Established in 2010, dealer services provider Nectere was initially somewhat derided as a last-ditch attempt for failing dealers in the UK to survive. Eight years on and the critics have been silenced, acknowledging and appreciating the now readily-accepted model of enabling independents to drastically reduce their cost to serve while focusing on acquiring, retaining and growing their customer base in an increasingly difficult market.
The organisation’s founder and Managing Director Paul Musgrove welcomed OPI CEO Steve Hilleard to Nectere’s brand new ‘work in progress’ facilities in Birmingham. A long-time member of the UK OP fraternity, Musgrove first became aware of the absolute need to change dealers’ business model over a decade ago. Here, he talks openly about Nectere’s – and its dealer partners’ – journey as well as the challenges of the industry as a whole.
OPI: Here we are in your new premises – or new premises to be! What’s the backdrop to the move that’s about to take place?
Paul Musgrove:It’s manifold. In terms of sheer infrastructure, we simply reached capacity and needed more space. We have 65 staff in the UK currently (and four in Ireland). Initially, we’ll be putting 100 desks in here, but this building’s capacity is for 200 people, so we won’t ever have to move again.
But it’s not just desk space. Training is really important for us, so we’ll be holding a lot of courses here. We have a multimedia video conferencing training room where our dealer partners can log in and have some training sessions from the manufacturers, for example. The room we’re sitting in right now is our hands-on training facility where we will hold sessions on any number of topics, but particularly those that help dealers in the newer growth sectors: coffee training, selling uniforms or facilities supplies, you name it.
Lastly, this is a great central place for the whole of the UK, and we wanted to move away from our old industrial warehouse location to somewhere with a much nicer working environment for our staff. Our people are our business and it’s really important to keep them happy, so that they want to continue to work here for a long time. That’s quite a hard task, especially in terms of attracting the millennial generation.
OPI: For those of our readers who don’t know you, can you give me a snapshot of your career background and why we are here now?
PM: Originally, my passion was to become a chef. But everybody said I’d be good at sales, so I started off working for Mars confectionery which lasted for three and a half years. That gave me a background in fast-moving consumer goods (FMCG).
At the end of my time at Mars, I saw Esselte looking for FMCG people in the UK. I applied and got a job there, so that was my entry into this sector. I moved around the industry a bit with Rexel, Helix and a few other companies. But ultimately I felt I wanted to do something else. That was in 1990. My wife Serena had a very good job at the time, which gave me some options in terms of my own regular income.
I already knew this industry well, so I decided to set up my own business – PS Office Supplies. It was an exciting time starting completely from scratch and doing absolutely everything in the beginning. The first big account I had to present to was the Royal Automobile Club – perhaps better known as the RAC – which has its head office in Walsall where we were based. We grew from there and, at our peak, did just over £3 million in sales ($4.3 million). It is a nice business and we’ve won a lot of BOSS awards.
OPI: I remember the awards. What happened next?
PM: Well, it was 2007 and I was sitting on a beach in Morocco and wondering how I could get my company to support my family to retirement. The industry was changing and PS Office Supplies had to as well if it was to survive.
I began from the outset of: “If I had to start in this industry all over again, what would I make it look like?” That’s how the Nectere model came about. It took three years to go from the first basic concept to launching in 2010.
OPI: Before we talk about Nectere in more detail, what happened to PS Office Supplies?
PM: It’s still going strong. I own the company, but have a Managing Director who runs it. PS is also a dealer partner of Nectere.
OPI: Now for Nectere – tell me a bit more about it and the journey you went on. You use the word dealer ‘partner’. Is Nectere effectively a dealer group? That’s how it’s often referred to – a dealer group with a difference.
PM: We’re not a dealer group at all. The difference as I would describe it is that we sit in line with the dealer while a ‘typical’ dealer group sits on top of that line. Dealer groups make a living in an entirely different way from us and are not part of the transactional supply chain between the manufacturer, wholesaler, dealer, end user, etc.
OPI: It must be annoying then that so many people refer to you as that – OPI included in the past!
PM: I always find it quite amusing and I use the words “lack of understanding of what we do” to those who bunch us in with the dealer groups. It’s like comparing tractor pulling with Formula 1. Yes, they’ve both got engines and four wheels and they compete, but they’re completely different. I’m not saying which of the two we are. But we aren’t a dealer group.
As for our model and the journey you ask about, the basic premise is to create a better future for office products dealers. The only way of doing that is to literally reduce their costs. That can be done in various ways, but for Nectere it’s all a question of scale. If you can make something work better with scale, why would you want to do it individually?
To go back to the dealer groups, they are doing a bit of that, of course, with their range of marketing activities. And that’s obviously good in terms of doing it centrally, but there are limitations to how much you can do without being really immersed in the business.
So how can you do things better with scale? What resources can feasibly be shared? No customer is ever going to care about the back-office system of a dealer and who runs it. To me it means you can share it.
There are many things that you can ‘take’ from dealers and very effectively centralise. It then leaves them to, as we call it, “sprinkle fairy dust”. And that’s what they need to do. Nobody would logically buy from an independent dealer – why would you? There are bigger companies out there with probably lower costs and stronger balance sheets. That’s why they have to go out there, sprinkle their fairy dust and make themselves heard.
As I mentioned, I have my own office supplies business, so it was easy to envisage what kind of functions I would be happy to relinquish to someone else. Nobody is going to tell me what price I can sell for or what accounts I can open, for instance. It’s my business and some things are only for me to decide.
OPI: I believe you and your wife own Nectere 100%, with nobody else having a stake in it?
PM: That’s correct. We have never sought or received any financial backing.
OPI: What are the core services that you provide and how do you charge for them?
PM: It’s a cornucopia of things, all working from the basic idea of “do once, use many”. We do 100% of the buying, for instance – everything else would result in chaos.
In addition to the purchasing, we do the accounts, the invoicing, collect the money, do the banking, etc. We also do a lot of marketing and recently recruited a social media person, so we lead dealers’ e-marketing and their web stores. They price it, but we have a team and robots and software that handle it all in the background.
What perhaps we didn’t anticipate initially was how much of a software house we would become. Nearly 10% of our entire workforce – including my wife – in some capacity work in software development. That’s how we can deliver significant efficiencies of scale.
In terms of our revenue stream, we take a fee from our partners. We also get marketing contributions from manufacturers for featured products – we produce a 650-page catalogue, web stores and all sorts of other things.
OPI: But it’s not a menu-type offering whereby dealers get to choose which part of Nectere they want to sign up to, is it?
PM: No, it isn’t. In our sales presentations we actually say, “You can’t be half pregnant”. Because it’s end to end, our cost to serve is 7.8% for our dealers. That’s not possible standalone – a typical dealer’s cost to serve is 15-17%. If dealers synergise properly with us, then they suddenly have this chunk of margin they can use elsewhere. But they have to be willing to change.
With regards to what we offer, there’s also the delivery and distribution part, of course. Dealers can still use their own vans and I think that’s another fairy dust moment. If you have a driver who’s been going to these customers for the past 20 years, it works and makes a difference. But they can also use one of our 15 hubs around the country.
OPI: What’s a ‘hub’ in your business?
PM: It’s a dealer that has a logistics infrastructure other partners can tap into. There are certain rules for hub partners. Their vans must either be white or include our specific signage. Drivers wear a uniform which again is specific and unbranded. The dealer pays the hub partner for the delivery; Nectere doesn’t take anything as the middleman – the money is simply transferred.
My company PS here in Birmingham delivers for about 26 dealers across the country. One of our Belfast dealers has two customers in Birmingham, for example, so we can give a personal delivery service in Birmingham for a dealer from Belfast. It just works.
OPI: How do these hub dealers feel about holding inventory and supplying products to a customer that they might feasibly think could be theirs?
PM: Stealing other dealers’ customers is absolutely not an option; it’s simply not allowed and our systems would pick up on anybody trying to open an account with another dealer’s customer. But there’s collaboration. I know of several dealers in this region that get together about once a quarter and say: “Look, we’ve lost this account, you have a go at it”, and they share information. If you can get independent dealers properly working together rather than just pretending, it can be very powerful.
As for the inventory, we own that, and if a partner becomes a hub, any stock in the building we own. All you do is say: “I can deliver to these postcodes and it will cost £5.50 for each delivery I make.” That’s really cheap because we can negotiate a better price on a direct ship. It helps delivering dealers sweat their assets and gives them an additional income stream.
OPI: How many dealer partners do you have now?
PM: We have 178 dealers in the UK and Ireland, hoping to hit about 190 by mid-year. That means about one in eight dealers in the UK are with us now. Our combined revenues are £40 million.
We’re now in our fastest-growing phase and in the past financial year our partners opened 2,000 accounts, so they’re adding a lot of new business all the time. It’s a dynamic and fun environment to be in.
OPI: I recall that when you first got up and running, quite a number of people referred to Nectere as “the home for failing dealers”. There was also criticism about the hub concept. And why would a dealer want to hand over so much of their identity to you? How have you managed to overcome all of that criticism?
PM: My sales director always says: “We’re not a lifeboat, we’re a cruise ship.” A cruise ship has to have some lifeboats on it, so yes, there are dealers that come to us in troubled situations. When we started, naturally our venture presented some risks and maybe those dealers that were struggling the most financially were willing to take that risk. We were kind of their last port of call.
Those days are gone though. We have also evolved ourselves, of course, in terms of what we ask of dealers and allow them to do if they come on board. Some things that we demanded initially have since fallen by the wayside. Branding, for example, is now advisory not mandatory, while other services have been added.
OPI: What’s your ‘ideal’ target dealer partner?
PM: In terms of revenues, it’s between zero and £1.5 million which actually means the vast majority of dealers in the UK. But we really hit the sweet spot with a company that is very much sales-driven. If it’s more admin-driven, the dealer can feel lost quickly because we take so many of the roles away.
We offer real opportunities for dealers that are aiming higher too. Lots of dealers have good sales people and they’re not in financial difficulty. But they have credit restrictions. If they are a £100,000 dealer and suddenly get a £20,000 order, no supplier would give them product worth £20,000. They also have no chances with any big tender projects, as they haven’t got the right balance sheet. These types of dealers are great for us because we can get the credit, they can use our balance sheet, and they get the opportunity to tender for business. We have a couple of very big tenders going through at the moment.
OPI: Are there any pitfalls in terms of dealers expecting too much?
PM: I do believe there’s a perception out there that having a web store will suddenly change a dealer’s life and fortunes. It won’t. Euroffice has spent tens of millions of pounds over the years on Google and is not exactly a business that’s growing significantly. And these really are guys who know what to do in the UK in terms of online shops.
It’s similar in the US if you look at the likes of Shoplet – they’re going backwards. A web store isn’t the solution, it’s a tool. You need the skills that all these people clearly have to make it a fantastic tool, but in my opinion the secret still lies in the people who want to go and sprinkle the fairy dust. That’s what gives independents their edge.
One of the issues these online-only players have is retention. You can throw all this money at Google, but retention is the hardest thing in the fickle online world.
OPI: What do you do in terms of the online presence of your partners?
PM: We used an SEO agency called Cap. We went to them and said: “This is our marketplace. How do you win with all these independent dealers and how do you make an impact online?” The company did its analysis, came back to us and said: “You don’t make an impact, that’s the basic answer.”
Obviously, the feedback was a lot more expansive, but essentially we were told that there is no way of making a small dealer powerful on the internet. But there is this strategy you could adopt: drive your SEO about being local and through corporate web stores – not e-commerce stores because Google matches the data together, believes you’re just a copy store and downgrades you. That’s the strategy we’ve adopted and it’s working very well. It’s the same old thing again – the fairy dust. Have the tools in the bag, but don’t present just the tools – do the sprinkling instead.
OPI: Let’s talk some more about technology because it’s such a big part of the processes and saving opportunities that you offer, as you already alluded to. How do you deploy technology at Nectere and how do your dealers benefit from it?
PM: Some say it’s all about consolidation of technology, but that’s just words. You’ve got to consolidate all the processes and that’s very costly.
My wife is a systems analyst. Rather than starting with a blank sheet of paper and writing the software yourself – which is never-ending and the cost also never goes away – Serena’s strategy was the opposite: take the best-in-class systems and bolt them together. Systems houses have to keep updating software to keep it alive with current trends. They have to keep adding new features. And the cost to us is significantly lower.
To me, there was also the logic that we can’t claim to be a low-cost operator, urging our partners to take cost out of their businesses, and then spend £5 million on software to make it work. We’ve been working with artificial intelligence robotic software now for four and a half years. Sometimes it would be technically possible to use more conventional IT development, but we’re trying to be as low cost as we possibly can.
OPI: These robots are intelligent software programs that sit on your computer I presume. You call them minions, don’t you?
PM: Yes, all our robots have names like Bob and Stuart, which are names from the Minion films.
OPI: Are there legal ramifications for doing that?
PM: Ultimately, they are just names. But we do own a lot of genuine Minion toys.
OPI: What processes do these robots go through?
PM: One of Kevin’s tasks is doing the banking. It – or ‘he’ even, whatever you prefer – does the work of three full-time people and that’s just for banking, so that’s payments coming in, posting to ledger, matching up, etc – Kevin does it all, by 8am in the morning.
OPI: There must be some human intervention because it’s not an exact science.
PM: What happens is we get a reject saying “I can’t do this job”. The robot doesn’t know why it can’t do it because we haven’t taught it that yet, but once we do, the next time we won’t get a reject, so you’re constantly refining them. Kevin sends an email to our head of credit control each day to say “I’ve done that, it’s finished”, so when she gets in at 8.30 am, there’s an email waiting for her saying “I’ve done the job”.
If it hasn’t done the job, it says, “I’ve not completed all the tasks and here’re the three tasks that I haven’t completed”, and we can then check to see if it’s a one-off or a ‘what if’ scenario. If it’s the latter we teach him that. Or maybe it’s a data entry on a new account where somebody has given the wrong codes or the wrong bank account, and it can’t match the business with the cheque. We can fix that too. There are lots of things we can do with our minions to save time and therefore money.
OPI: I’m not going to dwell on this much more, but what does Bob do?
PM: Bob sits in our admin department and does all the back orders. It checks every single day the goods that have arrived in. If they haven’t arrived in on the due date, Bob will send an email to the supplier to say: “You promised us x on this date and it hasn’t arrived. Can you please give me a date?” When an email comes back, Bob can read it, take the date out and post it onto the system, so the new date is on there. I could go on forever about what our minions can do – it’s very clever.
OPI: Do you have any more robots planned?
PM: We use a US software house for the robots. Obviously, it’s a shell and you do all the writing yourself and there’s an intellectual value in it. But the company has changed its pricing structure, so the ‘programming’ robots are now quite expensive. The ‘doing’ robots are very cheap, but you need a programming robot to teach them. When we move into these new premises, every customer service person will have a ‘doing’ robot on their computer.
When a customer rings in, for example, we have a screen part that tells us good morning, whatever the name of the dealer partner is and as they answer, it also pops up who the customer is and where it’s based. The robot will read the address, postcode, tell the operator the weather in that location, etc, so he/she can engage with the customer. We can also set up other boxes with personal information, while on the other side of the screen the customer’s account opens up for an order to be put in. Any system could use traditional IT development to achieve this, but it’s costly and slow.
None of this might appear to set the world alight, but it makes such a difference, because it’s so efficient while at the same time being really personal.
By the time we move into these premises we will have as many as 50 different robots because the whole customer service team is going to have one on their computers and each department will have one as well.
OPI: Let’s wrap up the last couple of areas. You flirted with entering the US market a few years back. Why didn’t that happen and are there circumstances that could reignite that interest?
PM: We just got the wrong partner. They didn’t see any value in our experience, thought they could do it themselves, lost an awful lot of money trying to copy us and went bust in the end. It would be interesting to do what we do in the US, definitely. We just have to find the right partner to do it with.
OPI: What would be the qualities you are looking for in that partner?
PM: The ideal partner would be a ‘donor’ dealer. This should be a good-sized dealer, say $10 million in revenues, that already has most of the infrastructure ready that we would want and need. You then overlay the systems and processes on top and move staff out from the dealer into the company that will then be created.
It’s also important to work with a large wholesaler in the country – at present it looks as if there may only be one broadline wholesaler left fairly soon.
OPI: Do you foresee any limitations given the significant geography of the US market versus that of the UK?
PM: No, not really. When we were just hours away from signing contracts last time, we had already spent a fortune on lawyers and all sorts of things. There were a couple of issues – sales tax being the single biggest one of them because it works very differently in the UK. But we’ve already dealt with that and other nuances and know what to do.
There might be slightly different products, codes and descriptions as well, but it’s still a SKU. As long as the overall premise is the same – let’s take cost out, let’s consolidate – it doesn’t matter a great deal where you are. I’m talking to two countries in continental Europe at the moment – dealers in those countries have the same challenges and strains that we do here.
Somebody far cleverer than me – Seth Godin I believe – said: “Change almost never fails because it’s too early. It almost always fails because it’s too late.” My fear for our industry is that it will change too late. We – by that I mean Nectere – were too early. When I had the original idea, it was ahead of the technology available at the time and ahead of people’s perceptions. We’re doing ok now, but I’m worried that some of the industry will be too late.
We desperately need the manufacturers, distributors – everybody in fact – to think differently about what they do and how they do it. We need to let technology deal with so much more than it currently does.
Here’s another pearl of wisdom: If you wait for perfect conditions, you’ll never get anything done. So true – Nectere lives by that mantra. We’ll keep launching, moving and improving. Things are never perfect, so why worry about it?