Private Firms Challenge Post Office

NEXT month, American consumers in three major cities will find their J. Crew clothing catalog in an unusual place: hanging in a plastic bag on their doorknob. Welcome to privatized second and third class mail delivery, which is providing some competition for the United States Postal Service (USPS). The time is right for private carriers, say businesses and publishers, because the Post Office is due to raise its rates in 1991. Proposed increases: about 23 percent for second class mail (4 cents added to the average 17 cents to mail a magazine) and 18 to 28 percent for third class (roughly the same for catalogs).

``The new rates will have a tremendous effect on our business,'' says Marilyn Luers, magazine distribution manager at Meredith Corporation, a publisher in Des Moines, Iowa. The rate increase would add 4.21 cents to each magazine mailed. Meredith's annual postage bill would increase from just under $35 million to more than $42 million.

Partly in response to previous postal hikes, Meredith started using private delivery 20 years ago. Today five magazines - Better Homes and Gardens, Metropolitan Home, Country Home, Ladies Home Journal, and Midwest Living - are being delivered this way to 380,400 households across the US. ``It's good, healthy competition,'' Ms. Luers says.

The biggest of the private carriers is Alternate Postal Delivery (APD), based in Grand Rapids, Mich., formerly known as United Delivery Systems. Each month APD delivers magazines, catalogs, directories, and promotional materials to more than 3 million US households, in 16 markets, to 270 zip codes. Says Phillip Miller, president: ``Our goal is to send out all publications at least 15 percent cheaper than the new postal rates, and to deliver monthly magazines a day earlier.''

Because first class mail is protected by law as the sole domain of the USPS, APD delivers only second and third class mail. Mr. Miller maintains APD will do for magazines and catalogs what Federal Express and United Parcel Service have successfully done for overnight and package delivery.

And his company offers more than just cheap rates. ``It's a whole new way of thinking about print advertising,'' Miller says. ``We look at the whole direction a magazine is going. We look at samples that would go along with the magazine, and advertising keyed to local vendors. If catalogs are proposing to sell perfume or cologne in their catalog, we can include a sample.''

APD delivers 32 magazine titles, including Hearst's Good Housekeeping, Redbook, and Popular Mechanics, plus four magazines for Meredith Corp.

In addition, APD delivers a slew of catalogs.

APD plans to expand to 95 markets in the next four years, with gross revenues climbing from the current $3 million a year to $450 million a year. The Direct Marketing Association estimates that 26 billion pieces of mail may be diverted to private carriers with next year's price hike.

``We're not trying to replace the post office by any stretch of the imagination,'' says Miller. ``We're simply trying to meet new needs.''

APD recently added two major newspaper companies to their network to help increase their distribution base. The most lucrative aspect of private delivery is selling local and national ``ride-alongs'' - a local auto body shop circular inserted in the delivery bag with Popular Mechanics magazine, for example. This targeting of ads to prospective buyers is more effective than broader coverage, like including the circular in the Sunday paper, APD claims. ``This is micro-marketing at its most sophisticated,'' says APD chairman Stanley Henry.

Another private delivery company, operating only in the Atlanta area, is Publishers Express, owned by Time-Warner, Inc.

Yet while the market is growing for private carriers, limitations remain. Delivery to rural or other areas with few subscribers is too costly and must be left to the USPS. Mail boxes are reserved strictly for the use of the Post Office, so plastic bags must be hung on doorknobs. Delivery people often find it difficult to gain entry into apartment buildings.

Consumer complaints range from disliking the advertisement inserts, to hating the added waste from the plastic packaging, to being upset to find a favorite magazine soggy with snow.

Miller is doing what he can about the plastic complaints. Shunning so-called bio-degradable plastics, he has turned to post-consumer waste. Says Miller, ``All our bags are 100-percent recycled plastic.''