Big interview: Ryan Bidgood

Big game hunter

The history of dealer groups in South Africa is relatively new. Leading the way is Ryan Bidgood of Office National, who’s out to use the powers of experience and brand to take on the biggest competition that independent dealers are facing.

Think South African office products and the name Waltons is probably the first that springs to mind. However, the country boasts an estimated 3,000 independent dealers in what is still considered a highly fragmented market. 

Trying to bring some order to the independent channel and to provide dealers with the tools and business acumen to thrive in an evolving marketplace, Ryan Bidgood has positioned Office National Africa as very much a procurement and marketing oriented organisation, underpinned by the vision to achieve a recognisable and sustainable national brand. 

After just seven years in existence, the group is now preparing to launch a new national accounts programme in the private sector, traditionally a segment dominated by Bidvest-owned Waltons.

 

OPI: Could you start by giving some background about yourself and how you started Office National in South Africa?

Ryan Bidgood: I got into sales at a tender age in 1994 with Panasonic, selling a device which today is known as the mobile phone. From there I moved to an Irish company that was making wet wipes in a sachet for airlines – that took me travelling around the world for about two and a half years. Then, at the end of 1998, I joined Parrot Products and headed off to Sydney, Australia, to set them up over there.

To cut a long story short, I went back with Parrot to South Africa in 2003 and dealers asked me how independents abroad could survive with the big boys just getting bigger. In Australia, one of my biggest clients had been Office National, and I contacted the then CEO Graham Harman after I’d been back in South Africa for about 18 months. The rest, as they say, is history. Within six weeks I had left Parrot and started Office National two days after my first daughter was born – so baby, mum and dad were all at home trying to start a business. It was actually quite nerve-wracking.

OPI: Did any kind of dealer group already exist at that time in South Africa?

RB: No, but what attracted me to it and what gave me confidence is what was happening in other industries – the hardware industry, the grocery industry, car parts, etc, where the co-op model was very much alive, well and thriving.

It’s all about a brand. It’s not on the back of a buying group or a marketing group, but it’s actually on the back of a strong consumer brand which is recognised by the consumer on a daily basis, and that’s what we set out to achieve with Office National.

OPI: What kind of reaction did you get in the marketplace? How did you get members on board?

RB: There was a lot of resistance. I think it’s human nature to resist change, but fortunately I had a few members that were obviously forward-thinking and could see the vision.

Interestingly, I was invited by an association, which in those days was called NOPSA, to give a presentation to suppliers. There were a total of 72 suppliers who attended and afterwards they collectively sent out a statement saying that the suppliers present at the meeting did not support the current Office National model. From there it was a kind of catch 22 situation; I had to try to bring on members, because suppliers wouldn’t listen to me unless I had members, but then members didn’t want to join unless suppliers supported the model.

That’s where Graham and his team from Australia did a bit of a PR exercise. We also got several of the suppliers in Australia involved, like ACCO, to present some of the benefits that they had seen. 

Essentially, the message was: “Get on board now before you miss the boat.” That helped to speed up the process for us and as soon as a few of the big fish bit then we saw a snowballing effect.

OPI: What is your exact relationship now with Office National in Australia?

RB: We are completely standalone except that we have a licensing agreement between us. I get on very well with their CEO Andrew Boath and we’re looking at things such as joint procurement and projects where we can leverage off each other, best practices.

We actually moved away from Australia’s model in 2006/2007. We were faced with the problem that to really grow this organisation it couldn’t just be a member co-op, getting together, making a few decisions and moving on.

We brought in Ellis Falkof, one of the founders of the Mica hardware chain in South Africa, and he helped us to change our model. So we now have a trading entity, Office National Africa, which is owned 55% by the members in the form of a limited company called ONLICO (which stands for Office National Licensing Company) and 45% by management.

Members acquire shares in ONLICO when they join the group. These shares can then be traded; for example if a member wants to sell shares to free up some cash or wants to exit the group, that company’s shares are traded to other members. There’s not a lot of trading going on, to be honest, but it does provide them with an exit strategy. It also means that they have a vested interest over the longer term in building the Office National brand with us.

 

OPI: This sounds similar to what Office Brands has now done in Australia.

RB: I actually went over and presented our model to their members in 2009. What they have now done gives them the freedom to actually grow the group and bring some real capital into the company.

 

OPI: How did that operating model help you to grow your business?

RB: One problem we had was that we could never incur debt. We’ve now been able to, for example, invest in opening up our first distribution centre. We now distribute a small percentage of our products to our members. It’s only been open for the last 24 months, but it’s growing and has really gained momentum in the last year. 

Also, we’re looking at procuring. We’ve started importing our own products, our own private label, from different parts of the world. Probably one of the biggest projects that we’ve tackled was our own brand of paper. That was one of the main reasons why we actually changed our logo to fit in with the Australian standards, because we are now in a position where we can co-procure. 

It’s all about economies of scale. We can’t get to a point in Africa – and I think Australia is in a similar predicament – where alone we are able to compete with the likes of the big boxes.

 

OPI: I know that the dealer groups in Australia and New Zealand have been cooperating on joint paper procurement.

RB: We piggyback off that deal completely.

 

OPI: How important is private label for you?

RB: We’re obviously looking to develop that. When you look at the Walmarts and the Staples’ of this world where their figure is over 30% private label whereas for us it’s not even 2%, that’s a bit of an eye-opener. That’s probably one of our biggest growth areas over the next 18 months to two years as we develop private label in order to differentiate ourselves. 

Having said that, we have very strong relationships with all the major vendors in South Africa and globally as well. So while private label is a major focus for us, it won’t be to the detriment of our brand partners.

 

OPI: Office National in Australia is part of BPGI. Are you a member through your affiliation?

RB: No, we’re not, but it’s an interesting topic. Jim [Preston] and I have been talking for the last three years or so. We’ve actually just reviewed it; we were looking at joining in January this year, but in the end we decided not to. We still believe that we have some work to do on our side, and also just from a resource perspective, in order to get the full value out of BPGI. I’ve got to free up my time and some of my staff’s time – if you can’t or are not prepared to invest the resources, maybe the time is just not right. However, we’ll probably review it again this year with a view to joining in 2012.

 

OPI: Turning to your membership. How many dealers do you have in the group?

RB: We’ve got 73 outlets which, in terms of members, is 62. That includes two members in Namibia and one in Lesotho. Our goal is to grow our South African membership to around 150 outlets. Obviously, we try to develop the outlets through the existing membership. 

For example, we’ve currently got a member that is opening up in Nelspruit, which is the central hub for the Mpumalanga region.

 

OPI: When you say “outlets”, are these more B2B operations or is
there a mixture of B2B and retail?

RB: It’s quite interesting that from a turnover perspective, probably less than 20% of our sales come from retail, but in our group there are only six or seven members that don’t have a retail presence. A lot of our members are located in outlying areas – that’s where our strength is. The Johannesburg, Durban and Cape Town markets are extremely saturated from a competition perspective. We do have a number of successful members in those major areas, but we have just as many, if not more, successful members from a profit perspective located outside the major central business districts. And there they’ve got to have a retail presence because the market is just too small to support pure B2B. 

 

OPI: What about overall sales?

RB: For the membership as a whole, annual turnover is just under $100 million. The average size of an outlet is around $1.3 million. Our smallest member turns over just above $400,000 while our largest members will generate just under $6 million. So it’s quite diverse. And that in itself creates its own set of challenges because you’ve got to consider any decisions you’re making from both sides of the spectrum.

 

OPI: How are decisions made? Do you have an executive board that is able to take decisions on behalf of the group?

RB: Yes, we do. We have a board of directors elected by the members. There are five member directors, one executive – which is myself – and an independent chair. The board then appoints sub-committees for areas such as procurement, marketing and management. I have a management team that is all executive and obviously reports to the board and we work to an annual budget and an annual business plan with milestones and objectives.

 

OPI: How do you use the wholesale channel? Do you have a preferred wholesaler?

RB: No, we don’t. Our policy is to go directly to source. If we’re going to compete anywhere near the Waltons’ or the Makros of this world, if we go through a third party, even our own distribution centre, members are paying a premium through wholesale. So we try to steer our members directly to source because if they can buy direct, then they should be doing so. 

For me, if our industry is going to thrive, whether it’s locally here in South Africa or globally – and I think Australia has got a very good model – it shouldn’t be wholesale-driven. If the barriers to entry are so low that virtually anyone can start selling office supplies, then the industry isn’t going to attract any major investors.

So from our side, we don’t have any ties with particular wholesalers. Probably the closest wholesaler that we have is Silveray, but then we only procure brands that are exclusive to them such as Dymo, Sanford or Parker. We don’t go through third-party distribution unless we are actually instructed to by the vendor. That’s actually one of the reasons why we set up our own distribution centre, so we can buy direct in bulk from some of our preferred suppliers and help our members with their inventory control.

 

OPI: What particular challenges do you face in the South African market.

RB: Well, unemployment is still a big issue. The ‘unofficial-official’ figure is put at around 30% and although GDP growth has been good recently, there’s still a lag from what we experience in the marketplace. 

One of the consequences of the soccer World Cup in 2010 was the development of a modern public transport system. But what came with that was a plan to impose tolls on major roads in Johannesburg and Pretoria. These are coming into effect in the next couple of months and because we don’t charge for delivery in South Africa that is obviously going to increase delivery costs for dealers and effect margins.

 

OPI: So how have your members been doing generally? Have they been able to grow their businesses organically?

RB: Definitely, yes. We’re quite fortunate at this stage; we haven’t lost a member through the recession which is always a good sign. But it’s tough. There are a few cash flow problems, but we’ve had a lot of success and we’ve weathered the storm; now it’s on to bigger, better, brighter things.

 

OPI: How are you helping your members to grow?

RB: At the beginning of this year we launched our back to school programme. Generally it was very well received. A lot of our members were already serving the educational market, officially and unofficially, but we’ve now got a structure behind it.

One of the projects we’ve embarked upon, and that we’re developing going forward, is a strategy that we’ve termed ‘Think… Shop… Support… Local’. That is one of the strongest messages that we can get across: the way we are able to compete with the big boxes is to think, shop and support local. 

When you spend money with an Office National outlet the money stays local; it doesn’t go back to Johannesburg or Cape Town, and it doesn’t go overseas either. If you want to really support your community, you’ve got to be supporting local business, but not at a price disadvantage, and that’s what we’re promoting from an Office National perspective; that you’re getting the international brand, international procurement and local delivery.

We can compete on price, we have shown that. Yes, there are the loss leaders that the large retail chains use, but as we increase our basket as well, from a furniture perspective and from a canteen and janitorial perspective, we can start having these loss leaders as well. If you only sell paper, you can’t discount paper, but if paper is one of 4,000 or 6,000 SKUs that you’re selling, then you can.

Another area that we’re developing is a national accounts programme which will be owned by Office National
Africa. We’ve just set up a separate company that our members own shares in. This will kick into gear later this year.

 

OPI: Isn’t this a sector in the market that is the stronghold of Waltons?

RB: Very much so. The challenge we get here is that not a week goes by without a national account approaching me asking for an alternative. And that basically forced us to re-look at things. The way it works is that the contract is held with Office National Africa, we are the invoicing party to the corporate account, but the procurement comes directly from one of our outlets, wherever they are situated. So, again, the proceeds stay within that community and that is a big plus. Obviously, it is easy to conceptualise a strategy and another to see it in action. There are no doubt going to be a whole host of challenges that we have not thought of as yet.

 

OPI: Does that mean you have taken on, or are going to take on, staff for roles such as tenders or sales support?

RB: We’ve set up a separate entity which is going to have its own board of directors and its own resources. Obviously, we’re going to start off small and grow one step at a time – you crawl before you walk before you run.

 

OPI: We’ve mentioned Waltons. What about the rest of the competition?

RB: From a commercial perspective, Waltons is the benchmark and is estimated to control about 40% of the commercial market. The balance is then made up of some 3,000 independents.

 

OPI: There’s a new-ish dealer group, Office Active. How strong a competitor is this?

RB: It’s quite an interesting story because they used to be employed by Office National Africa and it’s actually a breakaway. They started Office Active as a non-branded dealer group focusing purely on catalogue support, so what their long-term value is to the vendors is still to be seen. I believe our business is about both procurement and marketing and you can’t do one without the other. If you’re not building a business that has a strong recognition within the marketplace – and we’re now starting to achieve that – I don’t think it’s sustainable. 

 

OPI: What about the retail chains? Walmart is about to enter the market, isn’t it?

RB: Yes, and I think that, overall, it’s a good deal for South Africa. Yes, it is competition, but it’s going to force certain players and independents to say there must be a smarter way of doing things. But my bigger concern is not Walmart, but who’s going to follow suit after them.

 

OPI: In that multiple retail space?

RB: No, in the office products game. I can’t believe that the big boxes will be sitting back and not looking at what’s happening in Africa, and that’s probably a bigger concern. But overall I’d rather have four or five big players and those players all making decent returns than having, with respect, 3,000 independents with probably not even 2% of them actually making a decent return.

 

OPI: The consensus opinion is that one of the big boxes would have to buy Waltons to enter the market. Is that how you see it?

RB: That’s probably the first route to market. There are one or two other large independents that could be up for sale, but ultimately they’d then have to build it from scratch. 

 

OPI: Given the recent results of the US-owned big boxes, I’m not sure they’re ready to invest in a market like South Africa just yet. What about Lyreco, given its relationship with Waltons?

RB: Nothing more has really come from that. I’m not too sure where they are in terms of their international customers that they may or may not share. But yes, there’s a lot of speculation and there was a lot of nervousness in the market when the announcement was made – is this the first step into Africa for Lyreco? 

 

OPI: Just to finish off, what’s next? Where are you planning on taking the group in the next couple of years or so?

RB: Probably one of the biggest things is consolidation, in the sense that we’ve got a lot of projects that we are taking on or have recently completed but which haven’t really matured. Our national accounts programme and our private label programme are the two major projects for us over the next 18-24 months. 

We’ve grown at quite a rate in the last six years. We’ve recently combined our distribution centre and our admin office into one. We’ve got a team now of 24 people at our head office and this is growing. 

One of the areas that we’re going to focus on is adding real value to the business services we offer to our members. 

Every day there are requests coming from our members asking for assistance with IT support or IT skills, HR, financial advice and things like that. I think that this is where Office National is starting to ‘McDonaldise’ – if I can use that word – our model, where we do become a business in a box.

Our members are looking to us to really assist them and we need to free up our time to be able to do that. If that means that we slow down our growth from an outlet perspective then so be it.

As I said, and I use this example as an ex-supplier, if I give you the best possible price but nobody knows that you actually sell the product, what’s the point? 

You can only drive your procurement costs down to a certain point before you’ve actually got to start focusing on the sales and marketing aspect of it. You may be able to save 2% on the bottom line from a procurement perspective, but if I can grow your business by 35%, and add a 28 gross profit, which one actually means more to you? 

For me, I want to have a sustainable business and sustainable members, not ‘one-hit wonders’. We need to see sustainable growth. If it’s 35% growth as one of our leading members achieved in the last 12 months, then great, as long as it’s sustainable.