IPASJ International Journal of Computer Science (IIJCS)

Web Site: http://www.ipasj.org/IIJCS/IIJCS.htm

A Publisher for Research Motivation ........ Email:editoriijcs@ipasj.org
Volume 5, Issue 5, May 2017 ISSN 2321-5992

The Newspaper Distribution Problem: Strategic

Analysis of Profit-Loss Picture for A Metro
Distributor
Joseph Gilkey Jr1, Nicholas Riepe2, Eliran Epshtein3 , Igal Oren4
1,2,3,4
Saint Peters University

ABSTRACT
Freedom Reports Providers is a newspaper and magazine wholesale distributor that serves thousands of independent and chain
retail outlets in New Jersey, Pennsylvania and New York on a daily basis. The main objective was to construct a profit/loss
model for the company that includes factors such as product number (i.e., the numerical code that identifies each unique
product), day of week, location of sale, delivery/pickup route, and time of year for the New Jersey and Pennsylvania distribution
areas served by the company. Data visualization tools (e.g., Microsoft Excel and Tableau) are employed to assess more
comprehensively the distribution outlets in both strongly and poorly performing routes in the companys main geographic
areas of operations. There is a window of opportunity for the company that finetunes its strategy regarding where its
distribution efforts are likely to achieve the most positive revenue picture.
Keywords: newspapers, profir-loss, and wholesale distributor

1. Introduction
Freedom Reports Providers is a newspaper and magazine wholesale distributor that serves thousands of independent
and chain retail outlets in New Jersey, Pennsylvania and New York on a daily basis. Although the nation has recovered
significantly from the Great Recession of 2008, the newspaper industry remained stuck in unfavorable economic
conditions, as of 2015: Weekday circulation fell 7 percent and Sunday circulation fell 4 percent, both showing their
greatest declines since 2010. At the same time, advertising revenue experienced its greatest drop since 2009, falling
nearly 8 percent from 2014 to 2015 (2). Many industry players have failed to heed their own advice; being slow to
acknowledge the changing marketplace dynamics as greater numbers of media consumers turned to digital formats for
receiving their news. Previously, the newspaper industry was viewed as capital-intensive because it required substantial
investments in printing and delivery equipment to produce sufficient numbers of copies to meet consumer demand.
Changes in technology also have dictated major shifts in revenue streams, an extremely difficult challenge that led
numerous newspaper groups and wholesalers to file bankruptcy (4).
Some of the difficulties in responding to the problems can be attributed to how managers or business owners are
generally averse to taking on any new business risk and prefer to avoid change, which might lead to decisions that seek
to protect shrinking market positions rather than rise to the original objectives of satisfying the profit-maximizing
equation. For example, they may focus on selling low-profit products versus high-profit ones, simply because those are
the products that their respective businesses always have sold (6). This can be applied to the current study about a print
media distributor that must address the problems of specific routes or areas that may no longer be profitable due to
industry changes and to consumer preferences about how they receive their news.
Given the relentless advance of technology to deliver information quickly and in clear, functional formats along with
the long-term decline in demand for traditional print forms, companies such as Freedom Reports Providers must
continuously adjust their operations, even in the short-term as industry conditions can change abruptly. Others are
geared toward the longer term, even as direct as the implementation of scanning technology. Scanning systems have
become common tools for retailers to generate databases that automatically track inventory changes as they occur, as
well as allow managers to evaluate the baseline effectiveness of certain sales promotions (1). Some companies in the
newspaper distribution industry, such as Freedom Reports Providers, currently do not use a scanning system, but could
benefit from implementing the technology, just as many brick-and-mortar stores have done so, even if it has allowed
mixed results for many.

Volume 5, Issue 5, May 2017 Page 13

 IPASJ International Journal of Computer Science (IIJCS)
Web Site: http://www.ipasj.org/IIJCS/IIJCS.htm
A Publisher for Research Motivation ........ Email:editoriijcs@ipasj.org
Volume 5, Issue 5, May 2017 ISSN 2321-5992

Another long-term adjustment would be monitoring routes in greater data detail so as to minimize as much of their
expenses as possible to better endure systemic shocks, such as the inevitable decline in revenue. The elements of
production and distribution can still be leveraged for achieving realistic goals of profitability in this industry.
Regarding distribution, it remains important to organize routes from distribution centers to stores in a manner that
ensures optimal efficiency (7). Optimal efficiency does not just mean delivering the maximum number of newspaper
and magazine editions in the shortest amount of time, it also means delivering them in the most profitable manner by
maximizing revenues as well as minimizing expenses. The need to pare expenses and make them more efficient will
not only help wholesaler distributors such as Freedom Reports Providers to find some point for sustaining profit, but
also allow them to remain competitive in the industry. And when companies become competitive with regard to their
pricing strategies, it compels all businesses in the industry as a whole to decrease their prices in a realistic and
reasonable frame (5). Undoubtedly the industry already operates on tight profit margins so decreasing prices could
cause more companies to be forced out of the industry. This would allow a strategic company to take serious advantage
of a loss in competitors. However, this can only be accomplished if that company monitors and responds to volatility in
price and cost structures that do not lead to incoherent short-term tactics.
For Freedom Reports Providers, the main objective was to construct a profit/loss model for the company that includes
factors such as product number (i.e., the numerical code that identifies each unique product), day of week, location of
sale, delivery/pickup route, and time of year for the New Jersey and Pennsylvania distribution areas served by the
company. The point was to introduce incremental yet coordinated recommendations to strengthen the companys
portfolio to withstand the chaotic trends of an industry where the future profit pictures are difficult to forecast with a
requisite expectation of accuracy.

2. Methods
Data visualization tools incorporating Microsoft Excel and Tableau software were employed to make data more
comprehensible and accessible for targeting the analysis in identifying route points that are the most profitable as well
as those that are consistently poor performers in terms of sales and revenue. The company provided 12 months of
aggregate data for the most recent annual period so that the research team could prepare visualizations for analysis.
The data include distribution locations for each route in all three areas designated for analysis, including street
addresses. Sales data for each day of the week and the sales of individual newspaper editions are indicated for each
location, along with prices, weekly revenues and gross profit margins. The total number of papers sold were calculated
by subtracting the returns (the number of newspapers or magazines that were not sold by the store and thus returned to
the wholesaler) from the draw (the amount of newspapers or magazines delivered to the store). This calculated figure
was then multiplied by the corresponding papers profit margin basically, a commission per each copy sold to
determine the total revenue.
With revenue calculations, the team then focused on determining the associated expenses for each route. The team
generated a new Excel document with formulas that incorporated the companys given variable costs for delivery
($175 per day per route) and collection ($2.50 per store per day) fees, the unique number of stores per each route, as
well as the number of days that the papers were sold during the week to determine the cost to run the route per week as
well as annually. The cost per year was then adjusted to account for the total number of weeks covered in the data sets
provided by the company. The only expenses not considered in the analysis were fixed costs, such as rent, utilities,
administrative salaries, and others related to the normal daily operations of the companys headquarters. All revenue
and expense spreadsheets were generated in Excel and then uploaded to Tableau formats. Thus, interactive maps of the
distribution areas in southwestern Pennsylvania and north and central New Jersey were generated from Tableau
presentations. The maps displayed zip codes for each of the stores represented in the area routes. Color coded dots
indicated the area which housed specific locations of distribution along with the size of the revenue generated within a
specific zip code. The maps interactive features permit users to navigate sidebar filters to pinpoint specific areas,
routes, and time periods. Tableau data presentations also were used to generate bar graphs that highlighted which
routes/areas registered a profit or loss, as well as the amount for a specified period. Analysis followed a hierarchy: net
annual profit or loss per route, per area and the company as a whole.
3. Results
The bottom line calculations, based on the Tableau presentations and Excel charts, indicated overall revenues of
$4,374,821.01 and a loss of $1,093,758.99 for Freedom Reports Providers in the given recent annual period. Nearly the
entire loss is explained that Area 3, one of the four distribution coverage areas, was the only one to register an annual
net profit. The breakeven revenue point was calculated to be $5,455,749.15.

Volume 5, Issue 5, May 2017 Page 14

 IPASJ International Journal of Computer Science (IIJCS)
Web Site: http://www.ipasj.org/IIJCS/IIJCS.htm
A Publisher for Research Motivation ........ Email:editoriijcs@ipasj.org
Volume 5, Issue 5, May 2017 ISSN 2321-5992

In Area 1, the Phildepha area, this area which contains 22.38 percent of the stores served on the distribution routes,
$934,597.76 was generated in revenue with a net loss of $1,221,657.69. The breakeven point for this area was
calculated to be $2,156,255.45. This area contains 37 routes, out of which only five (Routes 1, 33, 34, 36, and 38)
registered as profitable. The most profitable route in this area was Route 1, mostly due to there being no delivery
expenses, this route is more of a wholesale delivery run with a gain of $111,222.37. The most unprofitable route in this
area was Route 4 with a loss of $62,641.75. Route 4 is more a neighbourhood run as compared to other runs that are
more deliveries to transit locations and because of that makeup is made up of much small outlets.
In Area 2 is central New Jersey, which contains 35.04 percent of the stores served on the distribution routes,
$1,718,395.55 was generated in revenue with a net loss of $322,131.94. The breakeven point for this area was
calculated to be $2,040,527.49. This area contains 32 routes, out of which only nine (Routes 40, 51, 53, 56, 59, 61, 62,
65, and 67) are profitable. The most profitable route in this area was Route 53 with a gain of $37,274.98. The most
unprofitable route in this area was Route 49 with a loss of $37,479.71.
In Area 3 is southern New Jeresy including the Jesey Shore, which contains 19.16 percent of the stores served on the
distribution routes, $1,376,984.18 was generated in revenue with a net profit of $643,200.53. The breakeven point for
this area was calculated to be $733,783.65. This area contains 14 routes, all of which are profitable except for one,
Route 89. The most profitable route in this area was Route 71 with a gain of $101,070.15. The most unprofitable route
in this area was Route 89 with a loss of $63,760.96.
In Area 4 is northern New Jersey, which contains 23.42 percent of the stores served on the distribution routes,
$344,843.52 was generated in revenue with a net loss of $180,339.04. The breakeven point for this area was calculated
to be $585,182.56. This area contains 14 routes, out of which only two (Routes 82 and 85) are profitable. The most
profitable route for this area was Route 85 with a gain of $2,188.28. The most unprofitable route for this area was
Route 70 with a loss of $40,066.15. Stores in this area consistently displayed a loss, starting in the sixth of the 52 weeks
of data, but this fact is often hidden because the distribution points are part of the routes that contain high-performing
stores from Area 3.
In an additional step, all negative revenue points were removed except for thos registered in the poorest performing
routes: Routes 4, 39, 82, and 89. These negative revenue points ranged from less than a dollar per route to just below
$30,000, the highest and most numerous of which were found in Route 24. Additionally, Routes 4, 39, and 89, that did
not register any negative revenues, indicated nominal revenue and potentially major losses for the year. For example,
Route 89 generated only $69.04 in revenue for the entire year.
4. Recommendations
The teams recommendations included that, unless different cost structures or fixed expenses indicated otherwise, the
routes for Area 1 would need to be revamped or eliminated from the distribution protocol. For the number of stores
served in Area 1 routes, compared to the other areas, the outlets generate the smallest volume of revenue offset by large
losses. Given so few routes displaying a profit, and many displaying substantial losses, it may be more cost efficient to
cease serving this area. The justification for keeping this area would require a complete revamping of the cost structure
for the entire areas routes, an unprecedentedly significant undertaking given that revenues would have to more than
double in order to achieve the breakeven point, or, preferably, by focusing exclusively on the five routes in the area that
generate a profit.
The second recommendation is that while Area 2 did produce a net loss, it does have potential if its cost structure is
overhauled, an undertaking merited by the fact the areas routes serves the largest number of stores in the region and
many of the routes appear to be solid revenue performers. Based on the current cost struture 15 routes (these include
34, 36, 39, 41, 43, 44, 46, 47, 49, 50, 52, 57, 57, 63, 68) that are registering a loss of $10,000 per year or more. Based
on geography and the timing of the sales window for these products smaller non-profitable dealers need to be removed
from all routes which would allow for more cost-effective distribution of products. Pruning these unprofitable
routes/outlets would lead to the area generating a net profit for the following year, based on predicted sales, and would
offset the costs of a new distribution area the company is exploring.
Regarding Area 3, which has registered a profit both overall as well as in every route except one, discontinuing Route
89 would improve the profitability potential of the area, which is a stellar performer. Route 89 is a small one with just
two stores, each generating less than $70 annually in revenue and there is little evidence to make a case for continuing
its activity. Area 3 enjoys the most favorable profitable position despite that it has the fewest numbers of stores of any of
the studied areas.
As with Area 1, service should be discontinued for Area 4. With the exception of two routes, every other Area 4 route
registered a significant loss. The profits of the remaining stores are modest, with one just barely exceeding the $2,000

Volume 5, Issue 5, May 2017 Page 15

 IPASJ International Journal of Computer Science (IIJCS)
Web Site: http://www.ipasj.org/IIJCS/IIJCS.htm
A Publisher for Research Motivation ........ Email:editoriijcs@ipasj.org
Volume 5, Issue 5, May 2017 ISSN 2321-5992

level annually. This area generates the least amount of revenue of any of Freedoms areas, and some of its stores are
connected via the same route to stores in Area 3, a point which impinges upon this specific areas profitable potential.
All area routes also would benefit from a scanning system, as mentioned previously, to ensure the proper tracking of
draws (the newspapers delivered to each store), returns (the newspapers not sold by the store), and sales for each of the
newspaper editions. The data should indicate the sales for each newspaper edition equals the draws minus the returns.
However, as the data sets indicated, in numerous instances this was not the case and it often resulted in either
negative or incorrect revenue calculations. The implementation of a scanning system would improve accuracy of
tracking data and mitigate the occurrences of outliers and errant revenue data that might mask potential misrepresented
or fraudulent transactions. This is critical, as the company regularly pays out refunds to all stores that return newspaper
products.

References
[1] Abraham, M., & Lodish, L. (1993). An implemented system for improving promotion productivity using store
scanner data. Marketing Science, 12(3).
[2] Barthel, M. (2016). Newspaper Fact Sheet. State of The Media 2016. Pew Research Center
[3] Journal and Media. Retrieved from http://www.journalism.org/2016/06/15/newspapers-fact-sheet/
[4] Gilkey, J. (2012). Business Structures - Newspapers [PDF].
[5] Keisler , J., & Buehring, W. (2005). How many vendors does it take to screw down a price? A primer on
competition. Journal of Public Procurement, 5(3).
[6] Schweitzer, M., & Cachon, G. . (2000, March). Decision bias in the newsvendor problem with a known demand
distribution: experimental evidence [PDF]. Retrieved from
http://opim.wharton.upenn.edu/~cachon/pdf/cachon_schweitzer_ms.pdf
[7] Van Buer, M. (1992). The newspaper distribution problem: The integrated design of a two-stage distribution
system. Northwestern University, Evanston, IL.

AUTHORS

Nicholas Riepe Saint Peters University

Eliran Epshtein Saint Peters University
Igal Oren Saint Peters University

Joseph W. Gilkey, Jr. is Asst. Professor of Business Administration, Executive Director of the Ignite
Institute and the Director of the Center for Consumer Analytics at Saint Peters University. Born in 1956
in Wilkinsburg, Pa. He earned an A.A.S. from Suffolk CC, BBA from Dowling College, an M.B.A. from
Kelly School of Business at Indiana University, and PhD from the International School of Management in
Paris France. Gilkey has served as Chief Consumer Officer, Senior Vice President of Consumer Marketing
and Digital Services, and Senior Vice President of Circulation and Consumer Marketing at the New York Daily News
and Vice President, Circulation at the New York Post.

Volume 5, Issue 5, May 2017 Page 16