Blood, sweat and cheers
by Bruce Ackland
For many in the somewhat blinkered West, Romania is still best known as the home of vampire lore, the residence of the dramatic Carpathian mountains and for a couple of plucky World Cup football performances in the 1990s.
But of course there is much more to the country than that, including its recent entry into the EU in 2007 and a particularly dominant office products player, RTC Proffice, which has seen its profile boosted by winning the Emerging Reseller of the Year award at this year’s European Office Products Awards.
OPI took the opportunity to speak to CEO Relu Cirjan to gain a better understanding of the Romanian market, to see how Proffice has built a position of market leadership, and to hear how it intends to maintain that.
OPI: Relu, for many of our readers you will be a new name so I was hoping you could tell me a bit about your background and how you got into the office products business.
RC: Well, I graduated from a college of economics in 1996 and was extremely fortunate to be handed a great opportunity to start a job very soon after in my hometown of the capital Bucharest. I always say that Bucharest may not be the most beautiful city in the world but it is one of the most dynamic, and a great place to build a business.
So I was in Bucharest working for a group of Romanian companies in the metallurgy industry and at first I didn’t understand much about the technical details of that sector.
OPI: Well, I’m guessing you wouldn’t be alone there Relu.
RC: Well, no, but I discovered that if you are open-minded and have a very strong will, then you can absorb information very quickly and even apply things you already know to a new industry once you have that technical understanding. So, after three years I became a research director.
OPI: So you really did absorb that new information quickly!
RC: I know, who would have thought it?! So after I felt I had run my course at the metallurgy company, it was then I started work in office supplies in Bucharest.
At my first job in office products I again went about absorbing as much information about this new industry as possible so that after about four years I felt I had enough understanding of the office products industry to look ahead to a new challenge at a company I could really make my home at. And that was, of course, RTC.
OPI: So when did you join RTC and how did you manage to work your way up to your current position?
RC: In 2002, I had an interview with [RTC’s founder] Octavian Radu. It was a day I’ll never forget because it was the key moment in my career. Octavian has a big reputation as a man who is an expert at identifying and sniffing out people who have the ability to develop and grow in business and become key figures. If you get the ‘OK’ from Octavian then you have instant credibility and that was so important at that point of my career.
In the following years at the company I passed through many departments and slowly built up experience. I was also very fortunate in that I found RTC’s values as a company perfectly matched my own personal values. I believe in life and in business the key words and the key values are partnership, responsibility, integrity, family, transparency, creativity, courage, efficiency and, of course, ambition. I promote these values every day as CEO of RTC’s stationery division – RTC Proffice.
OPI: Can you tell me about the company’s background and summarise RTC’s activities?
RC: RTC Holding is a group of companies that has been built up by Octavian Radu over the last 20 years. The company includes many divisions in several different sectors which are retail, transportation, IT, manufacturing, energy recovery solutions, real estate and, of course, stationery distribution through the Proffice division.
The Proffice division has several business lines including office supplies importation and distribution, an agency that represents international brands in Romania, an office products factory which makes lever arch files, folders etc, and even a secure data and document destruction franchise.
We boast a total of 15,000 clients annually. They come from all fields, from finance and insurance to utilities, communications and manufacturing. We serve our customers through multiple channels both directly through sales reps, mail order or e-commerce and also through resellers and retail networks. Proffice is the undisputed Romanian market leader and we intend to see that it remains in that position.
OPI: Well you clearly seem to have most areas covered. How has Proffice’s business performance been over the last couple of years?
RC: In 2008 we maintained our position as market leader and let’s just say that the company’s turnover exceeded the total turnover of our ten closest competitors. Last year, 2009, was, as it was for many companies throughout the world, a recession year and we had to put in place some cost reductions to combat that scenario. There is no question that a consumption decline affected us terribly, so the challenge as a company was to be one step ahead with cost savings versus sales decreases.
Fortunately, the changes we made made us more efficient and profitable. Also, in March 2009, we invested in a new warehouse which is now the most advanced modern logistics platform in the Central and Eastern European office products distribution industry. Through this, we have tripled productivity and order processing levels on the day of issue with order accuracy levels now exceeding 99 percent.
However, perhaps the most important structural change over the last two years has taken place in the company’s sales department. We have made some important and significant changes in the way we approach our customers and the improvement in product management and marketing policies have tripled the number of new customers we welcome every month and increased the gross margin percentage of our existing customers.
OPI: Would you say there are any difficulties in running a business in Romania that are particular to Romania as a country?
RC: Doing business in Romania is not so different from other EU countries. We have the same mechanisms and our union laws are largely in sync with EU law. There are some peculiarities though. For example, it is quicker to make things happen than in the West and we have still to adopt the euro but overall I believe the country has great development opportunities for investors as it is a competitive market that has yet to mature.
OPI: How developed is the Romanian office products industry?
RC: Considering the number of companies that are active in this market, it is well developed. However, I do believe it is artificially saturated because of the small distributors who manage a limited number of accounts. From the perspective of products and product ranges we are well stocked and almost all international brands are present.
OPI: I believe Romania has always been a very fragmented market and it seems that that is still the case.
RC: Yes, the market is still quite fragmented. There are a total of ten national and regional competitors and a lot of local companies. Proffice has a 20 percent market share.
OPI: I would like to look a little deeper into the effects of the global economic crisis on your business, Relu. Can you perhaps explain a little more about how you tackled the problems that arose?
RC: As you know there has been very little shelter from the economic disaster that the whole world has experienced. In 2009 the entire economy had a negative impact on our field of activity by reducing expected consumption and reducing or eliminating marketing budgets and investments.
The office products market as we know it [in Romania] reduced in size from N250 million in 2008 to around N150 million in 2009. The economic problems also made a huge difference to purchasing strategy as the customers’ behaviour naturally changed in line with the cost of living. Price became the most important criterion in choosing products.
As I said before, Proffice has made radical changes to product management and customer approach while also simultaneously making the necessary cost adjustments.
To give you some examples, we resized support departments, improved the variable commissioning of our sales team, correlated stocks with sales and revalued packaging in order to reduce waste and protect the environment.
Another effective project that we started in 2009 and finished this year was our ‘profit per invoice’ initiative which was based on detailed cost analysis related to invoice and item levels. Better identification of the products, suppliers and customers that generate losses or profits has produced a working tool for pricing strategy.
OPI: And perhaps you could explain how much Romania as a country was hit by the economic disaster?
RC: In 2008 Romania registered a GDP growth rate of 7.1 percent. The World Bank Report ‘Doing Business in 2009’, taking into consideration the ability to do business, places our country ahead of many Western European countries, like Spain and Portugal. But also in 2009, the economy registered a significant decrease of almost eight percent, with the number of companies having to close exceeding the number of new ones.
The companies that have managed to survive the crisis have focused aggressively on cost reduction and the development of resizing plans. Providing a positive cash-flow is the priority target of many companies, profitability being second.
Nevertheless, in 2010 I firmly believe that we are seeing some signs of the light at the end of the tunnel. Monetary stability, control of inflation and reduction in the cost of lending are the primary reasons that make me believe the economy is starting to slowly recover and obviously this is good for business.
OPI: What are your main financial targets for the next couple of years?
RC: We are committed to ensuring constant growth for the next ten years, by expanding the range of products that we offer and the amount of area we cover. For 2010, we estimate a sales increase of 17 percent as we anticipate a significant return to economic normality in Romania in the second half of the year. The measures taken in 2009 will also lead to a sustained increase in turnover and profitability.
OPI: You’re talking about increasing the geographical span of your business. Can you tell me any more about your immediate plans here?
RC: Yes, in 2010 we will enlarge the area we service by expanding the Reisswolf franchise and moving into Southern and Eastern Europe no later than 2011.
OPI: I’m going to touch on Reisswolf in just a moment but just want to stick to your expansion plans for a little bit longer. I believe you had planned to open in Bulgaria by now?
RC: Fundamentally, the Bulgarian expansion project was stopped because of the effects of the global financial problems. Although we went through important stages in the startup plan, including finalising the catalogue, it became necessary for us to put that plan on ice. Depending on the economic recovery in southeastern Europe, we are planning to relaunch this project at the end of this year or in the spring of 2011.
OPI: OK, as promised I’m going to ask you about the Reisswolf project which I know has had quite a lot of coverage in Romania and is a really significant part of your future strategy. Can you explain it a bit?
RC: Of course. In order to complete the portfolio of key services provided by Proffice, we launched Reisswolf in 2009 as a secure data and document destruction unit.
Unfortunately, the financial crisis was again something of an obstacle here in terms of developing this business line which in normal conditions would have had a much better rate of penetration. Also when it comes to environmental areas the Romanian market is still an emerging market and it has to be said that there is still confusion between paper recycling and secure destruction.
Nevertheless, and despite these circumstances, Reisswolf has already proved to be a good partner for multinational companies who know the service through similar operations in Europe. Reisswolf has excellent growth prospects over the forthcoming years and I believe that this service will provide us with a significant competitive advantage.
OPI: Obviously Reisswolf feeds into your environmental policy so this is a perfect time to ask you about the importance of environmental protection in Romania.
RC: Certainly, environmental protection is important in Romania. It’s a trend that has intensified in recent years and Proffice takes it very seriously. We recycle everything we can to reduce environmental impact, from packaging to copy paper and supplies. In terms of our customers, we provide them with and encourage them to use green products which exist in all our ranges.
OPI: As well as being the largest office products business in Romania I believe your company has also been a trailblazer in the wider industry community.
RC: Absolutely. In the short history of post-communist Romania, Proffice has provided the first office products catalogue, the first distribution network with national coverage and the first online shop platform.
OPI: Let’s move on to private label, which is another growing area for you. Can you tell me what your current plans are for this?
RC: The RTC private label range of products has undergone and will continue to undergo a period of concerted expansion in line with our product management policy. In 2008, we had only 128 SKUs and in 2010 that has already exceeded 250 and this figure will continue to rise.
OPI: And is this move in line with your customers placing an increased emphasis on pricing as the key factor when buying?
RC: There is no question that customers now recognise the RTC brand as delivering above average quality at competitive prices for items from copy paper and lever arch files to writing instruments.
OPI: I noted with interest that you are a member of the European Office Supplies Alliance (EOSA). Do you get any significant benefit from being part of that entity?
RC: We believe we get great benefit from our membership of EOSA. Indeed it is an important component of our strategic development.
For us, EOSA means strength, with almost N1 billion in combined turnover and a presence in more than 15 countries. It is the ideal combination of a multinational’s purchasing force and local company’s flexibility in customer approach.
Through our EOSA membership, we introduced the ‘A-series’ range of products, but more than anything the key to the importance of EOSA is the ability to share knowledge between members. I have learnt from and contributed to this process, and I have found that each member can provide support and positive experiences. We believe we have learnt from the very best by being a part of EOSA.
OPI: So you would say that when it comes to business inspiration, Western companies are a key part of that?
RC: Absolutely, Western companies are a constant inspiration for us and especially our fellow EOSA members who are so supportive of us in our process. One of our business values and slogans is: "Creativity – so simple when the conventional doesn’t satisfy you!"
And we stay firm to this by being inspired by others and also inspiring companies ourselves. We are a business model for Romania so why not for others.
OPI: Well the guys at EOSA will certainly be delighted with the ringing endorsement you have given them!
RC: I hope so
OPI: Can I now ask you about your online business? You’ve already said that you were the first OP company to have an online shop platform. So how important is online selling in Romania and how is your online business performing?
RC: Our online sales platform was designed for large corporate clients that can access this tool for cost control by monitoring the acquisition process. To be honest selling office products online is not a very developed area in Romania and is certainly considerably less developed than in other European markets.
OPI: But this is something you will be looking to build on?
RC: Absolutely. For Proffice, increasing the number of customers and volume in online sales is a vital strategic direction for the future of the company.
OPI: What systems/technology do you use?
RC: Our key technology is utilised at our warehouse where we have a fully automated and implemented ERP and warehouse management system. Systems improvement is another strategic direction for Proffice and we always ensure that we are aware of the very latest technology that is out there.
We have a specialist IT division at RTC and we are one of the key players in IT systems integration in the Romanian market. This helps us enormously by providing flexibility and quality and speed of deployment.
OPI: RTC Proffice was recently named as Emerging Reseller of the Year at the European Office Products Awards in Frankfurt. How important was it for you to win this award and what does it mean for your current and future business?
RC: This award was a vital win because it recognised our merits as a business and provided further confirmation that we were doing things the right way. We are tremendously proud and it has boosted Proffice’s international reputation and in the future will bring us long-term advantages in our partnerships with suppliers and customers.
At home, it improves our image as the market leader in Romania and gives us the courage to approach sustained growth for the next ten years and confidence that we have created a ‘model business’ with Proffice.
OPI: What key improvements do you plan in Proffice’s future? What new developments are you working on?
RC: The foundation of our business is the corporate customer and over the next ten years we’ll extend our range of products and services. We’ve already started with Reisswolf, but we are also looking at providing ticketing services, legal services and warehouse management for our clients.
In addition we will use our knowledge base and excellent partnerships with the world’s leading suppliers to plan further expansion in southern and Eastern Europe, CIS and the Middle East.
OPI: On a final note, what would be the biggest threat to you maintaining and growing your market share? The economy? Or the potential of a large Western rival coming into the area?
RC: Without doubt it would be the economic issue. In the short term, this would be the key barrier to growth in Romania but I am optimistic that in the second half of this year the economy will take a more positive course and in 2011 the financial crisis will be history.
OPI: Well I think that’s the perfect positive note on which to end the interview and I hope your prediction can be replicated throughout the rest of the business world. Thanks for your time Relu.