The Lyon King
by Andy Braithwaite
While larger rivals Lyreco and Office Depot tend to dominate the media pages, it is often easy to overlook major local players like Fiducial Office Solutions (FOS), France’s third-largest contract stationer. However, when FOS joined the EOSA (and therefore BPGI) fold in 2008, it signalled a more international ‘état d’esprit’ by the French company.
High time then that OPI found out more about FOS. I hopped onto a TGV and travelled to the company’s headquarters in Lyon to meet Managing Director Gérard Martin and get the low-down on FOS and the current state of the French OP market
OPI: FOS is the number three B2B office supplier behind Lyreco and Office Depot. How did it achieve this position?
Gérard Martin (GM): Well, the actual story of the Fiducial Group goes back to the early 1970s when Christian Latouche, a chartered accountant, began buying up small accounting firms in the south of France, creating a company called Sofinarex.
This expanded into providing legal and tax advisory services, as well as bookkeeping, to very small businesses (VSBs). Mr Latouche continued this strategy of acquisitions and, to cut a long story short, at the end of the 1980s bought a large firm based in Angers called DACF-CECF.
The merger of DACF-CECF and Sofinarex resulted in the creation of Fiducial in 1991, which at that time employed about 3,000 people.
Around the same time, the group also acquired a firm called SACI, which was a leader in the provision of printed forms and documents for the accounting world, and it was via SACI that the Fiducial Group moved into the office supplies sector with the acquisition of a large Lyon-based office supplier called Brun Passot in 1992. That’s when our office supplies story really began.
OPI: Under the SACI name?
GM: That’s right. What followed was a period of strong internal and external growth, with the acquisition of a number of regional players and even two Belgian companies in 1998 to establish operations there. In 2001, SACI acquired OMB, a N40 million ($49 million) dealer based in the north of France, which cemented its position as the third contract stationer in France and gave it a strong presence in the office furniture segment.
Then in 2003, to align itself with the rest of the group, the office supplies part of SACI changed its name to Fiducial Office Solutions. Acquisitions kept on being made and in the year before I joined the company, one local dealer had just been bought out.
OPI: There is certainly a long history of acquisitions!
GM: Yes. Not just with FOS, but within the Fiducial Group as a whole. Mr Latouche says that he can’t sell, but he can buy! But acquisitions have also been complemented by strong organic growth, and FOS has traditionally outpaced the market in organic sales growth.
OPI: So what is the current size of the Fiducial Group?
GM: In France, Fiducial has around 600 offices and 200,000 clients in the VSB and SMB sector. Sales in France are around N650 million.
On a worldwide scale, if you include franchise members in the US, then we’re talking about a group with a presence in over 70 countries and annual aggregated sales in the region of $1.5 billion.
OPI: What part does FOS represent in the grand scheme of things?
GM: Globally, Fiducial Group is focused on the small business customer. FOS caters to this market, but we also service larger accounts, so customers can range from firms with just a few employees to huge groups like [national rail company] SNCF.
In total, we have around 55,000 active clients. FOS has annual revenues of around N230 million – including the addition of our latest acquisition Liogier Roux – and over 1,000 employees. We have 46 sales offices, including Belgium and Spain, and 30 distribution hubs, meaning that we can offer 24-hour delivery to all our customers.
OPI: What was your career path before taking the top job at FOS?
GM: Well, I am certainly not what you would call a veteran of the office products industry! I studied at business school in France and qualified as a chartered accountant. I began my career as an auditor, then financial controller and then finance director, working in industrial groups and several years in the Matra Group (now Lagardère).
I then worked for some time with the Fiat Group after it acquired the automobile electronics operations of Matra. First I was Group Finance and Administrative Director in France before, in 1992, I was offered the General Manager’s position at Fiat’s components subsidiary, Magneti Marelli, Argentina, so I lived in Buenos Aires for five years, managing the company’s production site.
I returned to France in 1997 and ran Continent Insurance, also part of the Fiat Group at that time, first as CEO and then as Chairman. In 2003, Fiat was short of cash and decided to sell off its insurance business to Generali, so I worked as part of Generali for two years, the time it took to merge and integrate the business. I left in 2005 and joined Fiducial Office Solutions as Managing Director in March 2006.
OPI: So you’d had no experience at all of office products?
GM: None – I discovered this industry the day I joined FOS. In fact, I didn’t even know what the word ‘fournituriste’ (‘office supplier’ in French) meant beforehand!
To be honest, I don’t think that’s been a particular handicap. Running a B2B office supplies company has enabled me to utilise different skills and experiences from my career – the financial and accounting aspects from my early career; and the logistics and supply chain from my time in South America.
In office products we have the same concepts with distribution and picking facilities; from a commercial and sales team management perspective, I managed a network of agents and brokers at Continent Insurance. So the office supplies sector has allowed me to apply all these different aspects of experience accumulated over the years.
OPI: What state was the company in when you joined?
GM: FOS had actually been without a CEO for about a year at the time I joined. My predecessor, Jacques Brun, had left at the beginning of 2005 and operations had been handled on an interim basis by the Fiducial Group during that time.
The sales management team had been restructured – there were two sales directors, one for field sales and one for key accounts. Overall, FOS was in a phase of development and internal growth.
As a result, when I arrived and during my first year, we enjoyed a period of increasing sales. Nevertheless, this was at the expense of margins which were declining. I have to admit that this did not sit well with my management background!
So, after I arrived and especially in 2007 and 2008, one of my main goals was to rebuild margins and to focus on profitability.
We launched initiatives like the ‘plan marge’ (‘profit plan’), to try and make people more aware that sales are good, yes, but if there is no underlying profit, there’s not much point to it all.
It was a case of instilling a new mentality within the salesforce – basically telling sales reps to pay more attention to margins and asking them to be more selective in their choice of targets and customer acquisitions, rather than just focusing on growth at all costs.
We also asked for more discipline in passing on price increases to our customers and for this to be systematic.
OPI: Were you successful?
GM: Well, 2007 and 2008 were good years. In 2007 we posted a sales increase of almost 7 percent, and in 2008, even though the economy was showing signs of weakening, sales were up over 1 percent and our profitability was good.
OPI: Around this time I believe you launched a project called ‘Excellence Commerciale’. What was that about?
GM: ‘Excellence Commerciale’ was basically a reorganisation of our field sales network.
This included a simplification of our sales organisation. At the time, field sales reps did a bit of everything, including their own field sales activity, plus deployment of key accounts in their area. This led to some friction between key account managers and field sales reps.
In truth, things were a bit ambiguous, so the project was really designed to clarify the responsibilities of the sales teams. We re-drew our sales map of France and gave the reps clearly defined customer target groups.
We also moved some of the field sales reps into key accounts, creating corporate attachés.
Their objective is the creation of large enterprise accounts.
OPI: Did everything go smoothly?
GM: When you implement changes for sales teams, it always creates some turbulence!
In fact, it was a big change for them because you ‘interfere’ with their client portfolio.
Part of the field sales reps’ remuneration package was for servicing key accounts. When you tell them suddenly "that’s not yours anymore", they naturally go scurrying for their calculators to see how they will be affected! There were also fewer reps as some moved to key accounts.
To complicate matters, we started the project in 2008 and it was just up and running when the financial crisis really kicked in at the beginning of 2009.
So, we had the double challenge of a new sales organisation and the economic crisis. It was something we just had to live with, because it was too late to defer the project at that stage.
OPI: Did the project hit your sales targets?
GM: I would say that there was a bit of apprehension, a wait-and-see attitude by some reps just at the time when we needed more dynamism and a proactive approach. This contributed to a sales decrease in 2009 of 6 percent which was, in fact, in line with the overall market.
OPI: How would you evaluate the success of the project now, in mid-2010?
GM: I was pleased with the way we implemented the project. It wasn’t easy and we needed to provide a lot of explanation and training about the adoption of new methodologies and the management of the sales teams. The changes are now behind us, however, and I think there is a commercial dynamism that has been re-instated in our field sales teams. We are seeing growth in the SMB sector which is very important for us.
Overall, we have a more efficient commercial operation; we introduced a whole series of key performance indicators and we appointed former Lyreco executive Pascal Valenduc as Sales Director. He’s doing a good job and we’re seeing field sales pick up again after a difficult 2009.
OPI: You talk about field sales and key accounts. How are these defined?
GM: Field sales, which we also call internally our ‘network’, refer to the part of our business that looks after small and medium businesses – firms with up to 250 white collar employees. The average white collar worker in France represents about N300 in annual office supplies spend, so we’re looking at companies with a potential of up to N75,000 a year. This represents the bulk of French companies.
Above 250 white collar employees is considered a key account, and this can be in the public or private sector. Revenues are split roughly 50-50 between the network and key accounts, though this did shift slightly last year in favour of key accounts.
OPI: Why was that?
GM: It’s really to do with the economic situation, plus our own internal changes. Small businesses seemed harder hit by the economy and we were in the process of implementing our ‘Excellence Commerciale’ project.
OPI: How has the economic situation affected the French office products industry overall?
GM: We estimate that companies are consuming about 8 percent less in value terms a year now. What we also saw over the past year or so is some very aggressive pricing in the market. When companies are in a financial crisis, the first thing that goes is their general services budget, which includes office supplies.
What you also see in a lot of firms is that junior buyers are given the role of purchasing office supplies – they need to show their mettle to their bosses. We have seen some very aggressive pricing demands from clients and, quite frankly, I’m worried about the market. We have a fragile economy and clients who, in my opinion, are making unreasonable demands. The main national resellers – ourselves, Lyreco and Office Depot – are as such being forced into a dangerous price war.
As far as key accounts are concerned, it’s a race for market share that is destroying profitability. Tenders, both in private and public sectors, are blood baths! These factors combined could have dramatic consequences in the future.
The French Government has not made matters easier with the introduction of scandalous new legislation called the Law of the Modernisation of the Economy (LME).
OPI: What’s that about?
GM: The LME was designed to reduce the payment period by resellers to suppliers. Originally, it was aimed at helping SMBs that supplied multiple retail chains, so that instead of receiving payment 90 days after delivery, they would be paid after 45 days.
For retailers, that’s not necessarily an issue, because they get paid by their customers (ie shoppers) up front, so for them it shouldn’t be that difficult to pay suppliers after 45 days.
The problem was that the government forgot that there were intermediary resellers like us. We don’t have customers who pay on delivery and because we’re a company that provides products – as opposed to services – to end-users, 90-day payment terms are the norm. In other words, we were faced with the situation of having to pay our suppliers on 45-day terms, but invoicing our clients on 90-day terms. You can imagine what that means for cash flow!
Fortunately, there was a special arrangement for the office supplies sector that prevented the immediate introduction of the 45-day payment term. It’s still being phased in over the next three years, but the 90-day term is being reduced in steps of 15 days between 2009 and 2011. Therefore, we are currently paying suppliers on 60-day terms, and this will be reduced to 45 days in March of next year.
OPI: What impact has that had on the reseller community?
GM: With a large group like Fiducial, we are fortunate enough to be able to fall back on the support of a shareholder, but I won’t deny that we were faced with serious working capital challenges in 2009.
What I would say is that if companies like ours – debt-free and with a positive balance sheet – are experiencing challenges, then those in a more precarious financial position are facing much tougher problems. Take our latest acquisition, Liogier Roux, for example. It was already in debt after making a number of acquisitions, then on top of that it faced extra cash pressures because of the new legislation.
Quite simply, I think that this new law is a catastrophe for small and medium office products companies.
OPI: Have there been a lot of bankruptcies?
GM: Not that I am aware of, but the situation will get worse – there is always a time lag with these things.
OPI: You mentioned that Liogier Roux was having financial difficulties. Was this the reason for acquiring the company?
GM: It was an opportunistic acquisition in that sense, but that has been our philosophy anyway with acquisitions. In fact, Liogier was the first company purchase we made since I joined FOS. We don’t have a strategy that says we must acquire dealers at all costs but, of course, we will look at suitable opportunities as and when they arise.
OPI: What does the Liogier acquisition bring to FOS?
GM: For a start, it was the seventh largest player in the French market with sales of about N35 million, so there are obvious purchasing and back-office synergies to be had. Geographically speaking, it has strengthened our position in important economic areas such as as the Rhône-Alpes region. Liogier also has competencies in areas such as workspace design and managed print services that I think we need to develop across the whole of FOS.
Expanding our offer in terms of products and services is something that we will have to do. That is the vision of the Fiducial Group as a whole – a global services provider for businesses – and we need to go down that path, too.
OPI: You joined the EOSA alliance a couple of years ago. What was the reasoning behind that?
GM: When we joined EOSA in 2008, what really interested me was gaining an international perspective, to create links and contacts with fellow European office suppliers. It has given us visibility of other markets and the chance to share best practices. Also, from time to time we are faced with multi-national tenders and while we don’t have the scope of Lyreco or Office Depot, when there is a tender where we need to provide a solution in Spain or Italy, say, we can do that with an EOSA partner.
We’ve also been able to make some purchasing gains through EOSA’s membership of BPGI. There is no doubt that being in EOSA has helped us to know and be known by others in the industry.
OPI: How important are these pan-European or multi-national accounts?
GM: To be honest, I think there has been a bit of a U-turn with this whole concept. There was a time when the trend was to organise purchasing at a group level, and we actually lost clients that needed, at a minimum, a European purchasing solution. However, with some very large companies there has been a bit of a change, especially with purchases that could be considered non-strategic, such as office supplies. I believe we are seeing a move back to more of a national purchasing concept. It’s difficult enough in one country where a firm has multiple sites to centralise purchases. Doing that on a European or international level becomes even more complicated.
There are also different interests within the companies themselves. Purchasing departments want to achieve the greatest amount of cost savings they can, but the end-users in the company don’t know what is going on because they don’t have access to the products they’re used to or want.
What we are seeing quite frequently – and large firms find that hard to accept with all the systems and processes they have in place – is that there is a surprisingly large amount of office supplies purchases which are made on expense accounts. Staff go to the local supermarket or stationery store and use their expense accounts to buy products they can no longer find in their catalogues.
As such the purchasing of supplies is slipping from the grasp of the purchasing department to some extent. We’ve even suggested to clients that they do an audit of expense claims to see what’s going on. What this does demonstrate is that, with all the centralisation, standardisation etc in place, systems can still break down.
OPI: Did you also join EOSA with a view to developing FOS’s own international presence?
GM: We already have a successful subsidiary in Belgium, and that has recently grown through the acquisition of a local dealer, Ganda. Sales in the country were up nicely by over 40 percent last year, reaching N515 million in a market which has grown by 5%, and we are also satisfied with our operating margins there.
With the benefit of hindsight, we would have done things differently in Spain. The process of setting up a greenfield operation there had already begun when I joined FOS. Doing that in a market like Spain is very difficult at the best of times, and we currently have a sales team in Barcelona that works solely in the Barcelona region.
Obviously, it is a market that is suffering enormously and we need to ask ourselves questions about our future strategy in the country. But we are there now and the ideal scenario would be to make an acquisition and become more structured in the market, but that is not easy in Spain at the moment. We’ll just have to see how it develops.
OPI: What about expansion into other markets?
GM: Our strategy is very much Europe-focused, particularly with our close European neighbours: Spain, Italy, Switzerland, Germany, Benelux. Why? Well, in terms of logistics it’s not an issue. I always say that from Lyon, it’s easier to service Turin (Italy) than Brest (north-western tip of France) – my truck can get to Turin quicker! So at the moment we have what I would call a near-European strategy.
But if you were to ask the question, "Do you have to be an international company in order to survive-, then my answer would be "no".
A purely French office supplier can still be big enough to be relevant, and international expansion is not a question of survival for a company like ours.
If there is an opportunity, why not, but it is not a strategic necessity.
OPI: Eric Bigeard, CEO of your largest competitor Lyreco, is retiring at the end of the year. Do you think that will present an opportunity for FOS?
GM: Certainly not in the short term. Lyreco is run like a well-oiled machine, and Eric leaving won’t mean that operations will grind to a halt all of a sudden. After that, it depends on the priorities that are established by the new management team.
Who knows what could and will happen in the future? Things can happen quickly – both in a positive and negative sense.