Commodity line purchasing group Europa and new logistics partner Antalis have taken centre stage in the OP arena in the UK, and the repercussions of their deal are only just beginning to unravel
It all started quite innocently. Europa needed a new logistics provider and appointed paper merchanting group Antalis UK as its partner. It seemed a good decision for both parties, one that should result in improved service levels and lower costs for Europa, and a broader wholesaling presence for Antalis.
But following weeks of announcements and speculation – Advantia leaving the group, 18 redundancies at Europa, disgruntled manufacturers threatening to terminate collaboration, the creation of United Office Products splinter group Challenge Consortium – and it became clear that this deal would have a knock-on effect on the wider OP community.
The fact that it’s tough out there in the UK market for all OP channels is old news. All of them are being pushed and squeezed from all angles and any misjudgments in pricing strategy or service levels are quickly punished. Still, one can’t help but think that a few executives might have a smile on their faces at present, perhaps most notably those at Antalis, Spicers and Kingfield Heath.
Current Europa logistics provider Wincanton’s decision to terminate the partnership was good news indeed for Antalis. Although it was Wincanton that ultimately pulled the plug, the contract was unlikely to be extended by Europa due to some service issues, particularly in the past few months. And with Antalis already a supplier to several of Europa’s dealer group members, combined with its excellent service history, the choice was easy.
For Antalis, this was an ideal opportunity to transform into a more general line wholesaler. Currently a large paper and paper-related products distributor with 15 RDCs and 920 staff across the country, margin pressure in the paper business and the fact that the two main OP wholesalers are now selling an increasing amount of its core range, has meant it had to find a way to stay competitive and become more of a one-stop shop for dealers.
And with Europa’s existing knowledge and its usage history, it seemed an ideal partner. Antalis will also take on seven of the 18 staff that were made redundant at Europa and will no doubt benefit from this pool of knowledge.
Office sector director for Antalis UK John Barnes is quick to point out, however, that Antalis’ strategy in the UK is not to become a head-to-head competitor with Spicers and Kingfield Heath. "Yes, we want to become a more general line wholesaler, but I want to be careful with that remark. We are currently a short-range wholesaler. Within this particular market, we sell about 1,000 SKUs and we are widening this range out a bit.
"In line item terms, we are going to add something like 1,500-1,600 products. That’s as far as we want to go. Basically, we want to be a bulk logistics provider with a timed delivery into regional office supply dealers, helping them to compete and therefore helping our own sales in a very tough marketplace."
This has obviously struck a chord with some dealers. Integra Office Solutions, one of Europa’s shareholders and the largest dealer group in the country, has already signed a separate deal with Antalis, appointing it as supplier of its own brand ‘initiative’ envelopes. Others are not so enamoured with the deal. Most importantly, Advantia, another shareholder group with 48 members that each account for revenues of between Â£750,000 ($1.4 million) and Â£10.5 million, has resigned from the group. As of next October, it will no longer be part of Europa, but has instead partnered with Spicers which will carry out the wholesale function.
Advantia decision to move on was clearly part of a bigger plan and not just the result of Europa’s alliance with Antalis. That said, it was perhaps the final straw that tipped the scales in Spicers’ favour. And for the wholesaler, having the group with some of the UK’s largest dealers on board will go some way towards compensating for gaining more of a competitor in Antalis.
Both of the main OP wholesalers could also benefit from some disgruntled reactions among Europa’s supplier base following the appointment of Antalis, with one or two threatening to walk out. And while there’s clearly some conflict of interest for Antalis – partly because of its core product categories of paper and envelopes, partly because of its direct involvement with some large corporate customers – the pressure is coming from another corner.
Says Hugh Sear, non-executive chairman of Europa: "The wholesalers are putting pressure on [the manufacturers] – what’s new? I’m quite sure the wholesalers are telling them not to do it [ie deal with Antalis]." And perhaps offer a sweetener if they don’t go along with the deal?
And then there is some business to be picked up from the Challenge Consortium and Kingfield Heath is the lucky beneficiary of this contract. How linked the departure of this splinter group of eight dealers from struggling United Office Products (formerly Momenta and another of Europa’s shareholder groups) is to Europa’s revamped status is anyone’s guess. It’s safe to say that it had a bearing on the matter, however.
What is less certain is Europa’s ultimate future role in the OP sector at a time when the two main OP wholesalers are also now offering competitive prices on commodity lines.
The most unusual aspect of the Europa/Antalis deal is the considerable amount of control that Europa is handing over to its partner. 18 out of Europa’s 26 staff have departed, including its managing director and former non-executive chairman of BPGI Nick Oates. Only the core purchasing function, plus some IT, finance and administrative roles remain.
In effect this means that all the direct deals with its manufacturing partners will be handled by Europa itself. These are currently worth about Â£43 million. More than 50 per cent of that figure account for own brand products. The remainder of the own brand business, ie those products to be stocked by Antalis, is negotiated by Europa but bought by Antalis. All branded goods – worth about Â£14 million – will go entirely through Antalis.
But any suggestion that the case for Europa’s existence is weakening is strongly refuted by Oates. He is furthermore adamant that the board has made the right decision, albeit at his own expense: "You have to understand what Europa’s role is. It has always been to ensure that dealers get the best purchasing terms. We should provide a solution by whatever channel available, whether it’s direct purchasing or through our warehouse. We always said that there may come a time when our existing warehouse might not be the best solution and we have to look elsewhere. We probably haven’t told OPI that, but our dealers knew it.
"Europa is going back to its core activity – purchasing – and the peripheral activities have now been removed. Arguably, that will make it even more cost-effective and that’s always been its core difference."
Indeed, it could be argued that Europa never got its costs down to the necessary level up until now. Sear admits: "The whole reason for what’s happening at the moment is to reduce cost. We are able to take a huge amount of cost out of Europa by handing most of the administration to Antalis, it’s as simple as that."
He adds: "Europa doing what it has done has set the ball rolling which is going to result in some quite significant changes and create new allegiances within the industry. With all that has happened, you’re just getting a complete restructuring of the business at the moment. It wouldn’t surprise me if interesting things would follow."
As well as Europa’s and the industry as a whole, it will be interesting to follow Antalis’ progress over the next couple of years.