Back to Basics in Canada

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Back to Basics in Canada

 

The Canadian independent dealer group community – not the most crowded of markets to begin with – saw further consolidation in October as the independents looked at ways of reducing costs; creating what is essentially a duopoly, with the two main groups, Basics and Novexco, both strengthening their membership base

 

Discussions between Canada’s three largest independent dealer groups – Basics, Novexco and Canadian Independent Stationers (CIS), have been taking place on and off over the last three years or so to look at ways of how they could work closer together in order to improve their purchasing models and increase the competitiveness of their dealer members against the country’s strong power channel.

 

Indeed, according to some observers, there had been talk of creating a single Canadian ‘super dealer group’ that could take independent dealer groups to the next level under the BPGI umbrella.

 

However, it appears that discussions along these lines will have to be put on hold for the time being, with the news that CIS – the number three group – will become a shareholder in the largest group by revenue, Basics, on 1 January 2009, while number two Novexco has acquired the former wholesale operations of Corporate Express in the east of the country.

 

The agreement between Basics and CIS mirrors a similar move by Guild Stationers, which also took a shareholding in Basics five years ago.

 

"CIS has joined Basics as a shareholder in the same way that Guild joined us five years ago," confirmed Basics President Sean Macey. "They have full voting rights and there are some financial requirements that need to be met from a security and purchasing point of view. Both these groups meet those requirements like any other shareholder."

 

The rapprochement with CIS adds around 45 dealers to the Basics setup, taking the total number of dealers to 135 – including the 75 Guild dealers – and immediate benefits will be seen from purchasing and private label perspectives.

 

Contract negotiations with national vendors will now be handled almost exclusively by Basics’ purchasing team.

 

"This means one contract and one point of contact that will bring benefits to both dealers and vendors," said CIS President, Nineeta Drepaul. "We hope that further benefits will be achieved by the future alignment of our catalogue selections and by negotiating better programmes from vendors."

 

"The first part of the process was to put purchasing volume together and to show how, with increased volumes and increased catalogue exposure, there can be a benefit for independent dealers," explained Sean Macey. "We’ve accomplished that and now the next step is to look at other parts of our businesses as buying groups and see where we can also find common things that the three of us can work on together."

 

Macey says that possible synergies could include joint negotiations with printers for catalogue and flyer production, a national deal with Canada Post – the central mail system – to negotiate one fee for the distribution of flyers to commercial customers and other marketing related initiatives that would pool volumes and reduce costs. "These are all things that we will look at when CIS officially joins in January."

 

Nineeta Drepaul also points out that giving the purchasing responsibilities to Basics also allows her team to focus more on merchandising and marketing programmes for CIS dealers. "We expect to be spending a lot more time on the sales and marketing side and building our e-commerce business," she said. "We’re looking at redeploying our resources in these areas, rather than cost-cutting and staff reductions."

 

At this stage, both CIS and Basics see the importance of maintaining their separate brand identities, with Basics continuing to operate under its own eponymous brand and CIS maintaining its Office Plus banner.

 

"There isn’t one solution for all dealers," states Macey. "This arrangement allows dealers to go to market with different strategies depending on their particular needs, size or geographical location. While some people’s immediate reaction is to think that it would be a good idea to put everyone under the same banner, the reality of the situation is different – it’s not a practical solution."

 

As part of its effort to maintain its own identity, CIS has also tied up a deal to offer a single private label brand in partnership with Basics’ Guild dealers.

 

Since joining Basics, Guild has maintained its OfficePro private label brand, while CIS has its own Office Plus brand of products. Fortunately, the similarity of the two brand names means that volume savings can now be achieved by creating a single brand called OP, while ensuring that neither of the two original brand associations is really lost.

 

From January 2009, around 100 products will be offered to both CIS and Guild customers under the OP brand. The sourcing of these products is something else that is being handled by Basics. "We use our existing manufacturers to do a second production run but with different packaging that will allow CIS and Guild to distribute these products to their customers," confirmed Sean Macey.

 

This new private label deal means an end to the 12-month distribution agreement between CIS and Novexco, under which CIS marketed Novexco’s Enium private label brand.

 

The tie-up with Basics also sees CIS leave the BPGI buying consortium of which, along with Novexco it was a founding member, leaving the Quebec-based dealer group as Canada’s sole BPGI representative.

 

"We place a lot of importance in being a member of BPGI and it brings real advantages to our members," said Novexco CEO Robert de Montigny, who recently hosted BPGI’s annual meeting in Quebec.

 

De Montigny has just seen his own membership numbers almost double to 135 after the acquisition of Corporate Express’s wholesale operations in eastern Canada, thereby strengthening Novexco’s leading position in that region of the country.

 

Corporate Express had been looking to divest its wholesale operations since the strategic review it had carried out last year ("This is not related to Staples’ acquisition of Corporate Express," confirms de Montigny) and it certainly seems a good fit for Novexco, which can use its existing distribution facilities to service the 65 Club Express dealers and around 460 wholesale clients that came with the acquisition, adding around C$30 million ($24 million) to the bottom line.

 

"We’ve taken on key employees from Corporate Express – sales reps and account managers – who are directly involved with the customers and we’re also expanding our warehouse operations to cope with the extra volume," said de Montigny.

 

Novexco plans to maintain the Club Express banner alongside its BuroPlus dealerships and de Montigny does not see a problem with this.
"Club Express already existed, so we are not creating extra competition in the marketplace," he argues. "In fact, by achieving economies of scale, we will be able to make both banners more competitive."

 

This will be important as Staples – the dominant player in the Canadian market – forges ahead with its integration of Corporate Express.

 

However, one point on which Basics, CIS and Novexco all agree is that there is now a good opportunity for independent dealers to win corporate business as a result of Staples’ acquisition.
"I don’t believe that every customer is going to be happy with the new Staples/Corporate Express entity and is going to want to do business with them, whatever their final model looks like," predicts Basics’ Sean Macey.

 

Now, with their increased purchasing power, the independents have improved their chances of winning over some of these customers.