Just over three years ago, Millán Álvarez-Miranda was CEO of Unipapel, a mainly Spain-focused group that operated as an office products wholesaler, manufacturer and contract stationer. Since then, he has overseen the transformation of the company into ADVEO, Europe’s largest combined OP and EOS wholesaler following the 2009 acquisition of Adimpo and the move to acquire the continental European business of Spicers at the end of 2011. Since 2008 – when the global financial crisis hit – the group’s annual sales have increased more than six fold to over 11.3 billion ($1.7 billion) and revenues from Spain now account for less than a third of the total.
OPI caught up with Álvarez-Miranda for the latest on the integration process and the group’s new strategic direction.
OPI: Looking back at our Big Interview with you in June 2010, it’s clear that you’ve come a long way since then.
Millán Álvarez-Miranda: It’s been an incredibly intense period for us that has involved a lot of hard work. We’ve had a number of developments that occurred quite close to each other, and I think the timing of these has helped us to come a long way in quite a short period of time.
OPI: Looking at the major developments – acquiring Adimpo, selling the Ofiservice business to Lyreco, acquiring Spicers; when you look at all that globally in the context of the economy in the last two years, do you think, with hindsight, that those were the right decisions?
M A-M: Absolutely. In mid-2008 soon after I joined the company we set some very clear goals for our development. One was to define what was going to be the core business in the long run, and clearly the best area to grow was wholesale distribution. We felt that manufacturing was already a very mature, consolidated market across Europe and we were going to have difficulty in growing that business, both in Spain and Europe. Likewise, with the end-user distribution of the Ofiservice business, we obviously had fewer opportunities because we were already partners of Lyreco, the leader in Europe. That meant we could not develop that business in any other country where Lyreco was present.
We also felt that Ofiservice had enjoyed fantastic growth in the previous ten to 15 years, but that it was probably coming to maturity. On the other hand, we believed the wholesale business in Europe still had a long way to go when you compare it to some other continents like the US. The only truly European wholesaler was Spicers, but the market was – and still is – highly fragmented. Therefore, we decided to put our energy and our efforts into wholesale distribution. The other strategic goal was to develop outside Spain because, as you know, already in 2008 the country was in crisis mode. So those were the two decisions: focus on wholesale distribution and international growth, and this is what we did.
OPI: It was no secret that DS Smith was looking to sell Spicers. Was it always your intention to try to acquire that business?
M A-M: I would say that it was certainly an ambition, or an aspiration, for us, but not something that we could count on. And you must remember that we were only in a financial position to do the acquisition after the disposal of Ofiservice at the beginning of 2011. I remember meeting with management from DS Smith sometime before the official process went into play, and basically the message from them was: “Yes, this is going to be put on sale, but we will do it through a competitive process that will come a little bit later in the year.”
OPI: Was your message to DS Smith always: “Look, we’re interested in the European business, but not the UK and Ireland; let’s try to find a solution to split that up?”
M A-M: Yes, but their position was always to sell the whole business.
OPI: I imagine that you were relieved when Better Capital came in at the last minute to make an offer for the UK and Ireland business?
M A-M: We are very happy with the relationship we’ve had with Better Capital and it’s worked out very well since day one. Going back to what we were saying: one thing that we are also quite aware of is that the sequence of events has also been a key factor, because a different sequence would not have worked. We could not have planned the acquisition of Spicers before the disposal of Ofiservice nor before the acquisition of Adimpo, which gave us scale and the opportunity to develop from a local company into something quite different. So it’s been a very opportunistic process.
OPI: Let’s look at the integration of the businesses. You’ve brought operations together under the ADVEO name.
M A-M: In my experience, companies tend to go through a difficult phase from a business perspective after an acquisition and integration, because there are many distractions and many things that are taking time and energy from everyone in the organisation; people are getting used to working with each other and things are adjusting.
In our case, I really feel it’s been the opposite. There has been a commitment, starting from the management team and supported by the whole organisation, to really drive a very positive integration process. By March this year we will all be integrated under ADVEO; we will have just one legal entity by country and each country will be on a single IT platform. In my view at least, it’s quite impressive to have been able to do that so fast and for me there is only one reason: that the whole organisation has been really willing and committed to it – it would have been extremely difficult to manage just from the top down.
OPI: From our conversations following the Spicers acquisition, it would appear that the level of integration is greater than originally planned.
M A-M: As we started to work together at the beginning of last year we all recognised – the whole organisation – that there were key opportunities and that it was much better to drive this integration process in an accelerated way. We felt that the value to both our customers and our suppliers was going to be much, much greater if we had an integrated organisation faster than waiting a few years.
OPI: And obviously the economy isn’t helping. Maybe that was a factor as well?
M A-M: Not really, because at the time we made the decision, we still didn’t have the negative news that we’ve had in the last six months or so. Absolutely, the integration will help from a future cost perspective, but it is more driven from customer and vendor angles.
OPI: So each country will operate under the ADVEO name. The Spicers and Adimpo names will disappear, then?
M A-M: That’s right. We are merging all operating units into ADVEO. This will take place at different speeds according to the market. In the larger markets such as Spain and France we will also have ADVEO Digital Systems, which will be the ex-Adimpo business, but in Italy and in Germany it will be just ADVEO because we want to be a fully integrated business.
OPI: I guess there’s no real brand value in the Spicers and Adimpo names.
M A-M: There is value in those two names, but the strategy that we want to drive is a different one: it’s the value of two leaders coming together; it’s the advantage of now being able, from a single company, to have the best of two worlds. And when we get into the value proposition it’s basically going from three companies into five segments. What we want to do is be able to put together winning value propositions for five different customer segments, and that will come from a single company called ADVEO. But our clear focus is on the customer, not so much on whether we have one, two or three companies.
OPI: Customer segmentation is one of the ‘pillars’ of your new strategic plan.
M A-M: Yes, we did quite a detailed market survey at the beginning of last year to try and understand the buying needs, or the drivers, that make a dealer select from one vendor or supplier versus another. There are requirements that every player in the market needs to have, such as 24-hour delivery and competitive pricing, but we came to the conclusion that there were two criteria that were critical at the time of buying decisions: one was product range and the other was the number of value-added services that you could offer, or that customers could acquire, to support their business. This is not a revolutionary concept; it’s common sense. But this type of exercise helps to structure common sense things in a way that you can then articulate what you want to do for customers and vendors in a much more attractive and integrated way.
OPI: So, you’re organising your teams around these customer segments?
M A-M: Yes, we are in the process of doing that based on those two criteria I just mentioned. We built these five customer segments, which are IT specialists [Quadria, Econocom, etc], retailers [Auchan, Carrefour, Media Markt, etc], service driven [Calipage, Büroring, etc], scale driven [global office suppliers or big e-tailers like Amazon], and traditional stationery resellers. What we want is to be five different things to each of the segments. For example, a printing systems consultant to the IT specialist, a logistics partner to the retailers, a single supplier to the scale-driven segment, a one-stop shop for the traditional reseller, and a total solutions provider for the service-driven dealers. Each segment has its own needs, so our challenge will be to wrap it all together, make our value proposition specific for each segment, articulate it in a comprehensible and attractive way to the customer and then, most importantly, be able to execute.
OPI: When you analyse these segments and what you offer customers, where are you now versus where you want to be?
M A-M: I would say that we have 80% of the components. I think that the challenge now is to bring them together, as I said, in a very comprehensive, integrated way, yet differentiated for each customer segment. If you look at service driven, for example, which is probably the most complex segment, we already have a sophisticated service-driven business model in France with Calipage and it works very well. We are clearly growing above the market rate with Calipage customers and so the challenge is to transfer that business model across Europe. We already have 200 Calipage dealers outside France and we want to grow that number.
OPI: Why do you think Calipage is being so successful?
M A-M: It is a targeted business model for mid-sized independent dealers where they need scale on one hand and business process and system support on the other. So, it’s a package, a system let’s say, that offers them a whole range of services and support. We work with them to develop national marketing and to raise the awareness of their brand. Calipage brand awareness in France is more than any other distributor, including Office Depot, Staples and Lyreco.
OPI: Turning to private label. The Spicers name will go; what will happen to the 5 Star brand and what’s your overall private label strategy?
M A-M: From a product perspective, one of our strategies is to develop a private brand. Today, 5 Star is our brand and we have no plans to change that. We will continue to develop it and we are considering different models to achieve that. Clearly, we want to extend it to other products in order to extend the range in line with our overall product development strategy. That means categories such as breakroom, facilities management and packaging, so that we can cover the whole portfolio with a private brand.
OPI: What percentage of your sales is from private brands?
M A-M: Currently around 15%.
OPI: And what figure are you aiming for?
M A-M: I would say in the 25-30% range.
OPI: Are you sourcing 5 Star independently now or are you still in a transition period with Spicers in the UK?
M A-M: It’s a mix. We are sourcing part from the UK, we are sourcing some of the products locally and we are sourcing some of the products now from Unipapel.
OPI: I’m sure you’re aware that Spicers UK is pushing its direct sourcing in China. Have you got a similar strategy?
M A-M: Not right now, but we are considering different alternatives.
OPI: The ‘old’ Spicers had a relationship with SP Richards in the US over sourcing. What’s the status of that relationship?
M A-M: We’ve been in discussions with SP Richards in the last few months. Right now we are considering different alternatives. At the moment we are sourcing in Europe; we are finding very good sources in continental Europe where there is not a big difference in terms of cost compared to China and there is a better quality. Again, we are looking at different options for the next few years.
OPI: Is it possible to have a strong private label strategy without really having direct sourcing from Asia?
M A-M: For certain items clearly China is the most competitive source, but not necessarily for all product ranges. But right now we have a good combination of quality, logistics cost, supply chain cost and product cost.
OPI: What is the role of your Unipapel production unit in this? You’ve already said that production is not going to be a core business.
M A-M: We still see manufacturing as a very good complement to our wholesaling business. The plan is to give access to all the commercial areas of ADVEO across Europe so they can offer manufacturing capabilities to their customers. We see it as an opportunity for many of our customers to develop their own private brands by having access to a manufacturing facility that will work very closely with them through their distributor.
OPI: Do you think you can make the production side profitable?
M A-M: The challenge of the manufacturing arm is that up until now it has been largely concentrated on the Spanish market and so you had two negative effects. One was that the three segments – notebooks, filing and envelopes – are declining both on price and on volume. And then we had the impact of the economic crisis on the Spanish market. With Spicers this whole picture changes. Now we have the largest distribution capability across Europe, and a number of 5 Star products that were being produced by third parties are now being made by Unipapel, so there is substantial additional volume coming in. As we develop our private brand across Europe we expect these volumes to increase further, and our three-year plan assumes that the manufacturing business will be profitable and cash generating. We don’t see it as a key contributor from a profit perspective, but it is important as a support to the overall business.
OPI: Where do vendors fit into your overall strategy? When we spoke this time last year, there was some controversy about reportedly asking for better pricing terms.
M A-M: We believe that our customer segmentation strategy creates a very strong value proposition for vendors where we are aiming to be their most efficient go-to-market option. For a vendor that is now looking at the different distribution possibilities in Europe, we are able to offer them access to all the main channels. We believe we can make their supply chain and whole business model more efficient. They can concentrate on developing their business goals, their product portfolio and their manufacturing capabilities, and we can really support them in accessing markets and channels across Europe, helping them to develop their sales by cross-selling with other products in their portfolio. I look at it very much as a kind of big road for the vendors to put their products on, and then there are exits on the road for each of the customer segments. The vendor doesn’t have to worry about that – it just puts its goods on the road.
We will decide with our partners how these efficiencies are split between us, but I think the important thing is to find win-win solutions for the market to really make the model more efficient, and these efficiencies can then improve the profitability of everyone.
OPI: Your strategic plan refers to supplier performance analysis and terms and conditions negotiations. I imagine that suppliers will be raising their eyebrows at those.
M A-M: We are not planning to be aggressive on variables with vendors. What we are planning is to really work with them to explore alternatives together for using more sophisticated financing tools to help everyone – them and us – to develop the business and to be more efficient from our cost perspective. With regards to supplier performance, it’s not rocket science. We are already doing it; the difference is that today we have a purchasing function that is quite scattered by country and we are in the process of developing a more centralised purchasing team that will continue doing what they are doing today but in a more extensive way.
OPI: Let’s wrap things up with a look at your 2012 performance. The tough economic conditions in Europe are well documented. How have you fared?
M A-M: I can’t provide specific numbers until they are disclosed in February. What I can say is that we’ve seen a stable business in 2012. Obviously, things are very difficult in Spain and Portugal where we’ve seen declining sales and profits. We don’t expect that situation to improve in 2013, unfortunately, although we implemented cost reduction measures in Spain during 2012 so our profit should dramatically improve this year. In the rest of Europe, we’ve seen slight growth in some markets with Spicers, especially in the first six months of the year, although it was tougher in the third and fourth quarters. On the EOS side, we made the decision at the beginning of 2012 to manage sales more focused on margins. So, even though our sales in EOS have dropped substantially, our gross margin has improved overall both in percentage and value terms.
OPI: We’ve seen some of the global players cutting back their operations in certain European markets. What does this mean for ADVEO?
M A-M: That is all part of the general consolidation process that is taking place. If a company exits a market then that business will flow elsewhere, so it presents opportunities for our service-driven customers, for example.