Internationally-speaking, Kaut-Bullinger is not a big fish. But in its home country of Germany, it’s quite a catch as its assertive leader Johannes Peter Martin points out.
Here is a company that has been around for a very long time. Founded in 1794, it shares its early days with some heavyweight historical events – the French Revolution and a newly independent US, for example. Germany at the time consisted of up to 360 disparate states and wasn’t in fact a country at all.
Family-owned Kaut-Bullinger has always been independent and often had to fight hard to remove the debilitating shackles of its longstanding traditions. What remains is a fresh, open-minded multichannel operator that has become ever more outward-looking under the leadership of Group Managing Director Johannes Peter Martin (JPM).
OPI met up with Martin on a beautiful spring day to find out more about how this traditionalist with a modern twist has managed to quietly plough on, carving niches wherever possible in a country increasingly dominated by the global players – learning from them and fighting them at the same time.
OPI: You have been with Kaut-Bullinger for three years now. How would you describe your leadership style?
JPM: I’m very much shaped by my upbringing – I grew up on a farm – my education and previous jobs. I have a hands-on approach to life; I am used to getting stuck in and not just using my head to lead.
For me, an important aspect of leadership is to develop a close understanding of what people are doing, down to the nitty-gritty of the core processes. And my academic background in engineering certainly helps me here – I understand the logistics processes in our systems, I know how everything works, how bottlenecks can be untangled. My background in both business administration and engineering gives me not only a practical understanding of the overall business, but also engenders respect from our staff.
I have developed companies throughout my career, not through restructuring or in an advisory capacity, but through leadership and from a senior position. They all made money before my involvement, but not in abundance; with my development, within a three-to-six year period these companies had turned into very profitable businesses.
The situation at Kaut-Bullinger was very similar. Here we had a beautiful and well-established business that made money. But measured on our volumes, the returns weren’t that great when I joined. The sector in general was shrinking already, admittedly, but at Kaut-Bullinger a lot of things needed a good look at.
OPI: Has its philosophy changed since you joined?
JPM: I wouldn’t say that the basic philosophy has changed. Mine, however, is definitely a more modern leadership style.
My predecessors, shaped by their backgrounds and existing traditions, led very centralised teams whereas I like to delegate. I am a team player and have no problem with delegating to people with real competencies. When I started, our staff had to adapt to responsibilities being transferred deep down into the various teams. But learning how to use their own competencies, so they are able to make decisions without first asking for permission, has also made employees feel more fulfilled at work, I believe.
A good example of this somewhat different style is the European Office Products Awards Reseller of the Year award, which Kaut-Bullinger won in 2008 and again this year. In 2008, the company was very proud of this achievement, but it was hardly broadcast to the outside world. This year it’s very much part of our overall communications package. Even for a regional, perhaps national company, an international award can open doors. When we take part in public tenders, mentioning the award can certainly give us an extra push. We didn’t do this four years ago, and this communication is certainly part of our current success.
OPI: There’s been much talk about how Germany has actually been doing rather well recently when several of its neighbours haven’t. How was 2011 for Kaut-Bullinger?
JPM: We had a very successful year and 2012 is looking very promising too. We are forecasting revenues of €128 million ($165 million) for this year, marginally up from last year. Divided into the various entities, that’s about €80 million in our B2B office supplies business (Kaut-Bullinger Bürobedarf); €20 million in retail, ie our ten stores, and €28 million in our office systems business (Büro-Systemhaus).
The best performance was in the office systems segment, which grew by 16%. This particular unit doesn’t only sell products – from copiers and printers to CAD systems and office furniture – but also deals with installation, maintenance and repairs.
Our B2B office supplies business grew by 2% last year while retail shrank by the same percentage. Overall, Kaut-Bullinger grew by 5.5% in 2011. This in itself is good news, but even better is the fact that we were able to considerably increase our margins.
OPI: In all parts of the business? How did you achieve that?
JPM: No, only in B2B. There was hardly any change in retail and while our office systems business had a massive growth in revenues, we managed to hold on to our margins here as well which was positive.
The two factors that helped us increase our margins in the B2B segment and that we really focused on last year, were an increase in the average order value and the percentage of online orders. When customers order electronically, it results in electronic dispatch notes, electronic invoices and so on. It means less manual work and just simplifies some processes.
And even though the higher margins come from just one part of the business, it happens to be the largest part in terms of sales. A margin increase of 3% on volumes of €80 million is definitely worth having and helps to finance future investments.
OPI: Kaut-Bullinger has traditionally focused on the south of Germany. Is that still the case?
JPM: Our ten retail stores are all located in southern Germany and we have no plans to expand into the north. Our distribution facilities are also mainly concentrated here.
What is happening nationally is that we, for example, deliver to branches of our regional customers in other parts of the country. We also have a very national outlook with our B2B online shop.
OPI: Do prices and spending patterns vary depending upon where you are, other than the usual rural/urban differences?
JPM: Yes, I think so. There is a difference both from north to south and from east to west. In Munich people earn more than anywhere else in the country. Consequently, rents and the general cost of living are much higher. In regions where unemployment is higher, buying power is just not the same. Our flagship store is at the Marienplatz in Munich, which is where the highest buying power in all of Germany is concentrated. Prices there are quite different, even from those in Berlin, Frankfurt and Hamburg.
OPI: Your stores are aimed at the more affluent consumer. Have you seen an impact from the economic turmoil? You said that retail sales have shrunk by 2%…
JPM: No, not where we are positioned. Kaut-Bullinger offers premium quality products – beautiful pens and paper, luxury goods and so on. As you said, the well-to-do family is the target audience, and as such we didn’t see too many adverse effects of the crisis.
What did have an impact over the past couple of years, however, especially in the luxury goods departments – expensive MontBlanc, Faber-Castell and Montegrappa writing utensils – are the strict compliance regulations that we now have in Germany. Up until a few years ago, we sold thousands of expensive pens through our retail outlets to companies every year, to be given away as customer presents or as staff incentives.
Today, nobody is allowed to accept a present worth more than €25. We have massively lost out here, because the companies buying these luxury goods no longer do so. We also used to have season tickets for the best football matches in Munich. Now none of our customers would accept these invitations, because they don’t want to be accused of accepting bribes.
Meanwhile, the retail market as a whole of course is shrinking due to competition from the likes of Amazon.
OPI: How severe is the threat from the online giant for you?
JPM: Let me put it this way – we are watching Amazon’s activities very closely. And now, of course, it is also muscling in on the B2B business. We all have to be very vigilant about how Amazon is trying to position itself.
OPI: What is Kaut-Bullinger doing online?
JPM: We currently have two web presences; one is the closed shop system for our medium and large contract customers; the other is the open B2B online shop reached via Google or through our catalogue. The mix at the moment is about 60% for contract, 40% for the open B2B shop.
We spend a lot of money on search engine optimisation (SEO) and with Google to help us get to the top of the results page. But the conversion rate is disappointing – we get a lot of hits, but when private end-consumers see the ‘businesses only’ reference, they leave.
Ultimately, our aim is to create a B2C shop for these private customers. It would have a limited range, maybe 1,000 to 1,500 items – we certainly won’t need all 10,000 items from our B2B platform.
We are lucky that we can already capture many customers by playing the multichannel card. Many of our competitors, such as Viking or OTTO Office, don’t have this option.
OPI: So apart from companies such as OTTO Office, Viking and Amazon, who are your big competitors?
JPM: Definitely the globals. Lyreco and Staples are our biggest competitors and are setting the tone in the market. Their strength is in the really big accounts that have increasingly migrated over to them over the past ten years. We don’t have a BMW or a Deutsche Post customer anymore – we lost them to the globals.
OPI: The last decade was a particularly tough period for German independents in general, wasn’t it?
JPM: Definitely, but in the end it wasn’t too bad for Kaut-Bullinger – we focused on our core competencies and on proactively targeting the typical German medium-sized business sector, the so-called ‘Mittelstand’. And that’s precisely why we are in an excellent position now. In Germany in general and in our sector specifically, tradition and reliability are hugely important. We notice this when customers return to us after first leaving for a competitor. Large customers that have spent maybe a decade at Corporate Express or Lyreco are coming back. These are now loyal customers happy to spend a little more on service and quality.
OPI: How about Plate, your northern German counterpart?
JPM: I have a very good relationship with Dieter Schmidt at Plate. We don’t really view other German independents as our competition though. Competition – that’s the globals.
OPI: How much of the market do they have?
JPM: About 50% I think. That was the reason Soennecken has been trying to enter the key account business, albeit with limited success so far it appears. The cooperative certainly expected more from that business by now I should think.
That end of the market is simply dominated by the large global businesses, with everything it entails. Kaut-Bullinger is not equipped to deliver throughout Europe, nor is Soennecken. The EOSA concept hasn’t worked either, so far, and I doubt it ever will. The globals have distribution networks throughout Europe and we can’t compete with that, it’s just not realistic.
OPI: So you don’t have any ambitions outside Germany?
JPM: No, at least not outside the German-speaking area. We have links to neighbouring Austria and also into the German-speaking part of Switzerland, but we have no ambitions to really establish ourselves internationally.
The German market has so many niches and we are able to successfully distinguish ourselves from the competition by offering a wide range of products through a variety of channels. These factors combined – especially with the scope that the office systems unit brings – are our real USPs.
Also, up until a few years ago, the boundaries between the various business units at Kaut-Bullinger were quite rigid. Now we take advantage of the synergies that exist.
OPI: Can you give an example?
JPM: MPS is one. We currently have an MPS programme in our office systems business, but are in the process of extending it across the company. Essentially, we realised that customers from our B2B office supplies business that we have so far supplied with ink, toner and paper, are increasingly migrating to system providers that can offer price-per-page concepts.
So now we are creating a link between our two business units and proactively approaching customers in both segments with an MPS service.
Another example is our new CRM system that we launched in April. We began the process in the office supplies B2B business, but will roll it out into the other units over the next 24 months.
OPI: What exactly does that involve?
JPM: Well, we’ve always had this close customer relationship where all customers have a designated contact person and aren’t made to feel as if they’ve just landed in some massive call centre.
So if anything goes wrong, if the customer has a query, he/she is greeted by name, and with our new CRM system the staff member has immediate access to all his/her details, down to a photo sometimes. Revenue, last visit from our sales person, last phone call, email conversations – it’s all immediately accessible allowing our staff to quickly understand the potential problem.
We reach many of our customers from all over Germany through our open B2B shop. That’s where the new CRM systems have been installed and the opportunities here are endless. If a customer, for example, buys product A, he is likely to need products B and C. So 14 days after buying product A, he will receive an email offering him other products he might like. This is neither new nor revolutionary; we are modelling ourselves very much on competitors like Amazon. But it works, even on a small scale.
OPI: You mentioned Soennecken earlier. What do you get out of this relationship? You are the largest member so I assume you don’t buy from Soennecken and don’t use LogServe either?
JPM: That’s correct. Soennecken takes care of our central billing business and that in itself saves us a lot of work and time.
We consider Soennecken not so much as a purchasing association than as a partner that can, for instance, develop systems and make them available to its members. We are already using Soennecken’s internet platform for our contract business, but we have our own platform for the open B2B shop. Two different shop systems would be mad and heavy on finance as well as resources.
I think Soennecken could position itself well here and create shop systems offering the complete works – content, advertising material, SEO search words and so on – and make this available to its members. It would definitely make financial sense to all parties.
OPI: What about the smaller players – have they been affected by the recession and the rise in commodity prices?
JPM: I think so. In the last 24 months certainly, a number of small independents have approached us with the view to sell their businesses. These small dealers have a hard time because market conditions affect them more severely. We have considerably more purchasing power when negotiating prices because of our volumes; a small dealer doesn’t have that luxury. Conversely, of course, a Lyreco or a Staples is in a different league again compared to us.
OPI: So are you interested in buying those dealers?
JPM: We are, if the circumstances are right, but it can be very complicated in Germany with regards to takeovers as there are certain laws that require the new owner to take on the employees of the acquired firm, so much so that they may even need to let some of their own staff go if the ‘new’ employees are in a socially and financially worse position.
We are in negotiations with three separate firms at the moment; all of them would be good additions to Kaut-Bullinger, but I have no idea if any of them will work out for us.
OPI: What is your prognosis for the next ten years in the German OP sector then?
JPM: The OP sector in general will shrink and consolidate; we will grow. We have a ten-year plan and project a yearly growth rate of 3-5% for Kaut-Bullinger, depending on the business unit. In retail, there is no growth plan per se other than through a potentially new store that will have a very different format to our existing stores – more like an upmarket superstore – but that’s a while off yet. Don’t get me wrong, we still need retail – it’s our face in southern Germany. But the focus is more on keeping our brand alive than on revenue and profit growth.
OPI: Where will the growth come from?
JPM: A lot of it will come from our office systems segment, from a product as well as a consultancy point of view. We’re very proactive in developing our high-end presentation products, for example, as we view it as an enormous growth category in the German market and we’re currently looking for partners to develop that segment.
We want to be able to offer the whole portfolio – from tables and chairs over flipcharts and interactive whiteboards to voice-over IP.
OPI: Who is the target audience here?
JPM: Businesses, but also schools and universities, for example. The German is still very very old-fashioned in this regard. If you take the University of Munich for example, they still have a blackboard and chalk in the big lecture theatres – it’s incredibly conservative and, quite frankly, very backwards. Schools are the same, with only some using products such as interactive whiteboards. But the potential is huge as the various federal states are beginning to invest in better systems and a new generation of teachers is becoming more familiar with ‘new’ systems and media.
A true multichannel focus, a real drive into vertical markets and a contractual/consultational as well as transactional approach are the core factors that I’m hoping will continue to give Kaut-Bullinger an edge in the years to come.
• Founded: 1794
• Ownership: Family business; limited partnership (KG in German)
• Headquarters: Taufkirchen/ Munich, Germany
• 2011 sales: €127 million ($164 million)
• Employees: 485
• Coverage: 19 locations in Germany