In two regions in Germany, letters are not exclusively delivered by the postman. Instead, they also arrive with the newspaper each morning.
After the German government ended the post-office monopoly — first allowing competition for parcel delivery, then for letters — executives at Rheinische Post Mediengruppe decided to become a competitor to Deutsche Post in areas where print distribution of two of its newspapers was particularly strong.
Specifically, it targeted mass mailings of letters — the kind of bulk mailings done by government agencies, large companies, and political institutions — that could be delivered with the morning newspaper.
“It’s highly interesting because of the logistics cost of delivering the newspaper,” says Johannes Werle, group managing director at Rheinische Post Mediengruppe. “We have people delivering at 6 a.m. To make this organisation more cost-effective, we were looking for ways to deliver more pieces to letter boxes.”
Rheinische Post Mediengruppe delivered more than 59 million letters in 2015, and expects to exceed 60 million in 2016. Despite the organisation’s expertise in delivery, starting the business required new skills, according to Werle.
“The competencies needed were on the sales side, less on the technical side,” he says. “Logistics people can add whatever is needed … with the same number of people, you can deliver many more pieces. To go to companies and sell this new service took some time.”
The delivery service is now responsible for a “higher one-digit percentage” of the company’s total revenues, according to Werle. Equally significant, “it’s thought of as how you can generate a profit and keep the cost of newspaper delivery stable,” Werle says.
Delivering letters is one of several ways in which Rheinische Post Mediengruppe is diversifying. In fact, the organisation considers diversification one of the three pillars of its overarching corporate strategy.
In 2012, the organisation agreed to focus on diversification, consolidation of media properties, and digitalisation. Rheinische Post had previously made considerable efforts to diversify, but executives were now also focused on scale.
One of the first things the organisation did was look at an acquisition it had made a few years earlier — a professional publishing group that, while successful and a good match for the core competencies of the media company, “was not big enough to take a significant role in the group,” Werle says.
As a result, it is seeking similar acquisitions in other European markets — especially the United Kingdom — to increase the scope of its professional publishing business through organic growth and acquisitions. “That’s on our to-do list,” Werle says.
By contrast, at the end of 2012, Rheinische Post acquired a larger organisation, a worldwide translation and document-management business. A major supplier of translation services for European institutions, pharmaceutical companies, construction, and also automotive manufacturers, the service specialises in identifying and integrating its operations with leading companies in these verticals.
“When we acquired this business together with Saarbrücker Zeitungsgruppe, we had no particular knowledge on the group management team for this [business sector],” Werle says. But the business was appealing for three key reasons:
- Its revenues were independent of the cyclical nature of the newspaper business.
- It was not critical from a German anti-trust authorities perspective, and it had an international exposure.
- Its size also led the executive team to believe it had the potential for further growth.
“When you make an acquisition you have to have good knowledge of the specifics of the market. Is it a platform big and stable enough to handle, and with the potential to grow?” Werle says.
To that end, the group subsequently has already acquired three smaller companies in the translation space, including, in 2015, one in the United States that is a major supplier for Johnson & Johnson. “We are focusing on verticals, like pharmaceuticals, and on regions where we are not strong enough,” Werle says.
But to fully understand how the organisation developed the appetite and the ability to diversify in this way, you have to look back more than two decades.
Like many newspapers in Europe and elsewhere, by the early 1990s, Rheinische Post had moved its operations out of Düsseldorf’s city centre — first, the printing plant and then the offices. Managers were faced with a crucial decision: sell the valuable property or develop it on behalf of the company.
“None of the executives at that time had any clue how a commercial centre works,” Werle says. “The group took an opportunity risk.”
To that end, the company contracted with architects and commercial property managers and converted the former newspaper property into a major shopping centre in the heart of the city.
Today, the three-level, 17,500-square-meter shopping centre has more than 60 retail tenants and an additional 13,000 square meters of office space. Supported by a 1,000-space underground car park, the Schadow Arkaden centre draws approximately 8 million visitors a year and is considered a “landmark in the best part of Düsseldorf,” Werle says.
Over the past decade and a half, there has been “a very healthy revenue development”, according to Werle, and the commercial centre is “a very solid contributor for our group EBITDA.”
While not related to a media organisation’s core business, owning retail properties can provide something other, more media-centric divisions cannot: stability and a consistent revenue and cash flow that allows further diversification.
“When you think about developing the company and taking loans for larger acquisitions, for banks [the property] is very good security,” Werle says.
This is one of 14 case studies featured in INMA’s strategic report “Revenue Diversification Beyond Traditional Print and Digital,” released in December 2015.