A brand new focus down under
by Steve Hilleard
Andrew Boath’s appointment in mid-2007 as CEO of Office National signalled the start of a new era. With over 150 members, two competing brands, and a significant footprint across a vast nation, Australia’s largest dealer group was suffering an identity crisis. Boath’s answer was to create Office Brands. OPI caught up with the affable Aussie last month to learn more
OPI: Andrew, let’s start by getting a brief outline of your career before entering the office products industry.
Andrew Boath: Sure Steve. Prior to office products, I had a very traditional sales career progression in FMCG. I started with Cadbury Schweppes, then moved to a company called National Foods and then onto Dairy Farmers before reaching the top of the sales rank as sales director at Danone. I was fortunate to be involved with massive change management programmes across a range of different distribution models within cooperatives, corporates and franchises, which lead to a role with Danone as their ‘route to market’ specialist for Asia Pacific.
OPI: So, how did you end up in the office products industry?
AB: Well, I was really looking to broaden my experience beyond sales and operational roles to something that I could manage outright. Going to a large-scale business like Office National was attractive and it was very similar to what I was doing at Dairy Farmers. It’s a large network, big volume, lots of individuals and really the business is all about managing multiple stakeholders and trying to get some traction on a strategy to make sure this business will survive three to five years down the track.
OPI: What differences would you say you’ve found between this industry and the FMCG world?
AB: It’s kind of a funny thing, because there are more similarities than there are differences.
However, one big difference is that in FMCG you had access to much better data and greater visibility. You knew what you sold and through which channel and you knew what your competitors sold. So a lot of the selling approach was based on really smart analysis of what was going on in the business.
And of course, you then come across to the office products industry which is much smaller. There is no sophisticated tracking system or analysis available, so you end up making decisions based on gut feeling, member feedback and the use of subcommittees which, as you can imagine, is frustrating when you’re used to being able to make fact-based decisions. So it’s an interesting challenge to have to make a lot of decisions without a lot of information.
OPI: So how have you adapted to that?
AB: We’ve invested in systems that can provide me with analysis on what our members are selling.
What feedback and information we would normally get are from suppliers and it’s normally three months after the event at a quarterly review. We can tell how many products they’ve sold and we can have a look at their sales but you can imagine the frustration caused by this approach and I can give you a perfect example of the difficulties that it presents.
We have a promotion on shredders and a flyer that we send out to our members’ customers, and in three months’ time we can tell how many more shredders have been purchased. But we get no visibility on what’s actually sold, so we don’t know whether the spike in sales recorded by the supplier was the result of members buying it on a cheap deal or bulk buying for the next three months. We can’t perfectly pinpoint whether our marketing material was successful in generating new sales.
So it’s not like in the world of FMCG where you can go and measure the effectiveness of your sales promotion tomorrow if you want.
OPI: What have been the major changes you have introduced since joining the company?
AB: Aside from the change to the trading name, we have made many changes to put the business in the strongest possible position in the next three to five years. Specifically, we have restructured our business model to offer the fairest possible fee structure and returns for members, with all retained earnings being redistributed to members. This has increased our value to them by over AUS$1.1 million (US$1 million) in the last financial year.
More recently we have introduced another tier of membership, O-Net, for independent dealers not requiring the full range of services we offer.
We have also strengthened the Office National brand through redesigning and launching the new Office National logo and making the business more professional through compliance to standards and maximising the value of the brand.
Additionally, and of particular importance, we have invested in our IT infrastructure including a new database for managing all of our data, a sales force automation system for our field force and a new IBM Websphere e-commerce platform which takes our business to the forefront of e-commerce capability. The new platform was launched officially in February this year and it has taken some getting used to as members now have the ability to customise their own sites to suit their individual businesses.
The next phase of implementation is to have the e-commerce system fully integrated with the members own computer systems with automated orders, pricing and data management. This is on schedule for completion in December 2009.
OPI: What was behind the decision to rebrand under the Office Brands name and what benefits has this brought?
AB: Our business represents multiple brands including Office National Australia, Office Products Depot in Australia, Office National in Africa and the new brand O-Net also in Australia.
The rationale for the change was to have one name to represent the entity that manages these brands. In many respects it better explains who we are and what we do. As a support office our suppliers trade with one entity in Australia with multiple brands and our members have one support office irrespective of their individual brands.
Strategically, it allows us to broaden our portfolio, as with O-Net for example, and positions us well for future opportunities.
OPI: What is the distinction between Office National and Office Products Depot?
AB: In terms of brand and personality, Office National with its corporate blue and yellow colours is positioned as more of a corporate friendly and larger SME business brand which is particularly noticeable now with the new branding and marketing programme. Office National members are also more heavily involved with high-end copiers/printers and office machines with an infrastructure of service agents representing the major EOM suppliers nationally.
With its orange and black colouring, Office Products Depot positions itself as a modern, contemporary and fun brand more targeted towards the SME market with a stronger retail focus, which is a product of its parent organisation in New Zealand.
From an Office Brands perspective, the entry criteria, business model requirements, services provided and fees paid are identical.
OPI: Will the Office Brands name eventually replace the Office National/Office Products Depot trading names? Does it make good business sense to continue with what are essentially two competing brands?
AB: There is enormous value in the Office National and Office Products Depot (OPD) trading names in Australia, as we found out last year when we conducted a brand audit. There are no plans to market Office Brands as it is simply a name for the support office entity, so the marketing dollars will continue to be channelled towards building the two licensee brands.
We work very closely with OPD New Zealand to ensure that there is little duplication of effort in promoting OPD in Australia. The value we get from the strategic partnership from OPD New Zealand far outweighs any costs associated with promoting two brands in Australia, and that makes good business sense.
OPI: How many dealer members do you now have, how are they spread geographically, and are there any weaknesses in terms of coverage?
AB: Office Brands is a member-based cooperative with 155 members that service the SME market with 87 percent B2B and 13 percent retail. We have a footprint across Australia that is second to none but there are some geographical gaps where we would love to have coverage that could see our membership grow by another 30 and that is the reason for us launching O-Net.
Our analysis of the potential businesses located in those 30 areas revealed that many of them would not fit the current criteria for an Office Brands full membership so O-Net provides an entry level for these businesses with a view that over time they could become a branded member.
OPI: What are the unique challenges of running an organisation that is spread so thinly across such a vast area?
AB: Aside from the obvious supply chain issues, management of national pricing is a major issue. Our business provides a national priced catalogue which is used universally across Australia. As a result, our pricing has to be suitable for a customer here in Sydney as well as one in regional far North Queensland. Imagine this complexity, coupled with the unprecedented volatile pricing we have experienced during the end of last year and the first quarter this year, and you get a sense of the kind of challenge we face.
OPI: What are the benefits of your partnership with BPGI and how that has evolved?
AB: Office Brands joined BPGI in 2005 and has worked closely with Office Choice and OPD New Zealand to secure supplier pricing, terms and conditions and more recently joint negotiation on private label tenders. The three businesses work very closely through BPGI and have enjoyed some significant gains in local and BPGI programmes.
OPI: Would you say it is one of the main strengths of Office Brands?
AB: Yes, it is one of the strengths that all members of BPGI enjoy because Office Brands, Office Choice and OPD New Zealand lack the scale to compete head to head with the likes of Corporate Express, Staples or Officeworks. Office Brands on its own represents AUS$480 million which is less than half the size of the corporates but the combined purchasing power of BPGI in Australasia is closer to AUS$800 million.
OPI: You mentioned some of your large competitors. With Corporate Express looking to expand into the mid-market, and Office Brands looking to do more business with large corporates, how is this battle for each other’s market share shaping up? Is CE now the major competitor, and can Office Brands realistically hold its own in the corporate market?
AB: At the moment, the battle is being fought across the top end of the SME market. Corporate Express have been more impacted by the financial crisis as they serve the Fortune 500 companies and larger corporates having recently advised that sales are down 6% year-on-year. So it is not surprising that they will look to the mid-market to re-build their sales.
Up until recently, Office Brands members have not been able to leverage their great footprint across Australia as they lacked the ability to be able to transact as one. As I mentioned earlier, we have invested heavily in an IBM e-commerce platform – the same system used by Staples in the US – which has enabled our members to provide a smart internet ordering system with customisable sites and favourites, individual pricing for customers, automated approvals, centralised statements and downloadable invoicing. This will enable us to not only defend our larger customers in the SME market, but also gain new business in the corporate space.
OPI: How big a competitor is the Officeworks chain for your dealers?
AB: Our business is more B2B focused, so we are mostly impacted where members are based in close proximity to an Officeworks store, or where our members have retail store outlets.
However, Officeworks does have its direct business which is more closely aligned with our model. Its ‘everyday low price’ and loss leader pricing strategies are what we mostly hear about from our members, and this does set some pricing perceptions with our members’ customers.
OPI: Were you surprised that the Ofis retail chain folded so quickly?
AB: Given the massive changes to the marketplace last year it was a logical decision and not a huge surprise. The initial strategy though was very sound and I wouldn’t be surprised to see another entrant into this uncontested retail space.
OPI: You just alluded to the global recession. How has it affected the Australian economy and, more specifically, your members?
AB: Everyone got hit. We weren’t really hit by the first wave of the crash and it was not until the last quarter of last year when the wheels fell off. But we have come off a cycle of ten years of very good growth. Our business is focused on the SME market. Corporate Australia was probably hit hardest and first, with the banks, financial institutions and larger corporates concerned about market caps and share prices, cutting back expenditure and downsizing.
So for us it took a while for the recession to hit. We had a noticeable slowing in the last quarter of last year to a lesser extent than the first quarter of this year, but I’ve just completed a circuit of state meetings and most of the members are saying business is good and we are up above last year. So we are seeing really good signs that the business has recovered. We were probably last in, first out on this one.
OPI: To what do you attribute that?
AB: Many of our members have seen this crisis as an opportunity. Whilst the corporate competitors have been retrenching staff, many of our members have invested in their outbound sales teams and grown their customer base. What better time to see potential customers and offer them an opportunity to reduce their costs?
Our sales academy has been successful in recruiting, training and inducting new sales staff and providing an automated in-field selling system to assist them in generating new business. Last year, the sales academy successfully opened 2,400 new accounts generating an additional AUS$11 million in sales for the group. As the market recovers this will translate to increased sales through these customers, and increased market share.
OPI: And how has New Zealand been affected and what is the state of play now?
AB: The New Zealand market seems to have been impacted earlier and harder than the Australian market based on feedback from the OPD New Zealand board and management team although signs of recovery were noted at their expo in August.
Our relationship with OPD New Zealand has strengthened over the past year as we have looked to realise more economies of scale than ever before in what has been a tough market. Specifically, we have looked at aligning our IT, marketing and e-commerce strategies to further enhance the benefits we have gained though BPGI.
OPI: While we’re taking a global look can you update me on how South Africa is shaping up for you?
AB: Our relationship with South Africa has also been renewed with a new master licence agreement being struck with Office National Africa. The new Office National brand and logo was launched in Africa in October and their members are very excited about the new brand and the board and management are totally committed to enhancing the working relationship between the two businesses.
OPI: Let’s change tack now and discuss the absence of a national wholesale infrastructure in the Australian OP market. There are frequently rumours that this will change but do you think the Australian market is now so comfortable with the way it’s grown up that it doesn’t need a national wholesale presence like there is in some markets such as the UK, Germany or the US?
AB: Yes and no. A lot of the products are coming in from China, so a lot of our local suppliers would see themselves as almost pseudo wholesalers and that’s becoming more and more prevalent.
We’ve actually just done something quite interesting that attracted some attention in terms of our supply chain. Office Choice and Office Brands got their heads together and said that we really need a national wholesale infrastructure in Australia. Strategically it’s important for us to have some sort of mechanism for smaller suppliers to get products to market because innovative products or new products struggle to get to market unless they align with one of the big manufacturers or wholesalers.
So, through our BPGI connections, we went to the wholesalers that operated – most of them state based, some of them multiple state, but none of them national – and appointed a network of wholesalers which, I think, is the first step. It’s probably the first baby step towards setting up this national wholesaling infrastructure.
The possibilities are endless when you have a look at what could be achieved by a national wholesaling network. In other parts of the world these strategic alliances have lead to private label and direct importing strategies. But it’s an important first step just to get coverage right the way across Australia.
OPI: What are your private label aspirations?
AB: We do private label now for Office National and Office Products Depot and I would suggest that our strategy wouldn’t be to increase that dramatically.
We do promote ourselves as a house of brands, but a private label strategy is important because it is one of the most visible ways we can market ourselves as an entity to our customers. Just having our carton of paper in an office is great marketing so it’s very important from that angle, but we’re certainly not looking to extend or increase our range like some of the retailers.
OPI: You’ve also entered into a relationship with the Australian supplies wholesaler Tonnex. How’s that panning out?
AB: Excellently. In fact, it’s created a whole bunch of competition here in Australia which our members have benefited from. The wholesaler market is pretty well served in terms of IT in Australia. We’ve got Ingram Micro, Dynamic Supplies and Tonnex who are all capable of doing national distribution for IT, although they do align themselves to different manufacturers.
As I said before, the wholesaler gap for us was in general stationery products and that’s something that we’ve started to address with appointing a wholesaler network on behalf of the independent community.
OPI: Finally, I understand you will be celebrating an anniversary shortly.
AB: Yes. We’re going to put on a great show in November to celebrate ten years. We’ve secured Movie World theme park, which is like the Warner Brothers equivalent of Universal Studios, and they’re going to open up part of the park for us of a nighttime so it will be pretty special.
We have about 40 individual dealers who have been with us for the entire ten-year journey and we’ll be recognising them on the Friday night followed by a business session on the Saturday then all of the awards in the evening.
OPI: Sounds like a great event. Enjoy the celebrations, and good luck for the future. And you’ll notice I never once mentioned the Aussies losing the Ashes again…