Big interview: Robert Baldrey

OPI's 2009 interview with former Vasanta Group CEO Richard Martin has become infamous. But it's a very different company today under the leadership of the charismatic Robert Baldrey, who openly shares his plans for Caboodle, for managed print servi

A vow renewed

OPI’s 2009 interview with former Vasanta Group CEO Richard Martin has become infamous. But it’s a very different company today under the leadership of the charismatic Robert Baldrey, who openly shares his plans for Caboodle, for managed print services and for adding £200 million to the wholesaler’s sales figures.
This month’s interviewee is no stranger to the European office products wholesaling scene. During the first 27 years of his career, Robert Baldrey enjoyed three stints totalling 21 years at Spicers in the UK and France, interrupted by two relatively short spells at TNT in the Netherlands and Computer Sciences Corporation in Belgium.
An accountant by trade, Baldrey assisted Spicers’ then CEO Eric Smith in the much-praised turnaround of the company’s French subsidiary in the mid-1990s and led the entire European finance function for much of this century’s first decade. If his departure under newly-appointed chief George Adams in 2009 wasn’t a surprise to industry pundits, his arrival at fierce rival Vasanta as CEO the following year certainly was.
So how is he finding life in opposition, at a business that was perilously close to bankruptcy two years ago? OPI travelled to the company’s Normanton DC to find out.
OPI: Is it strange to compete against the company you worked for over so many years?
Robert Baldrey: It’s perhaps unsurprising that the challenges for the two businesses are very similar, although the two cultures are very different. And yes, it’s been strange but incredibly enjoyable. This is the best move I ever made, to be frank.
OPI: Thinking about Vasanta’s well-documented financial problems in 2009, what thoughts occupied your mind as you considered the opportunity and the offer from Alan [Barclay, Chairman]?
RB: Well firstly, if you look at the 2007 transaction to bring Kingfield Heath and ISA together, it was only with hindsight post-Lehman Brothers and the crash that it looked like a very over-leveraged deal. Before the crash, there were many other deals as leveraged as that.
The business went through a lot of pain in 2009 but emerged with a very good investor in Endless. There are people working at Endless, such as Garry Wilson and Peter Yendell, who have had contact with the business before. They understand Vasanta very well and they’re a great parent for us.
A number of the people who worked through that difficult period are still around, and their experiences have made the organisation tougher, more entrepreneurial. And with Alan still on board, I was positive about its future.
OPI: So what’s Alan’s role now?
RB: Alan is Non-Executive Chairman of Vasanta Group and chairs the board that consists of me, Alan, our CFO Andrew Gale and three of the Endless guys.
Although his role is part-time, he’s a fantastically useful foil for me to bounce thoughts and ideas off. I hope he won’t mind being called an old wholesaler like me, but I don’t have to explain complicated stuff about wholesaling to him which, as you know, is not always the most straightforward business in the world.
OPI: What did Endless see in this business?
RB: I think, firstly, it was the investment in infrastructure that was made, starting with the state-of-the-art Arrow facility in 2001, right through to the Normanton facility that we’re in today. There has been about £20 million ($33 million) invested in the infrastructure in the last ten years and I think they could clearly see that this was a great business that had just got into trouble because of the over-leveraging of the balance sheet.
Endless helped to rectify that and now we’re in a situation where we have a much more sensible level of debt and good levels of cash.
I also think they were impressed, as I was, by the quality of the people in this business. We have a depth of experience in traditional office products, but also there’s a real EOS heritage here from the ISA days, and a huge amount of enthusiasm from the people.
OPI: What is the likely attention span of Endless as regards its ownership of Vasanta?
RB: I don’t see any indications that this is a quick flip for them. The first thing they did when they took over was to sign the paperwork to get us this facility that we’re sat in.
OPI: So how has business fared since we last interviewed this company in early 2009?
RB: Well, for 2010 we’ll shortly file accounts that show we’re profitable on sales of about £400 million. Last year’s EBITDA was an improvement on 2009 and 2011 will be an improvement on 2010.
So at the moment I’m pretty happy, given the market conditions we’re dealing with, because we’re making money and seeing sales growth.
OPI: How does revenue of £400 million compare with previous years?
RB: We have got rid of some vanity EOS turnover that we had in the ISA/Kingfield Heath days because we’re now only interested in profitable growth. So yes, we’re smaller than we were when those two companies came together, but we’re making money.
OPI: How does that revenue break out by channel?
RB: Broadly speaking, 75% of our business is VOW, supporting dealers through our wholesaling business. About 20% is Supplies Team – supplying the large corporate and public sector accounts. The rest is ISA Retail, supplying the supermarkets, the Post Office account that we just retained for a further five years, and a small online business.
OPI: Where do you expect to see growth?
RB: To be honest, at the moment we’re in quite a nice position in that we are seeing growth in all of the channels. As previously reported, we’ve won more than £40 million in annualised new business this year. Half of that is VOW, a third of that is Supplies Team, and the balance is retail.
OPI: Where is the wholesale growth coming from?
RB: Our dealer customers are winning new contract business, much of it via our Pricing Assistance for Contract Tenders (PACT) service. PACT is a team dedicated to supporting the reseller in a large tender environment. We also have a PACT+ service that is only available for our VOW+ Partners. So whereas PACT is very much focused on the actual pricing piece, PACT+ offers a consultancy and training service for the reseller, where we’ll support them with their proposals and their pitch. It’s very much a one-to-one offering for each individual customer.
OPI: Do you have any statistics on how successful the PACT team is?
RB: We do. On PACT alone, our dealers win one in seven contracts. Dealers using PACT+ are seeing a win rate of 20%.
OPI: That’s a remarkable ratio.
RB: In terms of growth, the PACT teams have generated some pretty significant sales numbers – I think
about £280 million at end-user prices of either new or retained business in the last six years.
OPI: Are you picking up business from Spicers as well?
RB: Yes we are, absolutely. We’re seeing customers moving across to us that have never been on this side of the fence before. There are many resellers who spend a few years with one wholesaler, and then a few years with another. But some of these new accounts have never been with us before.
OPI: What do they see in VOW?
RB: The senior management team has something like 140 years of collective experience in wholesaling and a very shallow management structure, which allows all of us to spend a lot of time talking to dealers. So I think it’s the fact that we are close to our customers. We want to know what’s going on out there, we want to help them and we know how to do it.
When I joined, the business had spent a year and a bit focused internally, essentially getting its house in order. Even before the problems of 2009 it had gone through the closure of warehouses, the centralisation of the customer sales and service centre and so on.
One thing that we said when I arrived was: “Right, that’s all done now, it’s behind us, let’s turn the focus on the customer.” I think that’s now paying dividends.
OPI: At the recent VOW+ Partner event you shared some statistics about fill rates and order accuracy that you seemed fairly proud of.
RB:  Absolutely. Let’s use an example. We only have three stock holding locations now – Arrow in Lutterworth, this facility in Normanton and one overseas in Dublin. That’s it. Consequently, when a reseller is placing an order with us, they will see a greater depth of immediate stock because it’s centralised in one or maybe two places.
So if they have an order for something unusual such as, say, nine printers, the chances are that both major wholesalers will have it. But we will have it all in one place and available for next-day delivery, which means we’re not disappointing the end-user with back orders. I think that makes a big difference.
OPI: At that same VOW+ event, Adrian Butler [VOW’s Managing Director] spoke about your flat management structure. Yet you’ve just added a layer of management in there, essentially distancing you and Adrian with the introduction of Steve Haworth between you. Why?
RB: I felt that we absolutely lacked clarity around which part of Vasanta was servicing the end-user. We decided to restructure and create a group sales and marketing role, which Steve has taken on, and that has been very well received, both internally and externally.
At the same time, we took the decision to disband our Supplies Team mid-market salesforce. So effectively now we’re very focused. We know that 75% of our business – VOW – is supporting those dealers that are dealing principally in the SME space. We then have Supplies Team dealing with the large corporate and the public sector accounts and then, on the retail side, we have ISA Retail.
OPI: Have you defined what level of spend makes an account a “large corporate” and therefore fair game for Supplies Team?
RB: We haven’t actually put a number down on paper. In any multi-channel model you will never be able to eradicate channel conflict completely. It’s about each channel focusing on what it does best. But I think by being clear about where we’re going we will maximise the efficiency of the model to make sure that we’re supporting dealers wherever possible.
OPI: So how will you avoid the situation where there’s a borderline account – a big fish for one of your dealers but also at the smaller end for Supplies Team?
RB: With the responsibility for developing sales across the business and driving sales and marketing efficiency, Steve Haworth will have a clearer view of the most appropriate Vasanta sales channel to use to grow business in each situation. As a result of the restructure Supplies Team will be focusing its efforts on those end-users it believes it can service most efficiently – the large corporate and public sector accounts.
The other benefit of this group structure is that there are a number of services that start in the big corporate and public arena that we can now develop and offer to the dealers as a service.
OPI: Such as?
RB: One example would be managed print services (MPS). We developed MPS in Supplies Team in partnership with a provider called M2 Digital and we’re now in the process of looking at how we can roll that out to dealers.
OPI: MPS is certainly a big buzz right now. What’s your offering there?
RB: As part of the VOW+ programme we’ve been working with a group of customers to shape a managed print service that will be ready in Q3. We’ve learned a lot from our colleagues in Supplies Team and we now have several dealers trialling the service with their end-users.
It’s certainly a fast-growing, huge opportunity. I think businesses will probably look back five years from now and say: “Do you remember when we bought printer cartridges transactionally rather than contractually?”
OPI: How quickly will your dealers grasp this opportunity?
RB: Well, certainly our VOW+ Partners are all very switched on to it. They realise EOS products are now 50% of our market and if there’s going to be a seismic shift in the way those products are sold, they recognise they need to know how to keep that business. I’m confident that they’ll rise to the challenge.
OPI: Let’s talk about another development earlier this year – the innovative deal between Advantia and office2office (o2o), and VOW. What are your expectations for that arrangement, which starts in January?
RB: It’s an interesting development in the marketplace when a group of dealers state that they are happy to work with a contract stationer. And the reason they are quite happy is because o2o has been very clear about how it’s going to market. Simon Moate [o2o’s CEO] has openly said that the dealers, not o2o, will service the SME market.
From our side, we’re delighted to have been chosen as the wholesale partner for that organisation and we’ll be supplying all of the slower moving products to the Advantia dealers through o2o.
OPI: As I understand it, the Advantia dealers will be utilising o2o’s Truline subsidiary for last mile delivery. So one assumes that means they’ll be expecting a migration of those dealers towards a stockless or a less-stock model.
RB: I think Bob Geens [Advantia’s CEO] is convinced that in the current environment we need to take cost out of the supply chain wherever we can and o2o has a very efficient last mile delivery service, so why duplicate it?
OPI: But you’re an “old wholesaler” so you’ll know that this drum has been banged for as long as I can remember, and still there are a lot of dealers that are seemingly wedded to their traditional model and infrastructure.
RB: Only time will tell as to its success but I would say that the time is right because we are in a pretty big recession at the moment, one of the biggest in 100 years.
OPI: What do you expect in terms of additional revenue from Advantia, if all goes to plan?
RB: We will get several million pounds of increased sales as a result.
OPI: How is this new age of British austerity affecting your group?
RB: It’s definitely a difficult time for the industry as a whole. There is a significant contraction in the market caused by the end-user buying less volume of products, and also buying a shorter range of cheaper products. Look at the government contract that was just awarded to o2o.
What impact is it having on our industry? Well, there’s a lot of capacity chasing that is reducing demand so we are approaching, in my opinion, a kind of tipping point where you’re going to see either consolidation happening or business failures.
As for dealers, those that are focused on the right things such as providing exceptional customer service, investing in e-commerce and selling additional product categories like FM, are growing and winning new business.
One of the benefits of working with professional procurement people at medium-large firms is that they are very happy to have more of what they would consider to be ancillary supplies from just one supplier. As an industry we have a great opportunity to be that one-stop shop selling everything from office supplies to cleaning products, hard hats or pallet trucks.
We are already seeing some of our dealers winning quite significant new FM contracts. It’s a huge opportunity – our research says a £5 billion opportunity in the UK. And that’s only the products, not the services that go with FM, such as those provided by cleaning companies for example.
It’s a very fragmented market with lots of players and everybody selling to everybody else. It’s the kind of market that needs a little shape and organisation, and that’s typically what wholesalers are very good at.
OPI: Is there an acquisition opportunity for Vasanta?
RB: We’re not looking at the moment. We’re moving forward by developing strong relationships with some of our key vendors in those product categories and we’re growing very well with them.
OPI: It’s often been assumed that some day Vasanta would venture across the water into Europe and acquire one or two of your fellow Interaction partners. Is that just us news hacks in the industry wanting something to write about?
RB: Yes, I think that’s conjecture. We have no intention at the moment of developing in continental Europe other than, obviously, Ireland. Personally I think we’ve got the capacity in our infrastructure to add another 50%, or £200 million, in sales without building anything else. Our focus is all on the UK and Ireland at the moment.
But I must say that we value our membership with the pan-European Interaction organisation and Jan [van Belleghem] does a great job at helping us to source our Q-Connect private label range.
OPI: Back to FM, are you seeing any of your dealers getting into any other interesting product categories?
RB: Well, we have innovative dealers that are delivering things like smoothies and energy drinks. A dealer that I was talking to the other day was considering whether delivering boxes of fresh fruit would be a good idea. It is all about offering service and convenience.
OPI: But someone selling smoothies or baskets of fruit is not of much benefit to VOW.
RB: If product lines become popular enough there’s no reason why we can’t consider how we might help them to do that. I’m not suggesting that we’re going to start moving fruit for the moment, however!
OPI: You touched on e-commerce in passing. What is VOW’s offering?
RB: We offer a personalised site for dealers called Smooth-e-2. It’s a robust and good e-commerce site with just short of 100 dealers now on that platform.
OPI: What about your controversial site Caboodle, which sells to anyone?
RB: Well, as a result of the recent channel strategy that I announced, we’re currently reviewing our online strategy. We’re increasingly of the view that while online is very important in terms of the future, we’re not convinced that running our own direct-to-end-user website is the way that we should be going.
OPI: (Laughs) At last! So Caboodle will no longer be owned and operated by Vasanta Group this time next year?
RB: I would say that is very likely to be the case. (Laughs) Are you happy now?
OPI: What do you make of the pending sale of Spicers to Unipapel and the spin-off of the UK and Ireland business?
RB: It’s an interesting development for our industry because we’re essentially seeing an EOS distributor becoming a general line wholesaler.
As for the UK and Irish business, the only thing I’d say is that it’s good to see it passing into the hands of someone that wants to own a wholesaler, because we all know that DS Smith has not really wanted to own Spicers for some considerable time.
OPI: Are you surprised at the price tag that was attached to the UK and Ireland business?
RB: It’s certainly an interesting price. It seems like a lot of money.
OPI: Do you think we’ll see anything radical in terms of business models or investment in infrastructure from the new owners of Spicers UK?
RB: I really don’t know. We’ve had the recent announcement of Spring, which seems to be a change in terms of infrastructure, although I fail to understand that model. We’ll have to see where they go with it.
OPI: You were at our European Office Products Awards dinner this year in Frankfurt. A number of people raised an eyebrow when the Reseller of the Year Award went to Amazon. Did it take you by surprise?
RB: Not entirely because Amazon is in all of our lives. Personally, I know that the Baldrey family spends a huge amount of money with Amazon on a weekly basis. And I think it’s very clever what they’ve done.
In fact, in our business, one value is that we do what we say we’re going to do, and I refer to that as my ‘Amazon value’, because that’s how I think of Amazon. We’re aspiring to do something similar such that people don’t have to check if we’ve made that delivery, you just know it’ll get there.
So no, when you think about it, it’s not surprising that they’ve been that successful. But do I see Amazon as a real threat to the dealer? Not really, because the dealer is selling to the SME and I’m not sure if Amazon is really targeting that space.
But I think I said to you then, it is mind-blowing. The guy from Amazon was the last person most people thought would be on stage collecting the Reseller of the Year Award. It’s a very powerful business model.
OPI: Do you foresee another new model involving wholesalers and dealers? Maybe the elimination of all this inventory that’s scattered about in small warehouses across the country and a scenario where dealers simply concentrate on sales and customer service to the point where wholesalers are quasi-direct to the end-user. Is that a natural evolution?
RB: Looking at this long distribution chain and making it as efficient as possible is something that I’ve been talking about for the last 20 years in wholesaling.
Will we ever get to that point? I’m not sure. But with a declining margin and an increasing quantity of lower margin product in the mix, such as EOS, we all have to work off thinner margins. Maybe an even stronger partnership between the wholesalers and the dealers is inevitable from that perspective.
OPI: Robert, thank you for your time today.