Global dealer

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Hot Shots

 

by Andy Braithwaite

 

This year marks the first time that the football (or soccer, depending on where you’re from) World Cup is taking place on the African continent, with the big kick-off in Johannesburg, South Africa, on 11 June. So for this month’s dealer profile we’re heading to the city, where dealer Jabatha Paper and Stationery is beginning to make a name for itself

 

The World Cup is not expected to be a boost to South African B2B stationery and office products suppliers, as orders are likely to drop when the tournament takes place from 11 June to 11 July. Johannesburg-based supplier Jabatha Paper and Stationery, however, has been one of the beneficiaries, winning a contract to supply stationery to the organising committee.

 

Winning orders like this is becoming more common for Jabatha, but it is a far cry from its humble beginnings back in 2003 and its success over the last few years is something of an inspirational story. Husband and wife team James and Masabatha Agnes Sibeko (the name Jabatha is derived from their first names) have had to overcome many obstacles along the way.

 

In fact, it was Masabatha Agnes who first started the business in 2003. A teacher by profession, she was at the time looking for a change of career. As it happened, changes in South African school legislation meant that certain schools (known locally as Section 21 schools) had the ability to purchase their own books and stationery items independently.

 

Seeing an opportunity to supply these schools, they decided to set up a stationery supply business in Johannesburg. Agnes would run the business, while James would keep his day job with Mondi so that they had a regular income coming in.

 

Typically for a small new business, sales were slow at first. Things were not helped by a business model which was reliant on the very short Back-To-School period in January, with little income during the rest of the year.

 

After a couple of years, Agnes began to have doubts about the business, but James suggested they try to break into the corporate market as well, and at the end of 2005 they acquired a small delivery vehicle. However, things didn’t improve in 2006 and when they failed to keep up with payments on the van, the bank reclaimed the vehicle and they were back to square one.

 

"At this time, Agnes was ready to go back to teaching," says James Sibeko, "but I said, ‘No! We’re going to take this thing forward together’, and I resigned from my job at Mondi to work full-time at Jabatha. Things were still tough, but we made enough to get by."

 

With James now working full time on sales, business began to pick up. "Seeds we had planted in the beginning began to grow and we got our first big order from the Government Printing Works, a department which supplies printed forms for different government departments."

 

The order was worth ZAR2.2 million (US$280,000), a big deal at the time for the fledgling firm.

 

"The problem was that because Jabatha was still a new and relatively unknown business, SAPPI, the paper supplier for the contract, wanted payment up front," says Sibeko. "We didn’t have that kind of cash and financial institutions weren’t willing to lend us the money, so in the end we lost the order."

 

Cash economy

 

Realising that without a cash pot to fall back on he would be unable to grow the business, Sibeko focused on small customers.

 

"At the time, everything was based on cash," he says. "We were buying goods for cash because we couldn’t get anything on account and selling cash on delivery."

 

It was a strategy that slowly began to pay off. Gradually, they were able to put money aside in an interest bearing ‘money market’ account, acquire another, bigger delivery vehicle and even take on a number of staff.

 

"By 2007, we were getting really busy with these COD accounts," explains Sibeko. "And we were still working from our house and using the garage for storage."

 

They finally moved the business to a bigger rented premises in June 2007 after taking on an additional four employees.

 

But as the business grew, so new challenges presented themselves.

 

"We were getting a lot of enquiries about supplying larger quantities of paper, but Mondi and SAPPI told me that before I could buy direct from them I had to have a warehouse, unloading facilities and should be buying ZAR200,000 worth of stock!"

 

It was at this time that Sibeko got back in touch with the Government Printing Works, who told him they would still work with Jabatha if they could supply the paper.

 

"The key was having our own warehouse," he explains. "The big difference now was that we had around ZAR900,000 on our money market account. The bank didn’t turn me away, but told me to go and identify the warehouse I wanted to buy and they’d consider something."

 

Sibeko found a suitable facility for which the bank agreed to finance 90 percent of the total. However Jabatha still had to pay an upfront amount of ZAR1.3 million, meaning they were still ZAR400,000 short after using their money market savings. Sibeko eventually came to an arrangement with the owner of the warehouse and Jabatha took possession of the facility, but it still meant needing to find over ZAR70,000 per month in repayments.

 

"It was a massive change for us and we had some worrying moments, especially in the beginning when we had trouble keeping up with the payments. The bank told us if the situation continued they would take the warehouse, but we just got out there, got the customers and the orders coming in and were able to make the payments."

 

The move to the warehouse proved to be a boost to the reputation of the company.

 

Market acceptance

 

"People saw us as a reputable, serious company, not just some get-rich-quick scheme," says Sibeko.

 

The upshot of this was that the business became less reliant on smaller COD customers and could operate on what could be viewed as a more ‘normal’ cash flow model.

 

"We were now buying on account from the likes of SAPPI and Mondi and other distributors, and our customer base was also changing; we were working more with universities, banks and corporate customers, which was much less risky than with commercial companies which can be ‘here today, gone tomorrow’ in South Africa!"

 

After all the uncertainties of its early years, Jabatha’s growth in the last couple of years has been spectacular, sales more than doubling in just one year from ZAR22 million in 2007 to over ZAR48 million in 2008.

 

There was even slight growth in 2009 despite all the economic troubles.

 

There has always been an emphasis on paper and this still represents a hefty 60 percent of total sales, with Mondi and SAPPI the main suppliers.

 

30 percent of sales comes from office supplies, which includes EOS and printer consumables. Supply for stationery products comes from wholesalers and distributors such as SSC, BSC and Trefoil, while Kolok is the preferred supplier for printer consumables.

 

Sibeko points to a recent fact-finding trip to the Canton Show in China where he was amazed at the price levels and, more importantly, some of the mark-ups his own suppliers are charging him. "It was certainly an eye-opener for me and I’ve already started new price negotiations with my suppliers," he states. "I’d rather keep on working with them, but will consider sourcing some products from abroad if I have to."

 

The remaining 10 percent of sales comes from a recently-opened furniture division. A furniture company that was in financial trouble closed down last year and two of their reps approached Sibeko to see if he’d be interested in working with them.

 

"They were passionate about what they were doing, so we decided to take a chance with it. Furniture is a different business; 50 percent of the payment must be made up front to the supplier, so there is more risk involved, but I think there is a huge opportunity – we recently completed a project that was worth about ZAR1.2 million with a local university."

 

Jabatha now employs 22 full-time staff and six part-timers and has opened satellite agencies in Bloemfontein and near Durban. There is also the possibility of opening an office in Cape Town. Agnes handles the accounts and the administration while James oversees the team of six sales reps.

 

Black empowerment

 

Sibeko admits that South African Black Business Empowerment (BBE) legislation has certainly been a help to the business.

 

"A well-run, flexible black-owned stationery business is still something of a rarity and people want to work with a company like ours," he states

 

"There have certainly been problems associated with BBE, especially in government departments where there has been a tendency to award business to family members who know nothing about the stationery business," notes Sibeko, who adds that he has arranged a meeting to see the minister responsible for corporate governance. "There are those who play by the rules, but I would say that they are still in the minority."

 

Despite problems with BBE, Sibeko admits that, in some cases, potential clients have been more inclined to award business to Jabatha, even when its bids have been higher than larger competitors.

 

"We recently won a contract even though our price was 7 percent higher than the other bidder. But we were told that our presentation was the best and the organisation felt more comfortable working with us. Even white-owned companies come to us and said they want to give us a chance, even though we might be more expensive – there are certain price thresholds that they will tolerate in order to work with us, and we do our best to try and meet those prices."

 

Jabatha is a fully paid-up member of the local shop-sa trade association, something which Sibeko says provides more credibility to his business. Sibeko has even been invited to become a board member of the association, but said he had to refuse this year because of his involvement in the new furniture division and getting the new Durban office on its feet.

 

"I’ll see if it’s a possibility next year, but at the moment I’m 100 percent hands-on with the business."

 

He hopes that this will not be the case in the years to come. "I’d like to see the company not just depending on me or Agnes – it should be running itself."

 

Sibeko is confident that the business will continue to grow. "I don’t see any reason why in two years’ time this company can’t be turning over ZAR20 million per month. I think the opportunity is there." n