A new report fromAustraliaoffice products specialist, Andrew Penfold, says that the Australian market is set to grow this year, but will be held back by continuing customer frugality.
Penfold gave opi.net some snippets from his report and his opinion on some recent developments in the market.
For its latest market study, Office Products in Australia 2010-2012, Penfold Research conducted almost 1,200 interviews with a combination of businesses, households and office product resellers.
Not surprisingly, the study reveals that the office products market has been dented by the global financial crisis (GFC) induced downturn, but is now returning to ‘near’ normality.
Penfold valued the core Australian office products market in 2009 at A$7.4 billion (US$6.6 billion) at end-consumer prices. When a broader market definition is used – and the market is moving more towards this, he says – it is valued at a much higher A$12.35 billion.
Under Penfold’s broad definition, ‘core’ office products includes stationery, paper, computer consumables/accessories and business machines, while ‘non-core’ categories include furniture, kitchen supplies, janitorial products, printing services, promotional products, work wear and industrial supplies.
The core market declined by 2.2 percent in 2009 following flat growth in 2008, according to the study. Penfold believes this was the first market contraction since 1991-92. From 2000-07 average market growth was in the 5-6 percent range, indicating in normal conditions OP outperforms GDP growth by 2.5-3.0 percent. He expects growth to return to near normal levels in 2010, although he predicts that it will be held back by lingering consumer frugality that will not fully dissipate until 2011.
With the economy improving, office products demand cannot help being pulled along with it in 2010 and 2011, and Penfold expects OP growth of 3.6 percent in 2010 before moving higher in 2011.
However, he does not believe it will quite reach its trend growth rate of 5-6 percent a year in 2011, or 2012 for that matter. He foresees that the combination of the maturing state of the core OP range, together with lower priced products and the gradual shift to electronic mediums, will suppress market growth.
Some of the patterns of change identified in Penfold’s research are as follows:
1. Consumer behaviour has altered due to the GFC – with more ‘shopping around’ and trading down to cheaper product versions. Although this has and will continue to ease, it has resulted in lower ‘per head’ spending on established products.
2. Industry operators are almost all looking for extensions to their existing businesses.
3. State variation in growth rates, with the resource-rich states – Western Australia, Northern Territories and Queensland – outperforming the others.
4. Generational change is set to accelerate product and behavioural shifts, mostly towards electronic products and processes.
5. Manufacturers bypassing dealers – i.e. selling direct to consumers (via managed print services [MPS] and online). This is predominantly occurring amongst the OEM printers such as HP, Canon and Fuji Xerox.
6. Resellers bypassing local suppliers and importing directly from overseas manufacturers.
7. Fragmentation in the places people work – i.e. office work is now commonly performed from two or three locations.
The best performing major resellers recently have been Officeworks, Office Choice, Fuji Xerox Document Supplies and JB Hi Fi. Also, under the radar but enjoying significant growth have been fashion stationery retailers Smiggle and kikki.K and cartridge refill franchise Cartridge World.
Officeworks, as the largest Australian office products reseller with a market share of 16 percent has widened the gap between itself and the second player Corporate Express/Staples (12 percent) over the last two years.
While the bulk of Officeworks’ revenue comes from its retail operations, Penfold estimates its commercial/direct sales to be in the region of A$100-150 million, or roughly 10 percent of its total sales.
"This division is certainly underperforming [compared to its retail arm]," Andrew Penfold told opi.net. "My understanding is that they are not competing for accounts on a contract basis with OfficeMax or Staples. However my surveys indicate Officeworks is being used by large businesses and government quite substantially; it comes third in survey respondent numbers in those 2 segments, after OfficeMax and Staples, so, whether Staples and ‘Max are aware of it or not, Officeworks does have a small to medium share of their core customers."
Corporate Express has been heavily impacted by significant spending cutbacks (GFC induced) amongst its core customers. Penfold says rumours in the market suggest that the company is developing a plan to take a greater share of the SME segment and that its has a lot of potential to do this via an efficient direct offering.
Now that Staples has full control of Corporate Express, will it try to develop a genuine multi-channel strategy? Penfold thinks that this may be a long-term possibility, but that the stumbling block would be finding prime retail locations. "The only way I can see they could [develop a retail offering] would be to purchase Officeworks," he told opi.net.
After Officeworks and Corporate Express, the next largest players are (in order) Office Brands Group (comprising Office National and OPD), OfficeMax, BigW (owned by Woolworths) and the Office Choice Group.
The top 10 resellers (including groups) account for 58 percent of the total market – up from 55 percent in 2007 – reflecting the ongoing share ‘creep’ of the largest players.
‘Net Promoter Scores’ – a measure of customer goodwill – highlight the surprisingly high portion of purchasers who are unimpressed with their OP dealers. Interestingly it is the independents (in particular Office Choice and Office National), as well as Officeworks, who have the highest portion of happy customers.
A large portion of the product range is now in the ‘mature’ and/or declining stage of their lifecycles. As a result there is a very strong need for product extensions (innovations) as well as new categories to support growth. At present the main boost to growth is coming from colour laser printing and the shift to in-house printing. However, this will slow in the coming years as electronic mediums ascend.
Established brands have been under pressure due to consumers’ (GFC induced) focus on price and value, combined with larger resellers’ private label and direct sourcing drives. While many brands have seen their share thinned down as a result, Penfold’s research indicates the major brands have largely held firm.
The strongest brand, in terms of unprompted awareness continues to overwhelmingly be the paper brand, Reflex. The next best known brands, are (in order); BIC, Canon, Marbig, HP and Officeworks (see chart).
Since Penfold’s previous survey in 2007, brands that have shown noticeable improvement in awareness are: Xerox, Epson, Avery, Corporate Express, Office National and Office Choice.
OfficeMax Australia recently announced an agreement with the country’s national postal service to offer an online office supplies store. The site – auspost.com/stationery – went live on 2 August and comes as part of Australia Post’s expansion into online services under a newly launched renewal programme called Future Ready.
Penfold says that he was surprised by the agreement because OfficeMax is also competing with Australia Post for small business customers.
"I’m not sure how competitive the pricing can be either," he notes, "given that ‘Max must be making a margin as well as Australia Post."
The agreement has also been viewed dimly by the local independent dealer community, with a public utility partnering with a US-owned multinational. The feeling is that this combination gives a competitive advantage to them both at the expense of Australian-owned businesses, and some dealers are calling for the competition watchdog to review the agreement.
Penfold also says that the old chestnut of national wholesaling is back on the agenda.
"Recently two operators have announced they are looking into it," he states.
"One is Corporate Express, which stated it is ‘exploring’ providing a wholesale service to independent resellers, including newsagents, I believe. The other is Campbells Wholesale, owned by Australia’s third largest grocery retailer MetCash, which, again, is looking into servicing the newsagency network."
Penfold says these moves are targeting GNS, the largest supplier to the country’s newsagents, which is seen as "vulnerable and a bit old-fashioned".
However, he added: "I have seen this enthusiasm for new national wholesaler initiatives several times over the years and it seems the combination of Australia’s long distances, relatively small population and the established role many suppliers have as hybrid wholesalers are all a considerable barriers, once the ‘enthusiasts’ do the proper investigation."