Big Interview: Carlos & Rafael Benavides

 

The family way

 

by Heike Dieckmann

 

Comercial del Sur has seen plenty of ups and downs in its 50-year history, but the continuing gloomy economic climate in Spain is proving one of its toughest challenges yet

 

Founded in the southern Spanish city of Granada by Rafael Benavides in 1958 with 200,000 pesetas (e1,202) and three employees, Comercial del Sur de Papeleria is now one of Spain’s largest OP distributors and wholesalers. Today, his sons Rafael and Carlos Benavides are at the helm of the company.
Having grown up with the business, they know exactly what makes it tick and work closely together to make sure Comercial remains a successful family firm that can stand up to any changes and upheavals that the country, its competitors and even customers throw at them.
OPI: Let’s start with the Spanish economy that has been hit harder than many other European countries over the last 18 months or so. How are OP companies faring at this difficult time?
Rafael Benavides: We’ve had some very good years in Spain in the past, with great economic development and GDP growth of 3-4 percent. 2008 and 2009, however, have been difficult, with unemployment levels of over 19 percent and nearly four million people on the dole. Many companies have had to close down or are going through great difficulties.
OPI: How is Comercial coping with the situation and what can you do about it?
RB: We have had to adapt to these new times, improving our resources and reducing costs, prices and margins even, in order to remain competitive.
In 2008, we grew by barely 1 percent, something which hasn’t happened since the 1992 crisis, and last year we recorded a negative growth of 3 percent.

 

Generally speaking, however, we find that in our industry there are neither large increases in sales in times of economic boom nor large falls in times of crisis. If businesses like ours are well structured, they are able to come out of a recession more easily than in other sectors of the economy. The same is true for our customers; they reduce their purchases, yes, but we don’t see the drastic disappearances of companies as we do, for example, in the construction sector.

 

Carlos Benavides: My impression is that the big players like Lyreco or Office Depot are suffering more than the traditional players at the moment, although they have had some very good years with impressive growth.

 

It’s because the recession is affecting office supplies more than school products. Sales of school products are stagnating, those of office products are declining, and because the traditional players combine the two categories more, they seem to be less affected.

 

OPI: Economy aside, Comercial del Sur has had a couple of memorable years with the celebration of its 50th anniversary in 2008. What have been the major milestones for the company since it was founded?

RB: Throughout our history, we’ve always taken relatively small steps to achieve our goals, so in a way there have been many minor milestones – internal and external – that have made the company into what it is today. But I would point to three major investments that have had a huge impact on our overall development in the last 50 years.

The first one is the opening of our warehouse in Guadalajara, the second the acquisition of the Bielomatik machine for the manufacture of blocks and notebooks, and the third the opening of our subsidiary in Portugal. All three ‘events’ occurred in 2002.
OPI: 2002 was a big year for you then! Can you tell me a bit more? Let’s start with the warehouse.
CB: Well, we are headquartered in Malaga, in the south of the country, with further offices in Seville, Granada and Cadiz. Up until 2002, we serviced our customers from these offices and, more importantly, logistically from our warehouse in Malaga. We weren’t really a national, but more a regional player.

 

We wanted to become a wholesaler with 24-hour coverage of the entire Spanish market and the only way to do that was to invest in another logistics operation. The choice fell to Guadalajara. It’s a 10,000m2 facility located about 50 km from Madrid.
OPI: What about the Bielomatik machine – why was that so important?
CB: We had been manufacturing paper and cardboard products since 1976. Our production machinery had become out of date, however, and we had an issue with the quality of our products. The Bielomatik machine is very efficient and gave us the quality we needed to compete with the likes of Hamelin or Unipapel. It was a big investment for us, but it enabled us to match the products offered by our competitors.
OPI: Lastly, your subsidiary in Portugal…
RB: We began operating in this market in 2002 through our subsidiary Luso Mediterranica de Papelaria. Distribution in Portugal is not very defined, so we decided to introduce a professional wholesaler to the country.

 

It was a project that took several years to get off the ground. Portugal is much more price-sensitive than Spain. Service is important, but price is the most important factor in this business. Margins, as a result, are very low.

 

Because of the various idiosyncrasies of the market, we decided to have a 100 percent Portuguese team in place. All our catalogues and brochures are published in Portuguese. The logistics, meanwhile, are organised from our warehouses in Spain – Guadalajara or Malaga, depending on where the customer is based.
OPI: And how is the subsidiary performing now?
CB: We are very pleased with the team and proud of their achievements. The volume is still small, but despite the difficult economic climate we’re currently growing in the country. One of the reasons for that is that one big operator (with revenues of e30-40 million) in the Portuguese market, Papeleria Fernandez, closed down in 2008 due to financial problems. It’s not easy making money in Portugal and I guess the demise of the company benefited us.
OPI: Part of your 50th anniversary celebrations involved the building of a school in Peru. What was the thinking behind that move and how is the work in Peru progressing?
RB: Well, much of our activity involves the distribution of school products, and we felt the best way to express our gratitude towards these ultimate end-users was to build a school in an economically disadvantaged zone. The building is now complete and was opened last November.

 

There are still plenty of things to do. The school was built for 800 pupils from four to nine years old. At present, 300 children are attending the school.
OPI: Let’s talk more about Comercial as it stands today. Please explain how the company works.
CB: Comercial has a triple profile. We began as a local wholesaler back in 1958 and are now a wholesaler for Spain and Portugal. Then, as I mentioned, we took on the role of manufacturer of paper and cardboard products in 1976.

 

From about 1985, we have also been exclusive importers and distributors of big brands in our sector. Shachihata and Citizen were some of our first partners that gave us exclusive distribution rights in Spain.

 

We distribute our products through our sales network, the Internet, our customer service department and also, to a lesser degree, through our three cash-and-carry stores in Malaga, Granada and Cadiz.

 

In a nutshell, Comercial is a distributor of stationery, school and office material sector on the Iberian Peninsula. We have two large logistical platforms with a very high level automated service. With over 200 employees and 60 exclusive salespeople in Spain and Portugal, our sales currently exceed e50 million ($74 million).
OPI: How does your operating model sit with your customers? Is there a perceived conflict of interest?
CB: Our clients see it as a clear advantage that the same company handles three different channels. There are no additional costs or margins, and our customers consider this very beneficial to their interests.

 

With regard to the conflict of interest, yes, we’re a manufacturer and a distributor, but after that we only go to hypermarkets, dealers, contract stationers and retailers – that’s our core customer base. We are a clear wholesaler and don’t approach the end-user directly. This multi-channel approach is not unusual in a fragmented market like Spain. Just take a look at some of our competitors.
OPI: So you sell to the Lyrecos and Staples’ of this world?
RB: Yes, we sell to Antalis, Lyreco, Staples, Metro and so on. We don’t only go to small dealers and retailers, although they make up about 90 percent of our overall customer base. Most of the papelerias in Spain have a retail shop as well as a B2B presence.

 

OPI: What about Carlin, is that a customer?
RB: Yes, Carlin is a very good customer. It’s the most important franchise operation in Spain with over 500 outlets and a very professional attitude to the OP market.
OPI: How big a percentage of your overall revenues come from the papelerias?
RB: In revenue terms, it’s about 60-65 percent. The contract stationers and the big hypermarkets generate about 30 percent.
OPI: What’s your geographical coverage? You said earlier that your second warehouse near Madrid has given you a more comprehensive nationwide outlook.
CB: Yes, we now serve the whole of Spain and Portugal, but our strongest market is still in the south of Spain. We’re growing in Catalonia, where Spicers could be the strongest. In the centre of the country, around Madrid, Unipapel is the largest player.

 

OPI: So what’s the market share of the top three players at the moment?
CB: (Laughs) Wouldn’t I like to know! It’s hard to tell, but in order of size, I guess Unipapel is the biggest player, followed by us and then by Spicers.
OPI: The wholesale market in Spain used to be a crowded space. Is that still the case?
CB: As you say, there have been a large numbers of wholesalers in Spain in the past, possibly due to the size of the country and the poorly developed infrastructure. Many still exist, but plenty have converted into office suppliers, meaning that they now also deliver directly to end-users.

 

The new demands of the market, the improved infrastructure and communications, service and stock availability in 24 hours, and the growing level of competition all mean that the smaller players are gradually losing market share to the national distributors of which, as I said, there are only three.

 

There is no doubt that the difference between the national and regional distributors is considerable, but it should not be forgotten that the importance – and also the market share – of the latter is still quite high.
OPI: Is the relationship between wholesalers and the papelerias in Spain good?
CB: Well, as far as we are concerned, it’s excellent. We have grown together and have always worked in close collaboration. Over the last few years, we have provided the papelerias with marketing tools via, for example, the internet, catalogues and brochures which they otherwise would have been unable to access due to cost and lack of scale.

 

Dealers view us as a collaborating partner, who respects their market. This has always been an advantage – and a differentiator – for us.
OPI: Where do the main opportunities lie in terms of product ranges these days?
RB: The greatest opportunity for growth is clearly in EOS, but it is very difficult to overcome the persistent problem of low margins in this category.

 

Comercial has so far not really promoted EOS, partly because of the margin issue, but also because of the high level – and standard – of competition in this area. About 7-8 percent of our revenues currently come from EOS, and 5-6 percent of our SKUs are those type of products.
OPI: One such EOS competitor is Adimpo I assume. What’s your opinion on Unipapel buying Adimpo?
RB: Unipapel has been expanding continuously over the last few years and is now present in all sectors of the market, including office supplies through its 50 percent share in Ofiservice, in office products wholesaling and now, through Adimpo, in the EOS market. Like Comercial, it’s also a manufacturer of paper products.
It’s too soon to assess the impact of the acquisition; we shall have to wait and see how the market responds.
OPI: What other category extensions could you exploit to stay competitive?
RB: The furniture and catering ranges are definitely worthy of greater attention but, as yet, we haven’t sufficiently exploited these areas. Unipapel and Spicers are both working intensively in these categories.

 

Spicers is particularly strong I believe. In fact, these multi-category approaches often tend to come from the UK and then make their way through continental Europe.
For Comercial, the interACTION range – newly rebranded – has a lot of potential and we are always open to new business opportunities and exclusive deals.
OPI: You mention Spicers – how do you rate its performance in the Spanish market?
CB: Spicers entered the Spanish market with great gusto and quickly gained market share, especially in the first two years. That said, the service Spicers started to provide in 2002 was already being provided by Unipapel and ourselves, with the advantage that we both had greater knowledge of the Spanish market thanks to simple experience.

 

Moreover, we are both able to offer the manufacturing aspect that Spicers doesn’t. Nevertheless, the backing of a powerful international group with its international knowledge and contacts has certainly benefited Spicers in its Spanish venture.
OPI: On a contract level, Lyreco entered the market many years ago through a Spanish company – Ofiservice – and is, as you said earlier, still owned 50 percent by your main rival Unipapel. So it’s a customer and competitor for you at the same time, isn’t it?
RB: As far as we are concerned, Lyreco has been the clearest example of how to do things properly in our industry, gaining a very substantial market share in a short time and revolutionising the sector.
Faced with a highly divided sector where nobody dominated on a national basis, Ofiservice managed, at the right time, to provide an excellent service using the latest marketing tools. Yes, they are our customers and our relationship is excellent, one of mutual collaboration and non-competition, as our sectors are clearly differentiated.

 

OPI: Staples is another big box player in the market…
CB: Yes, Staples is represented in Spain through B2B mail order company Kalamazoo. Having formerly been part of Corporate Express, it hasn’t made much noise since the acquisition by Staples but, as far as I know, has shown a very positive development over the last few years in sales and even in profitability.
In Portugal, Staples is doing very well with its retail stores and is clearly a leader in the market.
OPI: Does Comercial have any further expansion plans, beyond Portugal?
CB: At present, our aim is to increase our penetration in both Spain and Portugal. And since there is still a long way to go, that is what we are concentrating our efforts on in the near future.
OPI: Comercial has been a member of European wholesaling alliance interACTION for over a decade. What benefits has membership given you? What more could be done?
RB: Joining interACTION in 1999 was a very important step for us. When our father was still alive, he explained the importance of joining an international group in order to share projects, ideas and know-how. At the time, The Association of Regional Wholesalers was popular in Spain, but in our case, due to our size, it didn’t really provide us with any benefits. InterACTION was the ideal solution and perfect for our needs.

 

It is a professional alliance with good cooperation at all levels, including purchasing, marketing, logistics and e-commerce. Members offer their experience and know-how to the group and this makes us stronger. We also share a brand, Q-Connect, which, having just undergone a substantial rebranding process, is gradually improving its offer.

 

What more could be done? Well, one challenge is to achieve greater homogeneity and closeness, to unify standards with regard to our selections and purchasing policies with the large international manufacturers, and to attend to the characteristics and demands of each individual member country.
OPI: Comercial strikes me as a very family-focused firm. Have you ever contemplated becoming a public company or alternatively selling the company, in part or wholly?
CB: Comercial del Sur is a family business with family management – very professional management I might add. Up to now, we have never considered becoming a public company or selling all or part of the firm. We do realise, however, that the current level of change in the market is extremely rapid, and are therefore open to any new models and approaches that will improve the competitiveness of the company.

 

There is still plenty to do: Growing market penetration; increasing our presence among our consolidating customer base; achieving new business opportunities through new exclusives… There are many challenges and behind every challenge there is new hope.
OPI: On that positive note, I say thank you to you both for your time and hospitality.