit the circumstances of the District or locality under review it can give useful insights into the significance of rates of gross profit shown in accounts.

The factors which will affect the likely product mix will vary somewhat with the locality but would normally include things like -

  • the extent of "commuter" trade;
  • adjacency to offices of factories;
  • scope for delivery trade (for example, on a housing estate);
  • position in relation to shops and schools;

The effects of roadworks or utility services works, which may, in different cases, be adverse or favourable, should also be taken into account.

The following table gives an idea of the average product mix of this type of business in recent years:

Product mix of CTNs (%)
  1986 1988 1991 1993*
Tobacco products 41.1 38.0 37.3 36.7
Newspapers and periodicals 22.9 24.1 23.4 22.8
Confectionery 16.5 16.0 15.9 15.6
Food and soft drinks 9.2 11.4 12.4 13.5
Books and stationery 3.2 3.2 2.7 2.2
Alcoholic drink 3.6 3.6 4.1 4.7
Other products 3.5 3.7 4.2 4.5
Total sales (£M) 7,734 9,094 10,700 11,380

*Estimate

Source: Central Statistical Office

Examination of invoices covering a representative period should enable a reasonably accurate assessment of a retailer's product mix. There should normally be no practical difficulty in the production of invoices which the trader must keep for three years under the VAT rules, and, following the introduction of the 1994 Finance Act, there is now a legal requirement to retain business records for a minimum of 5 years from the latest date by which their tax return is to be filed.

In addition, the VAT records should enable a breakdown between news-sheet and other goods to be ascertained, which may prove a useful starting point.

13.1 Gross profit rates

Trade surveys conducted in 1983 and 1991 showed reduced GPRs in respect of news sheet tobacco sales compared to those reported in the Business Note in 1977, and indications from the National Federation of Retail Newsagents are that this decline has continued.

The range of target GPRs shown in the surveys were:-

 
  1977 1983 1991 1996*
Newspapers, periodicals 25 - 28 24 - 28 20 20 (Max)
Magazines 22 - 25 - 20 20
Cigarettes, tobacco 7 - 8 4 - 7, 10-11 6 - 9 4 - 9, 10 - 13
Confectionery 20 15 - 25 18 - 22 15 - 19
Greeting cards 33 - 57 40 - 55 45 40 - 45
Stationery 33 - 37 33 - 50 33 - 50 25 - 33
Paperbacks 33 35 - 45 25 - 33 25 - 33
Toys 33 - 37 30 - 36 33 - 40 33 - 40
Pens 33 - 37 35 - 46 33 - 40 33 - 40
Records, tapes - 20 - 25 20 - 25 20 - 25
Other sales 23 - 29 30 30 30

The Census of Retail Distribution gives the average GPR achieved as follows:-

1988 - 18.5%

1990 - 16.7%

1991 - 17.3%

1992 - 17.0%

(CSO)

A major contributory factor towards declining levels of GPR in recent years have been the changes in the distribution of newssheet, which has been described earlier in the note, and the consequent reduction in the gross profit margin for newssheet. Reports similarly suggest a declining margin being attained in respect of cigarette sales. The tables that follow illustrate the effect of these developments.

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13.2 The effect of product mix on gross profit rates

For the sake of illustration, it is assumed that the achieved rate of gross profit (allowing wastage, etc.) on each group of items will be:-

Cigarettes and tobacco - 8%

Confectionery - 20%

Stationery & Toys - 30%

The table that follows illustrates the variations effected by margins on newssheet at 24, 25 and 26%

Overall rate of GP on sales(%) - where GP on News-sheet = 26%, 24%, 22% or 20%

Overall rate of GP on sales(%) - where GP on News-sheet = 26%, 24%, 22% or 20%
Sales Mix Overall GPR
Cigs/tob
8% 		News
 Confec
20% 		Stat. & Toys
30% 		Newssheet
26% 		Newssheet
24% 		Newssheet
22% 		Newssheet
20%
30 70     20.6 19.2 17.8 16.4
30 60 5 5 20.5 19.3 18.1 16.9
30 50 10 10 20.4 19.4 18.4 17.4
40 60     18.8 17.6 16.4 15.2
40 45 10 5 18.4 17.5 16.6 15.7
50 50     17.0 16.0 15.0 14.0
50 35 5 10 17.1 16.4 15.7 15.0
60 40     15.2 14.4 13.6 12.8
60 35 5   14.9 14.2 13.5 12.8
60 30 5 5 15.1 14.5 13.9 13.3
70 30     13.4 12.8 12.2 11.6
60   20 20 14.8 14.8 14.8 14.8

 

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14. Miscellaneous

Predominantly, CTN retailers' transactions with their customers are in the form of cash, and the normal risks attaching to cash trades equally apply to this sector.

In larger outlets, owners have to introduce fairly sophisticated procedures to minimise the risk of staff defalcations. Such machinery can also make it difficult for the owners to help themselves, and it is ironic that in a predominantly cash business, cases have been met where some of the cheque income was not declared. Examples include:-

14.1 Damaged goods allowance

Goods identified as damaged on delivery could be rejected, but the wholesaler may pay a standard allowance which is based on the percentage of the total purchases. The percentage varies from year to year. In one case (£1million turnover) the allowance amounted to £500 per quarter. More commonly, however, goods are returned to the supplier - or otherwise disposed of by the retailer - and a credit note is issued. Occasionally, where the quantities are small, the representative may purchase the damaged gods and request a till receipt to cover petty cash.

14.2 Credit accounts

Two local playgroups had credit accounts which generated £750 per month. Payment was made by cheque, and, again, was omitted.

14.3 Payments from regional council

Employment grants and various payments under training schemes (where the person is on unemployment benefit and the equivalent sum is paid directly to the employer)

14.4 Delivery charges

Delivery charges can tot up to a sizable amount, and are frequently settled by cheque payment. As illustrated at section 2.9. they can be expected to exceed the debit for wages to paperboys and related incidental expenditure, although according to NFRN sources many of its members report losses in carrying this service. Nevertheless, numerous examples have arisen where substantial omissions have occurred.

14.5 Air Miles

Retailers can collect Air Miles every time they purchase participating products. They simply exchange proof of purchase for Air Miles.

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Appendices

Appendix I - Comparison of GPRs received for a typical range of daily newspaper sales at January 1997 prices and at 1990 prices.

1997 prices
Title Number sold per day 1997 prices (pence) 1997 Margin (pence) Total daily sales (£) Overall daily margin (£)
Sun 100 28 6.625 28.00 6.63
Mirror 90 30 7.155 27.00 6.44
Express 35 35 8.48 12.25 2.97
Mail 40 35 8.48 14.00 3.39
Star 20 30 7.25 6.00 1.45
Telegraph 20 45 10.5 9.00 2.10
Times 15 35 11 5.25 1.65
Guardian 15 45 11.93 6.75 1.79
Independent 10 40 10 4.00 1.00
FT 5 70 17.5 3.50 0.88
Totals 350     115.75 28.29
GPR         24.44%
1990 prices
Title Number sold per day 1990 prices (pence) 1990 Margin (pence) Total daily sales (£) Overall daily margin (£)
Sun 100 25 6.63 25.00 6.63
Mirror 90 35 6.63 31.50 5.97
Express 35 25 7.00 8.75 2.45
Mail 40 25 7.00 10.00 2.80
Star 20 25 6.63 5.00 1.33
Telegraph 20 35 9.80 7.00 1.96
Times 15 30 8.40 4.50 1.26
Guardian 15 35 9.80 5.25 1.47
Independent 10 40 10.60 4.00 1.06
FT 5 50 14.00 2.50 0.70
Totals 350     103.50 25.62
GPR         24.76%

Independent Retail Newsagent's Margins received as at September 1990 and September 1995

The following table was prepared by a London based newsagent to illustrate the declining return in money terms from his sales of Daily and Sunday newspapers as at September 1990 and December 1995.

 
Title 1990 1995
The Sun 37.96 29.52
Daily Mirror 29.88 19.50
Daily Mail 18.61 18.92
Daily Telegraph 16.23 12.96
Daily Express 17.32 12.14
News of the World 16.49 10.61
The Times 5.88 7.56
Mail on Sunday 8.05 6.27
Financial Times 6.19 5.94
Daily Record 7.55 5.88
Sunday Times 6.06 5.73
Sunday Mirror 9.09 5.56
Daily Star 9.14 5.52
Guardian 6.31 5.31
People 8.33 4.93
Sunday Express 6.85 4.89
The Independent 6.62 3.82
Sunday Telegraph 2.30 2.95
Independent on Sunday 1.34 1.45
Today 5.36 -
TOTAL 228.08 171.58

September 1990 was chosen because that was the year in which the reduction in terms started. The newsagent in this case also pointed out that prior to September 1990 he paid no carriage charges, whereas in December 1995, carriage charges amounted to £24.00 per week.

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Appendix II

Newspaper prices and margins as at February 1997

 
Title Cover price
(pence) 		Terms
% 		Gross profit
(pence)
Express 35 24.23 8.48
Express (Sat) 40 22.50 9.00
Financial Times 70 25.00 17.50
Guardian 45 26.50 11.93
Guardian (Sat) 60 22.08 13.25
Independent 40 25.00 10.00
Independent (Sat) 60 23.75 14.25
Mail 35 24.23 8.48
Mail (Sat) 40 22.50 9.00
Mirror 30 23.85 7.16
Mirror (Sat) 30 23.85 7.16
Racing Post 85 24.94 21.20
Sporting Life
 85 26.35 22.40
Star 30 24.17 7.25
Sun 28 23.66 6.63
Sun (Sat) 28 23.66 6.63
Telegraph 40 23.33 10.50
Telegraph (Sat) 75 24.00 18.00
The Sport 32 26.50 8.48
Times 35 31.43 11.00
Times (Sat) 50 26.50 13.25
Independent on Sunday 100 25.00 25.00
Mail on Sunday 85 20.88 17.75
News of the World 55 22.73 12.50
Sunday Express 75 26.44 19.83
Sunday Mirror 55 22.73 12.50
Sunday Sport 55 22.73 12.50
Sunday Telegraph 70 25.00 17.50
Sunday Times 100 25.00 25.00
The Observer 100 25.00 25.00
The People 55 22.73 12.50

 

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Appendix III - Tobacco sales - analysis of Profit on Return (P.O.R.) on cigarettes, etc.

Imperial Tobacco Limited - Based on sales at RRP purchased at Q4 rate.
Product Retail
inc. VAT		 Retail
exc.VAT 		Cost -
Q4 		Profit %
Embassy No 1 3.07 2.613 2.396 0.217 9.1
JPS 2.86 2.434 2.258 0.176 7.3
Superkings 2.86 2.434 2.26 0.174 7.2
Lambert & Butler 2.72 2.315 2.154 0.161 7.0
G Virginia 12 1/2g 1.93 1.64 1.48 0.16 99.8
St Bruno 25g 2.55 2.17 1.844 0.326 15.0
Classic 5's 2.23 1.90 1.57 0.33 17.4
Gallaher Limited - Based on sales ar R.R.P. purchased 250 Outer rate
Product Retail
inc. VAT		 Retail
exc.VAT 		Cost -
Q4 		Profit %
Benson & Hedges
 3.08 2.62 2.40 0.22 8.4
Berkely Superkings 2.86 2.434 2.26 0.174 7.2
Mayfair 2.55 2.17 2.015 0.155 7.1
Hamlet 5's 2.23 1.90 1.57 0.33 17.4
Old Holborn 12g 1.93 1.64 1.48 0.16 9.8

 

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Appendix IV - Illustration of the effect of alternative methods of accounting for vouchers and money-off coupons.

Assume:

  1. Weekly turnover £8,000.00
    Of which:
    • Newsbill £4,000.00
    • Other £4,000.00
  2. All "Other" VATed at standard rate (17 1/2%)
  3. Mark-up on cost: 33.3%; Margin on sales: 25% (margins quoted are purely for ease of calculation)
  4. VAT scheme B used
  5. £200 of Money-off coupons per week

Therefore:

  1. Ex VAT retail price - Other £3,404.26
  2. Ex VAT cost of sales - Other £2,553.20
  3. Cost of sales - Newsbill £3,000.00
 
  Netted off purchases
£ 		Credited to sales
£
Takings 7,800.00 8,000.00
VAT (595.74) (595.74)
Turnover 7,204.26 7,404.26
Costs of sales    
Newsbill 2,800.00 3,000.00
Other 2,553.20 2,553.20
  5,353.20 5,553.20
Gross Profit 1,851.06 1,851.06
GP% 25.7% 25.0%

 

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Appendix V - National Lottery invoices

Example of a National Lottery invoice