Hungary for success
Founded in 1991 by Robert Wittmann and George Bartucz, Hungarian wholesaler Corwell has established itself in its domestic market as a solid operator. It has weathered many storms – not least the slowly ebbing recession that wiped 9 percent off its 2009 revenues – but has always come out a stronger player at the end
It’s not without competitors, but what sets Corwell apart from its rivals is the wholesaler’s total and complete focus on the reseller community and its refusal to invite any potential conflict of interest through going direct to the end-user.
László Fehér has been Managing Director of Corwell since the beginning of 2009. With an OP wholesale background, he came to Corwell equipped with all the necessary knowledge to run this expanding company. Most importantly perhaps, he is as adamant as the company’s founders to follow Corwell’s policy to be a reseller-only focused operation.
OPI travelled to the beautiful city of Budapest to find out more about this N26 million ($34 million) company that, after a deep recession which affected the country more than it did some of its neighbours, is looking forward to the future.
OPI: Before we talk about you and your position in the company, can you please guide us through the history and development of Corwell?
Robert Wittmann and George Bartucz established the company in 1991. It was something of a ‘garage company’ in those early days. Robert and George started selling magnetic tape and some other data storage products like floppy disks.
When business started picking up, they began attending the Paperworld and CeBIT fairs in Germany. There, they picked up new contacts with international companies and as a result of those contacts introduced new products and services to the Hungarian market. Brands like Fellowes, Apli, Maped and Verbatim helped them widen the scope of the company with a bigger assortment and also improve its profile.
OPI: Who were Corwell’s customers back then?
LF: It started off with just dealers – that was the philosophy of the founders. We still have the same policy now – it’s very important to us to be a ‘real’ wholesaler. We don’t have any end-user contact.
OPI: Are Robert and George still involved in the business?
LF: They stepped aside a bit in 2009 and are not involved in the day-to-day running of the business now. For any important strategic issues, however, they are still in the loop through regular board meetings.
OPI: And when they stepped aside in 2009 you were appointed as Managing Director?
LF: Exactly, on 1 February of that year.
OPI: So, what was your career background before Corwell?
LF: I started to work in this industry in 1993 for a company called Menlo/Senco that imported office papers into the Hungarian market. I joined Corwell in 1996 and helped start a company called Papir-Asz Ltd. Its core business was office papers and other paper products such as cash register rolls, computer forms, envelopes, paper blocks and memo blocks.
After a while we started to find new suppliers and increased our business into writing instruments and other categories. I stayed with Papir-Asz until 2008, managing the company for 9 years (1999-2008).
OPI: What was your target audience?
LF: Just dealers.
OPI: So you were effectively a wholesaler.
LF: Yes. We increased our revenues, our SKUs and the number of suppliers and customers year-on-year. We were quite unique in the way we built the business. We were only dealing with dealers and didn’t have any contract stationer or end-user contact. We also had two production plants where we produced cash register rolls and computer forms.
OPI: Very similar to Corwell then?
LF: Quite similar, but also quite different. Corwell at first were a bit more technology-orientated while Papir-Asz always kept its focus on office papers and in fact became one of the major players in the office paper business in Hungary.
Corwell, on the other hand, offered plenty of office products, many through exclusive contracts. It also had more IT products and offered printing solutions, which are still running well.
OPI: What happened that made you join Corwell?
LF: Basically, the five owners of the company – which included me – built up a nice and lucrative business with Papir-Asz, but the relationship between us had become a little, let’s just say, tired and rather than running it without the necessary strategic drive and unified vision, we decided to sell the company while it was still at the top of its game.
OPI: Who did you sell it to?
LF: We sold Papir-Asz to a private Hungarian firm in 2006. This company was part-investor and they also had a company as a contract stationer. I stayed for a further 18 months before I sold my final shares early in 2008 and left.
OPI: I assume you already knew Robert and George as competitors by then. How did you end up looking after their baby?
LF: Yes, we were competitors but we were never enemies. We had practically the same size companies and competed with each other, but we were in contact and talked to and ‘helped’ each other.
By the end of 2008, having had some time doing my own things, I sent some emails to people, including Robert Wittmann, and just said, "I will be available next year, let me know if we have anything to say to each other". That was it, quite simple.
His answer was "OK, call me when you’re ready" and we started negotiating in December 2008. By the end of January 2009 we had a deal – I became Managing Director of his company.
OPI: Is your former company still trading?
LF: Yes, it is and it’s still doing very well.
OPI: Before we discuss Corwell in more detail, could you tell me a bit about the structure of the office products market in Hungary. How does it compare to other markets in Europe and how influenced is it by the larger international players which have taken significant share in countries like Germany, the UK and France?
LF: We work with more than 35 international suppliers and we always ask them about their respective markets. Many have very strong dealer communities, but also plenty of contract stationers.
They tell me the market share between these two groups is about half and half, with the contract stationers often having a slight edge. In Hungary, I would say it’s definitely about 50:50. We have quite a strong dealer community, but besides that we have all the usual suspects – Staples, Office Depot with retail shops and a contract business, PBS, Lyreco.
OPI: In a market of 10 million people?
LF: Yes, a market similar in size to the Czech Republic or Portugal.
OPI: How did a company like Papir-Asz, or indeed Corwell, survive and grow at a time when the big international players were coming in? I presume some local dealers must have gone out of business.
LF: No doubt some local players went out of business. But the global players coming in weren’t all success stories either. Corporate Express was here for four-five years and left last year, under the Staples umbrella.
How did we survive? Corwell and other wholesale-orientated companies basically have very good relationships with their international suppliers. We have good facilities and we have an excellent service offering for our customers – that’s how we manage to compete with the contract stationers. Also, don’t forget, we have the home advantage while they are playing away from home, as it were – that’s not to be underestimated.
OPI: How many dealers exist in Hungary?
LF: We have about 2,000 across the country.
OPI: And how many wholesalers are there including Corwell?
LF: True wholesalers like us, only Corwell. Many have started working directly with end-users, turning themselves into partly contract stationers. We don’t do that – we’re a reseller-only wholesaler.
OPI: Do you know the size of the Hungarian office market?
LF: The whole market is somewhere between Ft60 billion to Ft70 billion ($278 million-$324 million) which includes printing media, breakroom items and traditional office products.
OPI: Is the market expanding or retracting, given the global economic situation?
LF: We definitely had a reduction of about 15-20 percent over the last year because of the global recession. For Corwell specifically, our revenues declined about 9 percent from 2008 to 2009. We’re now trading at approximately N26 million ($34 million) and are hoping to grow 4 percent this financial year.
Part of the reduced sales figures last year was due to the fact that we stopped doing business with some dealers because it became too risky for us in terms of overdue payments.
OPI: I guess you had to be very disciplined in that way.
LF: Absolutely, because the most important thing for us is to be a stable company with a good financial background. And we of course also have to pay our suppliers on time. Only a strong company is able to support their dealers.
OPI: Did that affect profitability?
LF: No, it didn’t. In fact, we achieved better profit in 2009 than the previous year. Our IFO (income from operations) was 3.5 percent higher than 2008.
OPI: How did you manage to increase profit?
LF: One helping aspect was definitely our strict financial policies and rules. We developed our IT system that monitors our dealers’ accounts.
We would, for example, automatically send them their balance information including when payment is due, imminent or even late. This information is generated automatically from our ERP system and all our customers get it by email.
If customers repeatedly paid late, we would ultimately stop supplying them. Another factor was a reduction of overall company costs.
OPI: Are you now growing again because the economy is picking up or because the recession caused some of your competitors to go out of business?
LF: Both I think. The economy is waking up again and maybe some competitors or the other players in the market are doing something different. I say ‘different’ because nobody is doing anything ‘wrong’ in my opinion, just different. All I will say is that the dealer community can be sure that Corwell supports dealers and will not approach end-users.
OPI: How many dealers went out of business between 2008 and this year?
LF: I don’t have an official figure, but I suspect it may be 10 percent.
OPI: You mentioned Corporate Express – they pulled out of Hungary.
LF: Yes, they had an operation here and closed it down in 2009.
OPI: Are they still supplying from across the border?
LF: Yes, they do, but the service is just 72 hours or something like that.
OPI: Other large players like Lyreco and Office Depot – are they customers of yours as well?
LF: Yes, they are and that’s quite an interesting point.
We deliver to Lyreco, not here in Hungary, but in Slovakia through our subsidiary there. We are also dealing with Office Depot in some capacity and they’re a very good customer of ours.
We welcome every reseller customer, but we always maintain strict price discipline with prices dependent upon volume, not reputation.
OPI: What are Corwell’s strengths and objectives in the market?
LF: First and foremost, Corwell is a real and pure wholesaler and no-one in the Hungarian market can say the same right now. All our competitors have a wholesale part to their business, but they also have a contract stationery part.
Secondly, Corwell has a well-known private brand called Victoria. We have more than 1,500 SKUs under the Victoria brand, from office papers and office calculators through to toners and cartridges. This private label brand is really important to our business model, because we can offer something different to our customers. Everybody – Depot, PBS, Lyreco – can offer an Esselte product, say, but we can offer something different and at a lower price point.
OPI: The likes of Lyreco and Depot would rather sell their private label products too.
LF: Yes, but end-users, as far as we are concerned, want to order Victoria as they’re satisfied with our local brand. Corwell’s founders have also set up the Victoria for Children Health Care Foundation of Public Unity, a foundation that provides financial support to public children’s hospitals and medical institutions. What that effectively means is that the more private label revenue we generate, the more money will be given to it.
OPI: We’re sat here in Corwell’s head office. Do you have any other infrastructure?
LF: Hungary is a small country (at 93,000 sq km) and it’s quite enough to have a single central DC here because we can reach every single city within 24 hours.
OPI: How much space do you have at this DC?
LF: We have a 4,000 sqm warehouse. The office space and the showroom is another 1,000 sqm. We also have another warehouse only 3 km from here, which is about 1,000 sqm. This is our buffer stock.
OPI: How many staff do you have?
LF: We employ 130 people.
OPI: Is it possible to describe your average customer?
LF: We have mainly three types of customers. The first one has a small shop and that kind of customer would buy a variety of products as it stocks everything from paper to computer consumables. The second customer group comprises the contract stationers, dealing only with end-users. These are still independent companies, not the big international ones. They don’t need a lot of space, basically only a call centre and sales staff. They don’t want to keep goods in stock because that is very expensive. They also don’t really need a distribution fleet, because that’s expensive too. That’s why we offer them a 24-hour service.
We have a Dealer 24-hour service and a so-called Office 24-hour service option available to our customers, so if our customers want delivery directly to their clients, we can do that under the dealer’s name – that’s our stockless dealer programme. The third group is a mixture of the two, dealers with a retail as well as corporate customer presence.
We also deliver to the large hypermarkets, supermarkets, consumer electronics stores and of course the OP superstores. And there’s scope for more, of course, including the whole tender business. It could be a government tender or just one for a bank or a big insurance company, for example. It’s a huge piece of cake and it would be very nice to have a slice of it, but it also requires a huge amount of knowledge of tendering.
OPI: Who has the government business at the moment? I would imagine that’s one of the biggest customers for office products.
LF: Absolutely. My previous firm’s sister company has the contract.
OPI: That must be frustrating for you.
LF: Not really, as it goes back to the same direct-to-
end-user issue that I mentioned before. We’ve got no part in that. But, of course, if one of our dealers was to get any of this business, we would be more than happy to supply them.
OPI: You cover the whole spectrum of ‘office supplies’ – cleaning and breakroom products, office equipment, traditional office products, technology products… How much revenue, in percentage terms, do these various categories account for?
LF: Well, we divide all these into three main categories. The first one encompasses office paper and paper-based office products, including filing products, envelopes, etc. That’s one third of the busin
The second category is imaging supplies which is about 30 percent while the third one is everything to do with traditional office products and the rest.
OPI: What about new product categories – how important are they?
LF: If you have a look at our annual Blue Catalogue, you will find things like water pressure machines, screwdrivers, staff uniforms, safety helmets, cleaning products – it’s all there. All those FM (facilities management) products are very important for us.
OPI: How many SKUs are in your catalogue and is that growing?
LF: Overall we have 16,000 SKUs, but in the catalogue you’ll find about 7,500-8,000.
OPI: What about the other 9,000 products?
LF: Dealers can look at them and order them through our website. About 70-80 percent of orders now come through our website.
OPI: That’s a higher percentage than I expected. Is internet ordering widely adopted?
LF: To be honest, we are pushing our customers very hard to use it because it’s so much easier to give all the necessary information. They get prompt order confirmation, can track their orders, can see our real time stock levels – it’s all there and it’s all fresh.
OPI: Has Corwell developed any technology products that help dealers sell to their customers?
LF: We offer our customers a personal web shop that they can personalise to suit their own customers. Design, name and price of the products – they can adjust everything the way they want to.
OPI: How many dealers choose to take that option?
LF: We have more than 200 end-user web shops.
OPI: Do you offer any training to dealers?
LF: Yes, we do. We have the Corwell Academy that we run together with KPMG. It’s a type of leadership programme for dealers. The other training we offer is provided here in house. It’s mostly product-related information, but also educates dealers about the benefits of web shops, how they can be used effectively and so on.
And then of course we have our Corwell Expo and Corwell Dealer Days every year. This is a very big event for us where for three days exhibitors can meet directly with our customers to exchange information and learn from each other. About 40 manufacturers exhibit at this event and we have approximately 1,200 visitors.
OPI: You mentioned that you have a subsidiary in Slovakia.
LF: Yes, we do. It was established in 2006. It’s purely a sales operation as all the products are delivered directly from our distribution centre here.
OPI: Are there any other areas of Central Europe that you cover?
LF: Not yet, but we’re hoping to go to Croatia, Romania, Slovenia and/or Serbia at some stage. It’s just a vague plan so far, without any specifics. It may not take the shape of a subsidiary like in Slovakia either. Maybe the first step is just contact with other wholesalers.
OPI: You’re not a member of InterACTION or BPGI. Is there a reason why you are not affiliated to an international group?
LF: No, not particularly. I would say that we are simply more focused on our own things and what we are doing ourselves. But we are also quite open to other ideas and try to keep in touch with the big players in Europe. In the future, I very much hope we can intensify our relationship with those businsses.
OPI: People like Jan van Belleghem and his team have done a great job relaunching their private label range. Does it make sense for you, a l26 million wholesaler, to have an extensive range of private label products when you could just piggy-back on the InterACTION Q-Connect range.
LF: Well, as far as InterACTION is concerned, it’s a partner on one side, but on the other side it’s also a competitor because PBS here in Hungary is a contract stationer. They have a lot of InterACTION private label products, at a very good price level.
If we were part of InterACTION and we had the same brand as PBS, what is the differentiating factor for my customers?
OPI: So if PBS wasn’t a member in Hungary, you probably would be?
LF: Yes, probably but there may be a better way for us to find a huge wholesaler partner.
OPI: What is your long-term strategy for this company?
LF: To become a wholesaler with some influence on its neighbouring markets and one that provides a perfect service to its customers as well as keeping the dealer community alive.
OPI: The subject of acquisitions in new markets came up when I spoke to Spicers’ (then) CEO, George Adams, in last month’s issue of OPI although he said it is not on their short-term agenda. With that in mind, what is the ultimate exit strategy for Robert and George from this business?
LF: Maybe you should ask them. I can’t tell you what will happen two or three years from now. Maybe someone wants to acquire Corwell, maybe not. What’s important is our standing in the market at that time and the shape of the company at all.
Right now I feel we have a lot of work to do in the next few years and we have some excellent staff to do it. We have a good management team and very good people in all parts of the company.
So I’m not going to concern myself with being an acquisition target right now. We’ve started something and I hope we can finish it, but before this we’ll start again with something new.