Analysis: Essendant adopts new contract strategy

The wholesaler has raised a few eyebrows in the US by bidding directly on large contracts.

US wholesaler Essendant is on a potential collision course with the country’s independent dealer channel (IDC) after adopting a strategy of bidding directly for national contract business.

Being involved in the contracts business is nothing new for Essendant: it has long supported dealers via what is now called its Vertical Markets Group, and it was a major partner of dealer group Independent Stationers (IS) when it won the US Communities cooperative contract in 2010.

However, AOPD Executive Director Mark Leazer believes that recent changes at Essendant are a “paradigm shift”, now that the wholesaler is bidding on contracts under its own name as opposed to just providing bid, pricing and infrastructure support. Essendant bid on the recent US Communities contract that went to Amazon Business, but of more concern to Leazer is the outcome of the bid process for the major Premier group purchasing organisation (GPO) healthcare contract that is nearing its conclusion.

Leazer admits that this type of “challenge” from Essendant puts AOPD and the wholesaler in a different relationship, although he is quick to point out that Essendant remains a strong business partner and supplier to AOPD dealers.

This is also a topic of interest for TriMega, of course, which announced a strategic partnership with Essendant last year. While TriMega President Mike Maggio believes that Essendant should be focusing its resources on other initiatives, he said he hasn’t heard that much noise about Essendant’s new programme from TriMega’s larger dealer members. “There is a lot of smoke, but not much fire,” he said, adding that there still appear to be question marks over how Essendant will implement its strategy.

Grady Taylor, Managing Director of EPIC Business Essentials (EBE), the joint venture between IS and TriMega’s Point Nationwide, is also taking a wait-and-see attitude. “While Essendant has been clear about its intention to enter the space, a number of questions have yet to be answered,” he told OPI

“One which is critical to us is who will service the business locally? Until we understand clearly how they are going to manage that, it is difficult to know if this is a good thing for the IDC or if we are just substituting a new competitor for an old one.”

In a recent interview with OPI, Essendant’s President of Office and Facilities Harry Dochelli provided some insight into how this contracts initiative – which is called Access – will work. Essendant’s intention is to have the contracts serviced – in terms of sales reps and last-mile delivery, for example – by “a premier group” of dealers that will have exclusivity in specific geographies.

There are a few key areas that are not set in stone and which may change depending on the nature of a given contract. These include whose name is on the contract and how profit is split between Essendant and the servicing dealers. Nevertheless, on the face of it, the model would appear to be not dissimilar to the one used by IS on the US Communities contract.

If Access is able to win business from Staples and Office Depot – which still have the lion’s share of the large regional and national contract business – then it will no doubt be viewed positively by the IDC. “We welcome any endeavours that bring share to the IDC,” confirmed Taylor. 

However, there are still concerns over possible channel conflict, similar to the dual-distribution challenges with Boise some years ago. 

“Is it in the best interests of either national wholesaler to be closer to the IDC’s end users and potentially competing with their traditional customers, namely us?” questioned Taylor. “We do not think so.”

He continued: “Additionally, Essendant’s Enterprise programme was abruptly pulled about a year ago with very limited notice. How long is Essendant’s ‘attention span’ going to be for a programme that has historically not had instant results? What will be different [with Access]?”

Dealer opportunities?

Essendant argues that it is not looking to take business from the IDC, but is opening up new opportunities for dealers to compete in the larger contracts space. It also told OPI that it is responding to customer demand by providing a “comfort level” for GPOs and enterprise customers as a result of having a Fortune 500 company (ie Essendant) holding the contract.

Whether these two lines of argument are coherent remains to be seen. It will be interesting to see the outcome of the new Premier GPO contract when that award is made, likely in the near future. Essendant is being open about its participation in that particular bid, meaning it is going up against the likes of AOPD and other independents (including EBE members) which piggyback on the contract held by Ohio-based dealer FriendsOffice in addition to the big boxes. 

The Premier contract has traditionally been a multi-vendor award, so one would assume that Essendant is hopeful of getting at least a ‘hunting licence’ to go after that business. All eyes will then be on whether it takes share from the big boxes or members of the IDC.