So far it’s been a year of launches for UK dealer group Integra Office Solutions, which celebrates its 15th anniversary in 2012. Managed print services (MPS), email marketing and the education sector are among projects that are currently underway. As an active member of BPGI, the organisation is not afraid to take advice from groups around the world.
Aidan McDonough took on the role of heading up Integra after a company restructure in 2007, and despite a drop in the number of members he is confident about progress. The Managing Director talks to OPI about why consolidation between dealer groups is overdue, and exactly which organisations might be a good fit.
OPI: So tell us about Integra.
Aidan McDonough: Integra was formed in 1997 from a merger between NDA – who I formally worked for – and Instat. About five or six of us relocated here. I became Managing Director in 2007.
Prior to that I was Marketing Director at the age of 30 and did that for ten years.
OPI: Who else is on the management team?
AM: Other executive directors are Neil Basham, who is ex-Europa and ex-office2office, and Rob Jenkins, who also has a financial role at BOSS Federation. We have four non-executive directors representing dealers’ interests from very different style businesses.
OPI: How many members are there?
AM: We have 280 members in the UK and Ireland, with consolidated revenues around £550-600 million ($850-930 million).
OPI: Back in 2007 we published that you had 360 members with consolidated sales of about £700 million, so has there been a decline?
AM: We’ve certainly seen a contraction. You’ve got a smaller number of independent dealers these days. Some very large mergers and acquisitions took place but business failures as well.
OPI: If you had to guess, how much of that contraction would you put down to consolidation and how much to a reduction in sales due to the economic situation?
AM: I would say about 50% of the losses were driven through business failure. I don’t think there’s a mass migration over to anything else.
OPI: Is there a typical Integra member?
AM: It’s very difficult to isolate one particular sweet spot. We have such a diverse mix of personalities and businesses; we have guys that are very strong in print, guys that are very strong in print management, guys with MPS solutions. There’s no one thing that makes up an ideal profile.
OPI: So what do you think attracts members to the group?
AM: I think there’s a multitude of reasons, and we offer many different services. Some guys want a huge amount of support; some want the camaraderie of the group; some just want leveraged buying.
OPI: Tell us about your service offering.
AM: If you look at our 2013 programme, a myriad of catalogue solutions are available from 300-400 pages down to compact catalogues. The direct mail programme has many offerings; you’ve got vertical markets in terms of education; you’ve got category specific mailers, so diaries and planners, facilities management, furniture.
OPI: Is any of that stuff unique though?
AM: Well if you look at some of the functionality in terms of coding or pricing options, yes, because I don’t know any other dealer group in the UK that has an own-brand catalogue, or that does the computer sector to our depth. So you’ve got mailers and you’ve then got technology in terms of html, pdfs, email broadcasting systems, the fact that we would manage programmes of people based on an analysis of their CRM system. We run a dedicated promotional calendar, we have a retail programme, PR services and a bespoke design and print service, plus the management of software platforms, including content.
OPI: How big is your staff?
AM: 37 people.
OPI: And how do dealers pay for these services?
AM: Some are free and some are pay as you go. A membership fee is based on which division they are within the business, ranging from £75-135 a month.
The five divisions are structured around either the size of the dealer or the specific expertise. For example, we have a division called Computer Office Group that is dedicated to hardware resellers. You would have to turn over £1.5 million to qualify for the Directory division designed for bigger dealers.
OPI: Still pretty small.
AM: It’s a historic figure but you have to have a field-based presence and be holding stock. If you look at Alliance and Gold, the two other divisions, they are very much wholesaler-driven.
OPI: How big is your largest dealer?
AM: About £14-15 million at the top end. There are five dealers in that top bracket with a further 30 to 40 in the £5 million plus arena.
OPI: What are the hot buttons for your team at the moment?
AM: The latest initiative is a new educational catalogue and programmes, which we’ve never got into before.
OPI: So how’s it going?
AM: Initial feedback has been quite positive. There are challenges with logistics on some products. The biggest is that the guys don’t necessarily want to hold £250 worth of glitter, so you’ve got to be really careful in selecting products. In my experience, and I did this for a lot of years, whenever you put a new product on the market you have to refine it over a series of editions.
OPI: Of course. So who stocks the glitter?
AM: Half a dozen new suppliers are backing our education programme, so we will sustain this for an 18-month, two-year period to give it every opportunity to work. We’re fortunate we’ve got guys already in this sector doing quite well on it.
OPI: How do schools and colleges buy these products traditionally?
AM: Traditionally there are governmental organisations like the consortium YPO. They have a different service proposition to a dealer, so it would be common for them to deliver to schools once a week. The guys have 40,000 SKUs they can deliver next day. They can knock on the door and say: ‘Do you want to support the local economy?’ I think it’s a good opportunity.
But I don’t think it’s as easy as everyone thinks; my first couple of jobs were in the education sector.
So back to your question about our agenda, education is one area, MPS is another. Another two are processing category management data from the back office systems and decisions based on that. A final one, which is completely unsexy but a major influence, is getting e-commerce data.
OPI: Do you face any headwinds with your membership when you introduce new services or do they embrace them?
AM: I’ve done this for so many years, we recognise that you’ve got to go out and talk to these guys. I have a huge amount of empathy for their position; I know how many staff members are trying to engage them in new activities. I don’t think there’s a lack of enthusiasm, it’s just that finding the manpower and the hours in the day to do it when you’re dealing with the here and now is incredibly challenging. I could stand up in 500 conferences and say diversify into this, that and the other but at grass roots level it’s bloody difficult.
OPI: Would it make a lot of sense for more dealers to start aggregating? Would you encourage that to bulk out members?
AM: We’re in an interesting position at the moment and we can marry together people that want to go down this route. Certainly some of the bigger guys appear to be doing quite well in this climate and some smaller guys are struggling. In terms of whether it’s right or wrong to merge, I think it’s right if it works for that individual dealer. You look at the organisations that have done multiple mergers in a short time scale and inevitably they go bust. You have to be very careful that you pick the right partner.
OPI: And not aggregate just for the sake of volume.
AM: Yes. It seems a very legitimate corporate strategy to do it and some of the bigger guys are looking around again. I’ve said for years that we will see significantly more consolidation in the marketplace. But when 2007, 2008 kicked in the likelihood of guys being able to access funds pretty much dried up overnight.
OPI: So what’s the group forecast moving forward and how does that tie in with what’s still a fairly patchy economic outlook for Europe and the UK?
AM: I think you will see further contraction, more mergers. We’ve been fortunate that we’ve got guys out there actually doing really well, despite that if you read the press you’d never get up in the morning. But it will get tighter and we’ve got to work harder and harder to bring on new recruits as people fall by the wayside. We do as much as we can to stop that happening but in some instances if it’s not working for them…
OPI: What are the major challenges facing resellers?
AM: If you look at the traditional bread and butter of the business you’ve got massive contraction. 15, 20 years ago, paper and envelopes would be, what, 12-13%? I think it’s about a 15% reduction in volume over a five-year cycle. When I started in the 1994-1997 period, EOS was 8-9%. Now it’s 30-40% and brings in no margin. Overlay the MPS trend and I know some very specific instances where dealers have lost large chunks of business.
OPI: What’s Integra’s perspective on MPS? You’ve got OEMs producing solutions, you’ve got the big guys like Depot partnering with Xerox, you’ve got the wholesalers doing their own thing, now you guys are jumping on the bandwagon; it must be confusing for a dealer.
AM: We took a very simplistic view. There are many services out there, right up to the very sophisticated break-fix model that we do have some dealers running. Is it feasible that an independent dealer could offer all services from day one? So we said, if you want a break-fix solution, the wholesalers have that available tomorrow. We’ve tried to simplify it; we’ve done a whole series of webinars with our provider FM Audit.
OPI: But is your basic solution adequate enough for smaller dealers just to keep some of that business?
AM: We’ll run it in the sense that it’s available now, people are subscribing, and at the same time we’ll run a dialogue about the next stage.
OPI: Facilities management (FM) – there’s a huge buzz around that. What’s your perspective?
AM: We have put marketing collateral together. You’ve seen the numbers involved; it’s a massive opportunity, absolutely massive but again it has its challenges. I don’t believe that any of these sectors walk in, bite you and say: ‘I’ll use you’
OPI: Let’s talk about the UK wholesale channel. What are your views on the two main providers?
AM: Looking at the stats for their service levels, there have been blips where new logistics frameworks have been put in place, but I doubt whether many other sectors have such a phenomenal level of service. It’s not just about incredible line fill, it’s about timescales. They’re putting in a very low value product, in most instances, at what, five o’clock in the morning? They’ve facilitated the ability of dealers to liquidate stock back into cash, and stockholdings have reduced. If you look at the robustness of pick, wrap and dispatch, pick, wrap and link to van routes, I don’t think blood plasma is moved with the same level of efficiency as these office products!
OPI: So what kind of relationship do you have with both?
AM: We’ve always had a very deliberate strategy to work with both. The ratio is 60/40 presently towards VOW through no concerted move. We believe that it is healthier to run with both in a duopoly arrangement and as long as we can do that we will.
The key, key, key, key issue now is that as they make logistical changes we don’t see deterioration in service levels. I think that could be quite damaging, as it would make dealers very vulnerable.
OPI: Did you have any concerns about the new ownership of Spicers?
AM: The bottom line is it needs to work and it is critical for every individual in this channel. We can’t end up in a monopoly situation so we need it to work, it’s as simple as that.
OPI: What do you think about the relationship between dealer groups and wholesalers in terms of MPS?
AM: From the very beginning we’ve offered choice and we don’t have a massive 18-month, two-year contract for dealers, it’s 30 days’ notice. Our view is simply that yes, we would like you to use our MPS solution, but it is your choice. We are here for independent dealers; they own this group. They might want everything from one supplier or use us for certain things and the wholesaler for others. Maybe I’m over simplifying it but we’ve got to be good enough in what we do so that it stands up.
OPI: Do you think the vendor community would welcome some rationalisation of the support and programme money that they have to find for both you and the wholesalers?
AM: To be honest, and I’ve said this consistently, who hasn’t consolidated in OP?
OPI: Dealer groups?
AM: Yes. Every single sector we touch has consolidated because of the broader macro environment pressing down, and the dealer groups should consolidate. We’ll talk to anyone, and there’s an opportunity in terms of more volume. You said yourself that markets contract. Could you put two and two together and get 4.25?
OPI: And you think there is that opportunity?
AM: Well there should be.
OPI: And the weather’s nice in Wales this time of year.
AM: (Laughs) Yeah. It should happen, it needs to happen.
OPI: Are there any UK groups that would make an interesting marriage with you?
AM: Arguably the two that immediately spring to mind are Office Friendly, they’re run as limited by guarantee, and Nemo, which has a cooperative culture as well.
OPI: Could be an interesting three-way merger.
AM: I’m more than open to have discussions with these guys.
OPI: Let’s talk about private label. What does that represent in your overall turnover?
AM: Around about 5-6%.
OPI: How many SKUs is that?
AM: It varies, but about 350 at office product level and 500 at EOS level. We modify the range very selectively, there’s not an aspiration to increase it. In fact, we’re looking at whether the strategy we started back in 1998 is viable going forwards. We’re not discounting any options, whether that’s distribution through some third party. There’s quite a sophisticated process behind where we go with it. What’s working? What’s not? What does it need to look like? The answer could be 50 SKUs.
I know for an absolute fact that we’re competitive because of the amount of work that we do, and frankly you underestimate the dealer if you believe he would blindly support it. Nobody knows a good price better than them.
OPI: Let’s talk about BPGI; was Independent Stationers’ departure a surprise to you?
AM: I saw Mike [Gentile] in Barcelona in November for a board meeting and, I’ve got to be honest, whether it’s naivety on my part or not, I didn’t get the impression he was on the way out.
OPI: What’s your view on the value BPGI membership brings to Integra? Are there any concrete examples?
AM: The concrete examples are the fact that we’ve maintained the own brand; we’ve worked with some of the European guys to share information and supply sources. We’re still with the agent we were using over in the Far East, which was a direct result of discussions with the groups. TriMega went down the wholesaler route so I think we were the only people left in the Far Eastern route and we were able to keep the pricing that we’d had.
The softer side is that I personally found it invaluable listening to the likes of what Charlie [Cleary] and Greg [Fish] were doing with TriMega, what Mike was doing with IS.
OPI: I think the IS perspective was that they didn’t need to be spending a six figure sum every year to have that kind of informal exchange of ideas and experiences.
AM: Yes but there’s a tangible return and that’s why we did it. I mean I’m not morally obliged to support BPGI; I support it because it has an ROI for the business.
OPI: So you think the BPGI model is still relevant?
AM: There are two questions: is it relevant and does it need a change? At this point I think it’s relevant. Does it need to change? Yes it does, that’s why they had a meeting in San Francisco, that’s why they were looking at the policies going forward.
They’ve gone through the analytical process, they’d agreed on the vision, mission and strategic objects. Well that’s fine in principal but who the hell is going to enforce it? Jim [Preston]’s gone, so this is an opportunity to bring in fresh blood, go out, discuss the vision, mission and strategic objectives with interested parties. If people want out, they want out and that’ll give the new guy the opportunity to really drive where the business goes. If the guy stands up and says X, Y, Z and I disagree, I’ll tell him.
OPI: Taking a different topic, what do you see as the challenges facing Staples, Depot and Lyreco in the UK?
AM: I’m still amazed that we haven’t seen more proactivity from Staples because they’re not on my radar.
OPI: You mean out in the field?
AM: Yes. My very broad, anecdotal assessment is that these guys are having one kick ass of a tough time. Dealers don’t mention Depot as a massive issue. I hear of them periodically winning big accounts, Staples the same, but that’s it. You do hear from Lyreco though.
If you look at the current state of the industry – and I would say this – the independents are doing well. I’ve got numbers for the first five months that look really good. I don’t think that will be the case when we overlay June, but I don’t think that is the case with the corporates. I can tell you for a fact that they are probably more comfortable when they’re up against each other than when they’re up against the dealer. It’s a different dynamic in terms of flexibility.
OPI: E-commerce – what should UK dealers be doing better?
AM: We’ve got to get the analytical tools that the likes of Amazon use and we’ve got to do it quick. We’ve got to focus not just on the back-end management but on the consumer experience, and I think it is distinctly lacking.
OPI: So who needs to work harder here?
AM: We need to work closely with the developers of the different platforms and get consumers’ input. Integra’s got a strong part to play on the content side.
OPI: Does BOSS have a bigger role to play in terms of data and content for our industry?
AM: Well we actively engaged on that particular committee and have sought to get other partners involved. We need the level of standardisation as a stepping-stone otherwise we run the risk of being trounced by the likes of Amazon.
OPI: This year is the 15th anniversary of Integra. What are you most proud of as an organisation?
AM: I notice you qualified that as opposed to individually!
OPI: You don’t want to take all the credit for everything do you?
AM:(Laughs) No, no, no.
OPI: And what would you do differently if you had your time all over again?
AM: Starting with what would I have done differently, my life would have been a lot easier if we had taken on an ERP system. Overnight we would have a very robust data set to work with and the decision-making process, feeding into catalogues and direct mail, would be phenomenal.
This is a very personable business, and at the grass roots level we make a difference to some of these guys, whether that’s helping them on the marketing, on purchasing or when things are really tough. So I like to think I’ve changed the culture of the business by getting the people here to understand that they’ve got to be out seeing dealers – everyone, that isn’t just me, it isn’t just the sales guys, everyone in this business has got to touch the dealer because how else are they going to understand what is happening in the real world?