Big Interview: The full (Canadian) package

Canada's Novexco was one of the very early adopters of the hybrid wholesaler, reseller and dealer group model. Since the arrival of President Denis Mathieu in 2016, it's a combination that's become increasingly polished.

Denis Mathieu, President of Novexco, is a man on a mission. Having arrived at the Canadian multichannel operator when his predecessor Robert de Montigny retired in 2016, he set to work with plenty of ambition, a vision of what he wanted Novexco to be and a fast-developing strategic plan. 

When OPI’s Heike Dieckmann caught up with Mathieu 20 months into the job, execution of this strategic plan was well underway at Novexco, with impressive organic growth, several acquisitions under its belt and a complete rebrand. But there’s plenty to be done still, as Mathieu points out…

OPI: You’ve been in charge of Novexco since you took over from Robert de Montigny in June 2016. What’s been your focus since then?

Denis Mathieu: The first step was an overall assessment of the company to understand what we needed to do going forward. That assessment included a tour of our dealers and major customers to get input on their perception of the services we provide. It quickly became apparent that we needed to put a new strategic plan in place. 

This new three-year plan is based on three major pillars: brand awareness, acquisitions and organic growth. The customer experience is another huge part of our focus. Within that specific context, there are four core values in Novexco that everybody needs to follow. I call them TRIP. T stands for teamwork, R for respect, I for innovation and P for performance. These pillars and values run through everything we do, all with the aim to improve the customer experience.

OPI: Why was there a need to change – what was wrong with the Novexco as it stood in 2016?

DM: There was nothing wrong as such, but for a start we still hadn’t quite finished the integration of Lyreco Canada which we acquired in 2014 – that was finally done in 2016.

Broadly speaking, we had to bring all our employees under one umbrella and overall become a much more cohesive company. We also had too many brands and names – BuroPLUS, Lyreco Canada, Club express, etc – and a real split identity in the organisation. 

Of course, all these different facets and entities make Novexco what it is – a multichannel operation with a unique approach to supply, distribution, customer service and also social contribution. 

OPI: Let’s start with your first strategic pillar – brand awareness. What have you done? 

DM: This is a very current topic for us. In fact, our rebrand has just been launched officially and we’ll go to market with the new brand in mid-April. 

OPI: Tell me more about that rebrand.

DM: Our new brand is called Hamster. The idea behind it is that we’re always moving. Like the little thing in our head that is always spinning, we are always looking for better solutions and better answers. We believe that we’re different from the competition and we want to show the market that difference.

The company name Novexco hasn’t changed and will not change, but everything else now falls under the Hamster brand – the name of our commercial business and the dealer group side. We had an internal launch on 1 February, the press release was issued on 20 March and all dealers will have until the end of April to complete the transition to all the new banners, signage of the delivery trucks, retail stores, and so on. 

OPI: How prominent will the Hamster branding be and how much of their identity will dealers keep?

DM: Good question. As I said, the Hamster brand will span all our divisions. For dealers specifically, let’s say the name of a dealer is ABC. From now on it will be Hamster ABC which means dealers can keep their own regional name and identity, but combine it with the national Hamster brand. 

The significance of this is that if a dealer has a customer that has requirements in a different locality, for instance, it can call on the services of a fellow member. The customer will already be familiar with the brand and is much more likely to be loyal to that brand. 

You are only as strong as your weakest link and it’s very important to be seen as one force and one dedicated group across Canada.

OPI: Secondly, you mention acquisitions. One of the purchases you made last year was Rubanco – that was a dealer. But there were two others…

DM: That’s correct. Rubanco used to be a Novexco dealer. It’s very close to the greater Montreal area in the province of Quebec, so it was easy to integrate it into our commercial division. 

The other two were wholesale distributors – Chestwood Mezey in Toronto, Ontario, and Crites & Ridell which is also based in Montreal. We bought both of these companies from the other Canadian dealer group Basics Office Products. 

With these two purchases we added approximately 85,000 sq ft (8,500 sq m) of warehousing and distribution capabilities.

OPI: How is Novexco looking now? You earlier also referred to organic growth… 

DM: We went from 400 employees to 500 over the past 18 months and, as I’ve just explained, we made three acquisitions – two in the province of Quebec and one in Ontario. We now have five warehouses across Canada – from Halifax in Nova Scotia in the east to Calgary in Alberta in the west – and Laval, Montreal and Toronto in between. We have 109 stores through our 75 dealer members – up from 86 stores about 18 months ago. 

I’m not going to reveal specifics, but in total our revenues have gone up 19% in that time – 12% organically, plus 7% through acquisitions.

OPI: What is the biggest part of Novexco now?

DM: That’s our commercial division I mentioned before – you would probably call it the contract division. This accounts for 70% of total revenues now and grew by 13% organically in 2017 and 16% in the past quarter, excluding acquisitions. A substantial part of commercial is the old Lyreco Canada. Before we bought that business, commercial was only about 30%, so the complete reverse of where we are now.

In terms of customer base, the commercial division comprises anything from small businesses, hospitals and the education sector to large government contracts – we have about 70,000 customers in total.

OPI: That’s impressive growth. So your dealer members account for 30% of revenues now. Is that mostly B2B? You talked about retail stores too…

DM: In total we’re 95% B2B and only 5% B2C and the latter comes from the retail stores as you say. All of our dealer members have either a store or a warehouse. As you can imagine, the stockless concept is rare in Canada due to the distances involved. 

It’s still difficult to reach a customer for next-day delivery. We can do it 90% of the time, but there are still the 10% where we can’t confidently say that we’ll deliver next day. We’re working on that though! 

OPI: How much of an overlap is there between the customer base of Novexco’s commercial division and your dealer members? That must be a concern.

DM: It’s not really. There isn’t much overlap to start with, because the commercial division focuses largely on the metropolitan areas like Montreal, Toronto and other big cities, while the dealers are strong in the regions. The understanding is that when it’s a local customer it ‘belongs’ to the dealers; if it’s a multi-location or multinational customer, it’s a direct Hamster commercial customer.

There used to be more of a conflict, but we really worked on this in the past 18 months and put up some sort of Chinese wall. Whenever one of the national commercial reps calls a customer, the first question would be: “Who do you do business with?” If it’s one of our competitors, they will continue the discussion, but if it’s one of our local dealers they would retract and move on. So yes, we definitely used to have some issues, but if that first question is asked, we are usually ok and there’s not a problem. 

OPI: You already mentioned geographical reach in terms of your wholesale presence. When we spoke to Robert quite a few years ago Novexco still operated predominantly in Quebec, with a tiny presence in Ontario and Nova Scotia. How is that looking today?

DM: Today Quebec represents only 42% of the total business. Ontario is 35% and the rest is all across Canada. We’ve really tried to reduce the dependency on the Quebec province.

OPI: Is that a result of the acquisition of Lyreco Canada?

DM: That’s one part for sure, because we added a warehouse in Calgary and in Halifax with that transaction and a lot of customers across the country. But with the addition of Chestwood and a couple of other acquisitions, we can now also do coast-to-coast delivery next day. 

OPI: The bilingual aspect has always been very important. Is that still the case?

DM: Yes it is and it’s the reason we have four different catalogues – one for dealers in French, one for dealers in English, one for wholesale in French and one for wholesale in English. It’s hugely time-consuming, but it’s part of our differentiation.

OPI: You talked about the commercial versus the dealer business and how the balance of those two parts has shifted. Are you actively trying to recruit more dealers to redress that balance?

DM: We are certainly looking to attract new dealers in Canada. Our business model means that it’s very important to keep a healthy balance between dealers that cater to smaller customers and the commercial division which is more geared towards national accounts. Our remit is to create a network that reaches all customers in every part of the country. We’re hoping that with the new brand name and our broader strategy we’ll be successful in attracting new dealers across Canada.

OPI: When you recruit new dealers, are you mostly looking at geographical reach or also at product coverage? 

DM: Very much both. The last few acquisitions really added to our jan/san and furniture expertise while Crites & Ridell also has a printing facility, so it’s our one-stop shop now in the commercial division for business cards, brochures, pamphlets, etc. But it also had a presence in the suburbs which we sold back to a local dealer in that area.

The physical location is important as well, of course, but overall we’re looking to find like-minded partners and entrepreneurs that offer value-add services for our customers. Everything we do needs to complement each other rather than be a duplication. We used to have a lot of overlap, but that’s not the case anymore. When a dealer is for sale in an urban, high-density population, for example, we will buy it and integrate it into our commercial division. That’s what we did with Rubanco in Montreal last year, as I mentioned earlier. 

We are fortunate because we have an excellent young entrepreneurial group in Novexco that is working hard on increasing our network, helping with succession planning and finding solutions for dealers to accelerate their growth. We also have very good equity in the business and a great balance sheet, so we can support dealers in ways that a straightforward buying group couldn’t. It’s a real value-add service.

We have different business models for various situations – but they are all very efficient. One thing that’s obviously hugely different from the UK, say, is the scale of the country. It’s huge and transportation costs are a real barrier to entry because they are so expensive. You need to be as close to the customer as possible or you’ll never be profitable, hence our endeavour for a broad but close-knit network. 

OPI: How would you describe the Canadian market overall?

DM: It’s very challenging and it’s important to be competitive against the big boxes. As such, our model of having a direct presence in the metropolitan areas and operate through dealers in the regions has proven to be quite unique.

OPI: How does the other main Canadian dealer group, Basics Office Products, compare to you? 

DM: Like I already alluded to our business models are completely different. First of all, we have warehouses so we’re not only a buying group. Then we have our direct business – Basics doesn’t. 

Basics is a buying group, Novexco is a multichannel operator. Whatever similarities we had many years ago, they have almost completely disappeared. 

OPI: Who is your competition? Big boxes, other dealers, Amazon even?

DM: Our biggest competitor no doubt is Staples Business Advantage. We compete a little with Staples retail on the B2C side, but mainly during the back-to-school season. Amazon is not big in office products right now in Canada and is not aggressively pursuing business in the country, partly because of the transportation issues I already referred to. 

We compete with some Basics dealers, but they are dwarfed by the size and importance of Staples.

OPI: There was speculation when the Staples/Office Depot merger talks were going on that Novexco might be interested in acquiring the Staples Advantage assets in Canada had a divestment been necessary for the merger to go through. Was that ever on the cards?

DM: I never comment on rumours! 

OPI: Fair enough – it was worth asking.

DM: Let’s just say part of our strategy is to grow – through acquisitions and organically – and there are other companies than Staples out there. 

OPI: What about Grand & Toy as a competitor?

DM: Well, Staples is by far the largest reseller of office products in Canada and Grand & Toy comes second. But Novexco is the biggest Canadian-owned distributor of OP in the country and the number three overall. We are very close to number two and obviously our goal is to keeping moving up the scale. 

OPI: You said that Amazon doesn’t sell that many office products in Canada at the moment. Does Amazon Business in the US have a significant impact on the Canadian market?

DM: I wouldn’t call it significant. They are using independent dealers in their marketplace of course to gain some traction. But for now the penetration rate is very low and one of the reasons for that is that the average order value of office supplies is not enough to support the costs of delivery. 

The size of the Canadian territory and the high transportation costs offer a substantial natural barrier to entry. We’re keeping a close eye on Amazon, but at the moment the threat is negligible. 

OPI: But the dominance of e-commerce is just as prominent in Canada as it is in other parts of the world I guess? 

DM: It’s getting there. About 60% of our dealers now have fully-functioning, front-facing web shops I’d say and we are working on the other ones, particularly with the Hamster branding and our new catalogue in mind. 

While I’m on the topic of catalogues, the trend here in Canada – certainly if you look at Staples, Grand & Toy and Basics – is to reduce the number of pages. We’re doing the opposite. We added 200 pages to our 600-page catalogue for 2018. We have 1,150 new SKUs and a new marketing approach whereby we include QR codes for new products in the catalogue, allowing customers to access videos directly from the vendors and giving them a lot more information. So rather than being a static file, it becomes a lot more dynamic and interactive. 

OPI: These new SKUs – do they cover all categories or are they from specific segments?

DM: More than 50% of those new SKUs are dedicated to the jan/san, breakroom and furniture segments. With the acquisition of Chestwood, we now also have our own private brand of furniture called Double Diamond.

OPI: What, in your opinion, are the advantages of having a multichannel model like you have compared to the more pureplay wholesalers such as SP Richards and Essendant in the US?

DM: It’s a good model and it’s the most efficient model in my opinion because, to be profitable, you need critical mass to reach a new plateau. A small regional dealer cannot compete against the big boxes. It needs a buying group like us to have access to a full range of products at the right price. 

Our commercial business, meanwhile, adds volume to their network and generates better rebates for the dealers. More profit for Novexco results in higher dividends for dealers. The local aspect is also very important. Of course, we always need to make sure that nobody crosses the line and everybody pulls in the same overall direction. The commercial business is for national, multi-location and metropolitan customers while the dealers are at their best in the regions. It’s an excellent compromise and creates a very strong network overall.

OPI: What about further afield? You still have a partnership with WB Mason, haven’t you? 

DM: Yes, we do have a partnership with WB Mason and also with Lyreco on the sales side. These are very good partnerships that give us access to other partners across the globe to serve international customers. 

On the non-sales and more operational side, as you know we’ve also just joined the International Office Products Alliance (IOPA) together with four other groups from around the world (see News, March OPI 2018, page 11). It was spearheaded by Office Choice in Australia and is not intended as an international buying group, but as a best practice-sharing organisation where we can discuss private label sourcing, corporate and dealer benchmarking, and generally cooperate to improve each others’s business model. 

OPI: Finally, what does the future look like for Canadian dealers, the Canadian OP industry and indeed Novexco in your opinion?

DM: I believe the future of Canadian resellers is directly related to the quality of the service and the customer experience that they provide. Customer expectations are changing and our industry needs to adapt to this evolution and, more importantly, lead it. 

One of the things that we are really looking at and which is becoming an important part of our strategy is the use of third party logistics providers (3PL). I don’t mean 3PL as you would normally refer to them in an outsourced way, but through our dealer network. We want to build this and attract dealers in every part of the country to represent our Hamster brand. The premise is to reduce transportation cost and ship from the closest location possible. Customers should even be able to go to the nearest store and pick their products directly if they so wish.

The ultimate aim is for our commercial division to be able to use those dealers as a network of warehouses. There’s plenty of work to be done still, with everybody working on the same e-commerce platform which would give access to live inventory per location.