Do it our way - or get off the shelf

This Friday, some of Britain's best-known magazines, including Prima and Best, are due to start disappearing from Tesco's shelves. It is not because they no longer sell in huge quantities - both have vigorous circulations - but because of a dispute between the supermarket chain and magazine publishers, which the latter claims could result in the eventual closure of 7,000 newsagents across the country.

This Friday, some of Britain's best-known magazines, including Prima and Best, are due to start disappearing from Tesco's shelves. It is not because they no longer sell in huge quantities - both have vigorous circulations - but because of a dispute between the supermarket chain and magazine publishers, which the latter claims could result in the eventual closure of 7,000 newsagents across the country.

The dispute, which is heading for both the law courts and the Office of Fair Trading, stems from Tesco's decision to break away from the existing, longstanding regional distribution system for magazines by setting up a national distribution system with WH Smith as the sole supplier to its 658 retail outlets.

Tesco's move has been greeted with outrage by publishers, who claim that it poses an immediate threat to small retailers - up to 7,000 of whom could be forced out of business if other chains were to follow the Tesco route. The Periodical Publishers Association, which represents 300 publishers, and some 2,300 titles, cites analysts' estimates that such closures would lead to the loss of at least 20,000 full and part-time jobs.

Gruner & Jahr, publisher of Prima and Best, says that Tesco is meeting its protests by singling it out for punitive measures, and threatening to remove its magazines from the supermarket's shelves. "Tesco has said it will remove five titles on Friday. If it goes ahead we'd lose 9 per cent of our overall sales. That's a serious threat," Holger Wiemann, Gruner & Jahr's managing director said.

Mr Wiemann said Gruner & Jahr had tried to negotiate with Tesco, but claimed that the company had proved "intransigent". "We have just sent out further letters to them, in the hope of an amicable solution. Otherwise we will have to bring the matter to the OFT and courts. We hope it's not going to come to that."

"Our main complaint is that we're going to be forced to use a wholesaler and their way of delivering to Tesco, giving WH Smith, which doesn't perform better than anyone else, a market share of more than 50 per cent. That can't be good for the industry."

Gruner & Jahr claims the support of the whole publishing industry, against such "strong-arm tactics". "We would prefer now that everybody has made their position clear that we negotiate. But time is running out for us." Tesco accounts for some 7 per cent of the £1.7bn annual revenue generated by magazine titles. According to the PPA, its plan to move to a national system of distribution is part of its attempt to increase its share of the magazine market to around 12 per cent, inevitably to the detriment of the small retail outlets.

"Hundreds of smaller titles will be put out of reach of the specialist consumer. Tesco has no interest in stocking them," said a spokesman for the PPA. "Small retailers will find themselves excluded from a supply chain which inevitably becomes geared to the multiples at the expense of the small retailer. As the Tesco/WH Smith axis becomes ever mightier, the distribution system which delivers niche titles to small retail outlets will wither and die." It says Tesco will also eventually increase its profit margins on magazines from 27 to an unprecedented 35 per cent.

Representatives of the PPA met with Chris Smith, the Culture secretary, yesterday to discuss what they describe as Tesco's "bully boy tactics". The organisation is planning a major campaign of action to try and stave off the threat, including legal action over the delisting threat to Prima and Best; a report to the Competition Commission as part of its forthcoming report into the excess power wielded by supermarkets, and lobbying parliament.

Tesco, meanwhile, is bullish, saying its new system of distribution will have benefits for everyone. "We've had a situation where we get a delivery at the beginning of the month and can sell out titles like Cosmopolitan or FHM within two or three weeks, whereas in other parts of the country they're being sent back and pulped. The regional system just isn't working. Every year some £300m worth of magazines are wasted," said a spokesman.

The retailer denies that its departure would lead to the collapse of the existing system. But it remains unapologetic about its stance on Gruner & Jahr, leaving it likely that the battle between supermarket and publisher is going to intensify. "Gruner & Jahr were saying unless you changed your minds you won't have our titles. We haven't changed our minds. We'll have disappointed customers but we're trying to do this so that there are fewer disappointed customers overall."