Big Interview: Put on the SPOT

Jeff Whiteway has had a challenging 16 months or so after the coming together of OfficeTeam and Spicers in the summer of 2014. OPI's Steve Hilleard caught up with Whiteway in London to find out exactly where the priorities lie right now for the SPOT

It’s only been a couple of years since OPI interviewed Jeff Whiteway, but how times – for him as well as the industry at large – have changed over that period. He’s still in charge of large dealer/contract stationer OfficeTeam, but Whiteway now also wears the additional hat of Spicers chief and indeed SPOT Group CEO. 

It hasn’t been all plain sailing for OfficeTeam, of course, as recent H1 results have shown. But the main concerns – and the dominant talking point of this interview – remains with Spicers, not least because, in revenue terms, it constitutes the larger part of the combined Spicers/OfficeTeam entity. 

In addition, as Whiteway freely admits, the wholesaler’s problems have lasted longer and are more profound than was perhaps expected and plenty of work remains to be done.  

OPI: Let’s start with the circumstances that led to the creation of SPOT in the summer of 2014.

JW: Well, leading up to August 2014, Spicers had obviously got itself into a huge pickle, mainly based around the move into the Smethwick warehouse, which was an unmitigated disaster that affected both service levels and dealer confidence. 

It took a long time to sort out. Indeed, by August it still wasn’t sorted and Better Capital, having bought Spicers at an attractive price [£32 million/$48 million] in 2011, had seen major losses coming through. It had two choices: either walk away from its investment in Spicers or take a bold step and do something imaginative. The latter was to buy OfficeTeam which, having been sold for £163 million in 2007, just weeks before the financial crisis hit the economy, was under a consortium of banks ownership and for sale. In so doing, they brought in a management team who had much needed industry experience.

It was an inspired move because clearly there are a great deal of synergies between Spicers and OfficeTeam. Also, Office Team was a major customer of VOW at the time, so was always going to bring in some extra business. 

The deal was done at the end of July 2014. Trading to August 2014 Spicers showed a trading loss of almost £40 million. The period September to December 2014 saw the loss reduced to a run rate of £1 million a month, so £12 million annualised. 

It all made sense on a bigger scale too. It started to address a failing company and one that was very important as – we’d all agree – the UK needs two strong OP wholesalers. 

OPI: What actions did you need to take to reverse the situation?  

JW: The first thing we had to do was get some working capital into Spicers. The £80 million that Better Capital invested in OfficeTeam was just the start. They have since invested another £20 million into Spicers so we could buy stock. The service levels weren’t going to get any better until Spicers invested in very significant levels of the right stock. The finances before the acquisition didn’t allow them to do that.

OPI: But Better Capital could have just invested that working capital without acquiring OfficeTeam, couldn’t it?

JW: It would have been a bold move to invest another £20 million into a failing company run by interim directors in virtually every major position. Better Capital needed to be sure there was a management team that was going to spend that money wisely and had a good chance of turning the business around. 

OPI: Other than acquiring additional inventory, there were some significant changes to your structure and the team. What was the overriding aim?

JW: Taking costs out of Spicers. First of all, we eliminated some significant expenditure with the interim directors who had been employed for some time at fairly fancy rates. But we also had to drive cost out of the logistics side. I’m a true believer that the best way to reduce costs is to have the highest levels of service. Take an order for 100 lines and deliver 100 lines and your costs can’t get much lower. A second or third delivery always duplicates a good degree of expense as well as delivering a poor customer experience. 

You can imagine how many duplicated costs were at Spicers when service levels were 80%. The main challenge was to get availability up and make sure we reduced those duplications of costs.

OPI: What were the fill rates at their worst?

JW: It went right down and for a short period hit sub-60%, but on average it was about 70-80%.  

OPI: Where are you now?

JW: We’ve been disappointed in recent weeks because of a slight decline in availability. We’ve just had three fairly major suppliers go bust on us on own brand products, which has hit us, while some other suppliers also haven’t been hitting their fill rates. I don’t believe we are alone in these areas.

We’ve taken a step back from achieving 98% and at the moment we are on average at 96%. Dealers test our service levels in different ways: a stocking dealer will look at our long tail whereas a stockless dealer will focus more on our A lines. In truth, both types of dealers have been affected and aren’t where they should be, but we have short-term plans in place to get the 5 Star service levels back up to in excess of 98%.

It’s a key focus area and we’re not where we need to be.  

OPI: You referred to the situation with Smethwick as ‘an unmitigated disaster’; it sounds like Spicers’ foray into managing the own brand programme through own personnel in the Far East was also fairly disastrous. 

JW: It was and we closed the Shanghai office. The 5 Star brand that we source from Asia is key for us in terms of availability – being out of 5 Star products for us is like a pub being out of beer. As such, my immediate target of 98% fill rate that I just mentioned isn’t really high enough; it needs to be 99%+ and it will be.

OPI: Smethwick was one of the root causes of the implosion of what was once a great business. What’s the current situation there?

JW: The old Smethwick dealer distribution centre (DDC) part is completely fallow at the moment. The regional distribution centres (RDCs), following investments made, are handling the dealer distribution business effectively. We are busy taking all the old equipment out and we have a thoroughly detailed and well-managed plan to put the site back into operation at some stage. 

There’s no rush and no pressure from Better Capital to get that going quickly – we did fast before and failed spectacularly. 

OPI: What about market share? Given the numbers that we’ve seen from your primary competitor, you seem to have lost some. How concerning is that decline?

JW: Spicers’ problems certainly were to the benefit of VOW and also of other pseudo wholesalers such as Antalis and Exertis. We gave them an easy run throughout 2014 and during the early part of 2015. 

Our sales force was completely on the back foot, occupied with keeping existing dealers rather than looking for new ones. After all, what dealer would have actually come to Spicers and opened up a new account in 2014 when we couldn’t even deliver basic stationery! 

Over the past ten weeks or so we have won 14 new dealer customers – that’s pretty much the first new customers in two years. 

OPI: Are they conversions from VOW?

JW: Yes, mainly VOW. But of course, we lost an awful lot of customers in 2014 and the early part of 2015.

OPI: Where would you like to end up next year, just looking at Spicers for now? What would be a reasonable performance in terms of top and bottom-line growth?

JW: I’m thinking very much about bottom-line growth for now, given the huge loss that Spicers was making. We’ve turned it around nicely this year, but Spicers will still struggle to post a profit. Turning a business round that recorded a near £40 million trading loss in August 2014 was always going to be a challenge in the short term, but 2015 will show just a marginal loss assuming December is its normal loss-making short trading month. And in 2016 we are budgeted to move Spicers back into profit. 

In terms of the top line, we have to first of all be completely focused on maximising spend of wallet with existing dealers and, in so doing, helping them reduce their cost to serve. Next comes winning business back, and that trend will accelerate during 2016 and into 2017/2018. 

OPI: What stands Spicers apart from VOW now, given that both are multichannel businesses? You can’t play the trade-only card any longer. 

JW: I disagree – Spicers is absolutely trade only. SPOT obviously owns OfficeTeam as well, but there is a very strong Chinese wall between Spicers and OfficeTeam in terms of sales. 

Spicers has removed all of its direct-selling sales people it historically had and now only sells through the trade. The elevator pitch for our sales people is that we want to help dealers grow. Spicers itself cannot grow unless we help dealers grow. Aside from offering a very efficient supply chain of moving boxes, we also want to help them sell a much wider range of products. 

Now Spicers employs sales people whose sole job it is to work with supporting dealers to help them bring the expertise into their business that will allow them to sell that expanded range.

OPI: You’re talking about adjacent categories, I presume?

JW: Yes, categories like facilities management. We need to have people – ex Bunzl/Arco for instance – who live and breathe that type of product, who get excited about 460 different types of toilet rolls. These people can really help dealers get into that market.

MPS is another area we’re moving into. By the time this issue of OPI is published, we’ll have signed an agreement with Xerox to help dealers move into the MPS market. Historically, the wholesalers have hooked up with a third party; we’ve just moved into dealing directly with a leading and highly respected OEM.

OPI: I seem to remember that a few years ago at OfficeTeam you weren’t that bothered about the MPS opportunity…

JW: You could well be right. I didn’t see at the time how a dealer could compete against the likes of a Danwood, for example. And I still think now that we need to have some real credibility and not just try to sell the concept of MPS when we haven’t got the infrastructure to back up our claims. Xerox gives us that.

OPI: Just going back to your toilet roll example. Are you going to help dealers acquire and recruit those people?

JW: No, Spicers will be recruiting that talent to help dealers. There are a couple of rules to observe here: firstly, the sales person will never go into a dealer’s customer without the dealer representative also being there; secondly, if our sales person opens up that business to a dealer, we’ll expect that dealer to buy the product through Spicers.  

OPI: There’s still the perception that the traditional wholesalers are not competitive enough on the A brands in this category.

JW: Historically that’s been absolutely right. It takes a decent balance sheet and a long-term outlook to break the vicious circle of ‘we haven’t got the volumes and therefore we can’t compete on price’ to an attitude of ‘we need the volumes to get a better price’.  

So we need to work back from the street price. That means we initially may have to work on tiny margins because of the small volumes. But once we have the big volumes, we’ll also get the price. 

OPI: On a last note about Spicers, how do you think its long-standing traditional dealers have been getting to grips with the new dynamic of being supplied by a group which does have a direct supply company inside it?

JW: OfficeTeam has walked away from upwards of 50 end-user accounts where we’ve been made aware that either a Spicers dealer is the incumbent, or indeed where it’s very obvious that the dealer is a material 5 Star customer. It’s absolutely vital for us to get the message across that we’re not going to bite the hand that feeds us. Clearly, this needs to be within the constraints of competition legislation, but I believe we have put that early concern firmly to bed.

OPI: What happens when a dealer decides to go prospecting one day, stumbles into an OfficeTeam account and bids aggressively for that business?

JW: To the huge frustration of OfficeTeam there’s nothing they can do about it. Competition law dictates that Office Team can’t compete downstream with a Spicers dealer, but the same can’t be said for a dealer competing with OfficeTeam upstream. So unfortunately, the OfficeTeam accounts are open for the dealer to attack. 

OPI: But you don’t say to OfficeTeam sales people that they have to back away and hand that business over?

JW: No, absolutely not. They will compete and defend their existing business. 

OPI: Finally, what does the future hold for Jeff Whiteway?

JW: SPOT’s development came at a wonderful time for me because it gave me a new challenge. Life under bank ownership was not ‘inspirational’ and we are now clearly starting along the path to actually move forward. 

The fact that this interview has been focused on Spicers and not OfficeTeam is pretty indicative of where my focus lies at the moment. The challenge for the SPOT Group and the real value lies in turning Spicers around and actually putting a decent bottom-line profit on it. And that’s what’s really piqued my interest – it’s a huge learning curve and, in a way, a completely different career for me and I’m enjoying it tremendously.  

Does it disappoint me that there are people in the industry who really should have retired by now, but instead prefer to say nasty things about what we’re trying to do? Yes, it does a little, but I find it amusing that when things were really bad during 2014 and criticism fully justified, how a little retainer payment each month ensured they’d say nice things about us – I’m sure it was a coincidence that, just as payment stopped, nasty started. I’m big enough to rise above it and move forward.