As Canada’s largest province by area and second most populous after Ontario, Quebec is not a bad part of the country in which to run a successful business. Certainly Novexco is aware of this, having established itself as one of Canada’s main wholesalers of office products on top of being a dealer group and even an e-tailer. However, the sights of President and CEO Robert de Montigny are no longer restricted to the borders of Quebec. Despite what seems to be a flat economy, he has high hopes that Novexco’s large investment in new facilities and IT will start to bear fruit and help the business to take on competitors in neighbouring provinces.
As the last remaining North American member of BPGI many eyes have been on de Montigny to see whether the organisation will secure his continuing support. Last month OPI posed this question, and asked the dealer group head why he believes that other groups around the world will soon be copying his membership model.
OPI: Let’s start with geography. Do your members span the whole of Canada?
Robert de Montigny: 85% of our business base is in Quebec and about 15% in Atlantic Canada and Ontario. We have plans for expansion, which will have to be outside of Quebec. We still have some market share to capture there but if we want to grow and have a solid base outside Quebec we’ll have to make some acquisitions.
OPI: What has prevented that expansion into other parts of Canada?
RM: In the beginning we didn’t have our share of the market in Quebec so we concentrated on that. Also we had two big challenges: both our distribution centre and IT platform had to be renewed. We completed these two things in 2011 and recently installed a new ERP system at our head office, so now it’s time for us to move outside Quebec and try to replicate these platforms.
OPI: How has the economic situation impacted the Canadian economy and office products industry?
RM: Generally speaking Canada was less impacted than the US but it was still impacted. Some regions are doing way better than others. Quebec didn’t do badly at all; we have a very extended business base here with a lot of entrepreneurs. At Novexco we were able to grow through our commercial division. Apart from our two dealer group divisions BuroPLUS and Club Express and the wholesale side, we also have quite a big chunk of commercial business. We have grown that business by double digits every year over the last five years through client acquisition.
OPI: You’ve got 68 BuroPLUS members and 54 Club Express members. How has your membership total been moving over the last few years?
RM: It’s about stable; we grew quite a bit through acquisitions. Our largest dealers are certainly consolidators, so they’re buying smaller ones but overall it’s about stable.
OPI: What are the criteria for membership of each?
RM: The BuroPLUS members are larger than the Club Express dealers in general; Club Express dealers are buying less than a million dollars with Novexco. Most of the BuroPLUS members are over a million dollars. Under BuroPLUS most of the dealers are about 75-80% commercial and the rest retail. Club Express dealers are probably more a 60-40 split. So our whole marketing programme is tailored to suit their needs. Also we sell to other resellers; we have about 1,000 wholesale customers such as stationery stores, bookstores, pharmacies and drugstores.
OPI: So you have essentially two distinct parts of the business: a dealer group and a wholesaler. Do you have any business selling direct to consumers?
RM: Through our website www.buroplus.ca we do sell direct to consumers and to small businesses. We don’t want to interfere with our dealers though, so we don’t operate any retail outlets.
OPI: How do your members feel about you technically being in competition?
RM: Quite frankly at the beginning they did have a problem. Now they realise that there’s a lot of business going online and if Novexco is not in that segment then we’re going to be losing out in the medium or long term. We’re competing with other electronic retailers so they look at the fact that they own Novexco, and our website contributes to the overall profit of the company.
OPI: So in essence your online business is competing more with the likes of Staples?
RM: Yes it does. Mind you we still have a long way to get to their numbers but it’s growing at a nice pace right now. We just put online a new, very articulated electronic catalogue that will certainly drive more business. The site is also an interesting shopping device for commercial accounts and people who purchase in retail outlets, and we direct them to the dealership whenever possible. Statistics in Canada suggest that less than 20% of site visitors are making transactions, but the other 80% will then go in a store. So it’s another way to forward business to dealers.
OPI: How are the combined revenues of your members trending at the moment?
RM: For the last few years we grew about 2-3%. 2012 is a bit more difficult than the previous years so we’re trending pretty flat. Mind you when we speak to other groups in Canada they’re having negative numbers in general, so it’s not a booming market for sure.
OPI: Do the dealers use the BuroPLUS banner to have a common company identity?
RM: Yes they do. To be a BuroPLUS member they have to use the logo and marketing tools, such as the catalogue. We advertise on TV, so certainly they get a lot of benefit in using the banner. They use it on their trucks, their letterheads, their invoices, everywhere they can.
OPI: You obviously spend a lot of time interacting with dealer groups from around the world; does it surprise you that that type of joint identity has not been more widely adopted?
RM: I’m not that surprised because these dealers are entrepreneurs and they view their business and name as probably much more important in their town than the big banner. As time goes on they’ll realise that if they want to play on the national ground then they have to have a very solid banner, particularly if they want to invest in TV advertising or any big campaigns. So I think it’s very short sighted to push only a dealer’s name. We see that as time goes by they are more and more attracted to the big banner, they see the benefits and that on a business level being by themselves is not possible. For example, we were able to bid on federal government business as a group, and then we shared that business. This would not have been possible for any of our dealers by themselves.
OPI: So you expect more dealer groups to think about adopting your model?
RM: I think they will look not only at us but also at the larger groups, see their success and realise that it’s a fact of life. If you have to fight the big boxes then you need to have a very solid name and you need to push a big banner.
OPI: What are the combined revenues of all your dealers?
RM: The total revenue – not all going through Novexco because a lot of them sell other services as well – is about CA$500 million (US$511 million).
OPI: And where would that place you in terms of importance in the Canadian OP market?
RM: Staples is certainly way over us and the other group Basics Office Products is probably a bit larger than we are as it’s across Canada, so we’re ranked fourth after Grand & Toy.
OPI: Where would Lyreco fall in that category?
RM: Lyreco’s total revenue in Canada is around CA$150 million, not more than that anymore and I think it’s 100% commercial at this point.
OPI: Besides the high profile TV advertising campaigns, what other services and products do you offer your members that are noteworthy?
RM: We view ourselves as not only a buying group, which is where we started, but as a service group. Now we also provide IT services, and we’re certainly very different to the other groups in Canada because of that. We developed our own IT platform that a dealer can operate on 100%, and we have about 60-70% of our dealers using it.
Another big difference is that we’re operating a distribution centre. We can ship four ways: direct from the vendor to the dealer; what we call tag, which is mainly for furniture that we would not unwrap; to the dealers ourselves; and finally pick, pack and ship directly to the end-user. We provide dealers with an e-commerce marketing tool so they can connect to their customer on this platform as well and get the orders from their customer directly in their system. We also provide services like training, phase managing, succession planning and financial support, and sometimes consolidation. If anyone wants to sell a dealership we try to find buyers within our group to make sure that we retain the volume.
So all in all what I’m trying to explain is we’re not only a buying group, we’re a service platform for everything. We try to understand the needs of our dealers and provide tools so they really concentrate on going out there, getting new customers and maintaining their customer base.
OPI: Let’s talk about some of the new services that we’re hearing about, such as managed print services (MPS), water cooler provision, secure document destruction. How active are you in those new service areas?
RM: In MPS we’re teaming up with some manufacturers to distribute and deliver the cartridges to the client. We realise that this will be a big part of the business in the future so we have to predict and try to build a new business base.
OPI: What about the dealers though? Are they going to lose that ink and toner revenue?
RM: Some of them yes, but some of them have already jumped into MPS. The larger ones are trying to get their share of the market and have programmes.
OPI: A decline in the use of traditional office products is forecasted, even in the use of ink and toner. How’s that going to affect your dealer business and indeed your wholesale business?
RM: We are facing the challenge but we’re trying to compensate for it by enlarging our product range. We are putting a lot of effort into the jan/san and breakroom businesses, and anything that is being consumed in an office place. The last OPI forum was very interesting on that subject. We went from selling office products to selling products for offices, and we have to try to sell products for the office location, wherever that is. It could be in a hospital, a private house, a regular office or a factory, so we have to open our eyes and look at every product that is being consumed.
OPI: How important is the education sector for you?
RM: It was important; it’s even more important now. We have quite an articulated back-to-school (BTS) programme here. At least 70% of our dealers participate in BTS and we do a lot for them. We have a selected group of products, flyers, a TV advertising campaign specifically for BTS and now we’re adding the arts and craft movement. We used to have about 25 SKUs in that area but now we’re going to have 200-300. So we’re going to be competing with some of the very specific players in that field.
OPI: Let’s talk about your distribution centre because I know you’re very proud of that achievement. Why did you feel the need to get into the business of holding inventory and indeed become a wholesaler?
RM: In fact, there aren’t many distributors in Canada anymore. SP Richards covers mostly western Canada and we cover eastern Canada. We have been able to grow our business quite a bit over the last five to ten years and we were at a point where our distribution centre was a bit outdated and certainly too small. We had to operate in three different DCs so we regrouped that into one central state-of-the-art DC. We have electronic scanners, a permanent inventory situation system, and can pick, pack and ship 24 hours a day.
So it’s quite automated and we get the information online on time, every time. It is important for a dealer to have a good selection of products that they can access and give to their client the day after. We have over 15,000 SKUs, which none of our dealers could have within their own facility.
OPI: What kind of fill rates are you running to?
RM: Overall about 98%. We’re ahead of the game with our new DC. After only six months we’re in much better shape than we were before and we’re getting to very, very strong service levels.
OPI: You mentioned Basics; what sort of relationship do you have with other members of the Canadian industry?
RM: We have a friendly relationship; we don’t do much business together but we certainly talk to each other.
OPI: Across the border you’ll be familiar from your BPGI relationships that one individual has been very much in favour of a combined TriMega and Independent Stationers (IS) organisation for some time, and that of course has never happened. Do you foresee a situation where it might make strategic sense for Novexco and Basics to join forces?
RM: That’s a big question. Strategically yes, but practically it’s always difficult; you have two different groups with two different business cultures. As I explained before, we are a service platform provider. None of the other groups give our services and they don’t have DCs either. So at this point it would be a bit difficult to match these two models. That said, we have good relationships with the American players; I talk quite often to [IS and TriMega heads] Mike Gentile and Charlie Cleary.
OPI: OK, let’s talk about Canada versus the US. What makes the Canadian OP market different?
RM: Basically, it’s not that different. Some of the products are different but overall office products are office products. I mean you have key players in the US, which are not necessarily very active in Canada – for the last four or five years they have had a lot on their plate in the States. That being said Staples is a big player in Canada and is doing very well.
OPI: What are your views on the future of the big-box store format?
RM: Staples has kind of stopped opening new stores in Canada quite frankly. In fact they’re looking at their existing store base and closing down some and trying to reduce their fixed costs on others, so getting smaller units and things like that. They’re very strong, no doubt, but on the other hand when you visit their stores they have a limited selection of products. Our dealers could access many more SKUs than what they have in their stores, so we have some edge on Staples.
OPI: Did you see the story we wrote recently about Amazon installing lockers into some Staples stores in the UK?
RM: Yes that’s a very interesting development. So they’re playing the game together now instead of trying to compete? As we know Amazon is going to deliver books and all kinds of things within Staples stores.
OPI: What is the presence of Amazon in Canada? What’s its likely impact on the industry and your group?
RM: Right now we understand that they’re shipping from the US but their plan is to put a distribution centre in Canada over the next two years. It’s certainly a new way of living; people are ordering from Amazon and they’re happy about their delivery time and service, so even though Canada is a bit slower than the US in e-commerce generally speaking I think we have to be geared up. We’re really pushing our www.buroplus.ca business because it could compete with Amazon or any electronic player, certainly on office products and also with our distribution centre.
OPI: Let’s talk about the subject that you probably don’t want to talk about: BPGI. There was some talk in the industry press when IS announced its intention to quit, leaving Novexco as the only BPGI member in North America. Can you update us on your current thinking?
RM: Being the only BPGI member in North America is a bit awkward but we see some value to exchanging best practices. It’s a nice international platform: it’s a reference, a guide, a kind of a table where we can monitor vendors’ programmes. Obviously it’s not a negotiation platform anymore for us because we’re by ourselves, but still there’s some value in BPGI. As long as it is able to change its model a bit to accommodate non-purchasing members then we will remain, but we have to look at the services that it is offering and the services that they’re not able to deliver to us anymore.
OPI: So what services could BPGI provide that would make it more relevant for you?
RM: As I said before, sharing best practice, looking at the vendors’ programmes on the international scene and what their tendencies are, leveraging some volume around the world. There’s still a lot of value in BPGI. We see that as a very good international exchange and there’s a lot of learning in the whole process for us.
OPI: So you’re committed to remaining a part of it for the foreseeable future?
RM: As long as they can readjust their model to address the fact that they could provide some services to us, but at the other end they’re not a negotiation platform anymore.
OPI: OK. So what keeps you awake at night?
RM: A lot of things! Certainly the business is not growing at a fast pace. We have all the right tools to grow the business now so we have to look at organic growth. That said we can generate new product lines, but that won’t give us the kind of growth we’re looking for; our shareholders are looking for double-digit growth and certainly we have to make some acquisitions in the upcoming years.
OPI: What sort of organisations would you acquire?
RM: We’re quite open, but we certainly want to establish a business base outside Quebec. Ontario is the largest market in Canada so we’re going to be looking very, very closely at that market to see what kind of acquisitions we can do there to enlarge and build a platform like we did in Quebec.
OPI: What else is important to you strategically over the next few years?
RM: Our ability to penetrate the e-commerce market. We’re quite happy that about 40% of orders are coming in electronically, but we need to address the online retail market as well, which is full of home office businesses. We have to invest a lot in www.buroplus.ca and certainly attract our market share there.
OPI: And in five years can we still expect you personally to be here?
RM: Oh, why not? Why not? I’m still in good shape; I’m very interested in the business. We have a lot of projects going on right now and certainly want to grow the business much more, so I don’t see any reason why I shouldn’t be here.
Novexco: A history
- 1996: Novexco was formed from a merger between dealer groups SOPA and Bureaulab
- 2000: BuroPLUS was formed, as well as private label brand Enium
- 2003: Messageries ADP was acquired by Novexco
- 2008: Novexco acquired the wholesale business of Corporate Express Canada
- 2009: Private label brand Novex was established, operated by Club Express and resellers
- 2011: With a CA$20 million investment, Novexco built a new head office and distribution centre in Laval of 137,500 sq ft (13,700 sq m)
- Headquartered in Quebec
- More than 150 employees
- Almost 4,500 customers across eastern Canada
- In 2011 received an award from the Canadian Federation for Independent Business to recognise “15 years of high-quality products, service and support”