Breaking out



Nowadays, what actually constitutes an office product is open to suggestion and has moved far beyond staplers and stationery.


And the barriers are being pushed back by the wholesalers and dealers that are increasingly looking to being a one-stop shop for all office needs, which not only includes furniture and EOS, but also such items as drinks, cleaning supplies, lighting, electric fans, food stuffs and even flowers.


Indeed, the range of SKUs has broadened to such an extent that Kingfield Heath marketing director Martin Shaw feels old labels no longer apply. "Kingfield Heath has become a wholesale distributor of business supplies," he comments. "The term ‘office products’ now appears a little dated and does not fully encompass the spectrum of products that are available through the dealer/wholesaler partnership. FM supplies are an important part of this mix, as are EOS products and furniture."


To a large extent, this growth in non-traditional OP products has been fuelled by the wholesalers looking to improve their bottom line and eagerly embraced by the dealers, themselves equally hungry for growth.


"This is a natural extension for the wholesalers," explains George Karibian, managing director of online dealer Euroffice. "It hardly places any new demands on their infrastructure and processes, and provides excellent incremental revenue/profit.


"For small dealers directly downstream of the wholesaler, the decision to carry these categories is a no-brainer. It has little or no incremental cost and could represent a 15 per cent increase in incremental business with minimal selling effort. The moment Spicers introduced jan/san and FM products four years ago, Euroffice considered it an obvious decision to follow suit immediately."




Shaw believes there are two main drivers to the growing one-stop shop phenomenon. He says: "The first is that the business consumer has become much leaner in recent years and is increasingly looking for a supplier that can remove the hassle from non-business critical procurement. The second driver is that dealers have found price erosion and a downturn in usage in their traditional stationery supplies market. This has led them to look for new product areas to add to their offer."


Karibian adds: "For the dealer, the one-stop shop concept has always had lots of sex appeal. Declining prices on core office supplies has and will continue to erode revenue and profit. And one of the best ways for dealers to recoup such erosion is by increasing their product categories into new areas such as FM and jan/san."


But it is still important to take a scientific approach to this one-stop shop concept. A ‘throw it at the wall and see what sticks’ strategy is risky. Karibian says: "Small dealers lured by the temptation of selling all things to all people run the risk of losing out. In contrast, those that focus their definition of what is an office product around the requirements of their customer target segment will be successful, provided they meet or surpass the expectations of that segment."


Karibian says that the appeal of the concept must be balanced by the question of whether the customer has the appetite for a one-stop-shop. "Traditional dealers have always overestimated this," he explains. "Never was it more misunderstood or overestimated than at the height of the boom. Entire business plans and investment strategies were built on the premise that the customer placed a huge premium on the one-stop shop. They were wrong."


That is not to say, however, that the strategy does not have its merits. Indeed, Euroffice has and continues to branch out into a number of what would be considered non-core items, such as its flower delivery service.


"What is far more complicated for the dealer is adding categories that are currently not being sourced via the wholesaler," Karibian explains. "Even then, sourcing a best-in-class supplier is the easiest part of the challenge. Much more complex is the integration of back-to-back purchasing, service, accounting, logistics, information systems, etc.


"At Euroffice we have researched and evaluated over 30 new areas. Over the next six months, we will add five new categories which represent the highest value for our target customer. These are also the categories we feel we can source and deliver in a manner that meets or surpasses their expectations. Increasingly, we will become a supplier of non-core products and services for small businesses. And yes, a vast majority of our sales and profit will be generated by traditional office supplies and EOS."




It is a similar story in the US, with independent OP dealers desperate for growth, increasingly expanding their product offering. And wholesaler United Stationers is very much at the forefront, encouraging this trend. Indeed, the recent acquisition of Sweet Papers makes its Lagasse division the largest pure wholesaler of jan/san and break room supplies in North America.


Jan/san is United Stationers’ fastest growing category with the highest rate of return. Pre-acquisition, it accounted for 12 per cent of United’s revenues – that is now expected to increase to 16-18 per cent.


It also presents the company with huge private label opportunities, which already represent about 15 per cent of the Lagasse business.


"We feel we have a healthy mix," comments Lagasse president Steve Schultz. "We operate pretty much a ‘good, better, best’ type of strategy to meet consumer needs. We have the nationally branded names you would expect us to have and tiers underneath."


United’s overall private label business stands at only about 7 per cent of sales, but analysts predict that this figure, with the help of the Sweet deal, will rise to 20 per cent in the coming years.


The deal is clearly significant. If dealers are looking to be one-stop shops for consumers, then, says Schultz, it was important that United became a one-stop shop for dealers, which it could not really claim to be pre-Sweet: "We were very under-penetrated at Lagasse in areas of food service product and mainly break room, a whole offering we did not touch on," he explains.


The potential of the break room side of jan/san was well known to United and Schultz. He adds: "It’s the fastest growing category within the segment of jan/san. So being underdeveloped we couldn’t claim to be a one-stop shop, so the acquisition of Sweet clearly provides the product mix to launch us more full-line into that break room/food service category; take advantage of that growth for ourselves and make us more of a one-stop shop."


Schultz denies that the rise in jan/san is merely a wholesaler driven trend, but more down to a mixture of factors. "I have never looked at one determinant as the influence," says Schultz. "I look at this as a tremendous opportunity for dealers and distributors to meet consumer needs in very efficient ways and that is what is driving this opportunity.


"The sweet spot for the independent dealer in the US is the SME. Those are pretty natural fits, good consumers of janitorial products, and probably fall below the screen of full-line janitorial. Those are out chasing hospital beds. Independent dealers have the ability to meet the needs of SMEs in a way that’s efficient and easy for them to want to do business with them."




And this growing trend is likely to bring about a wave of consolidation among traditional jan/san dealers, perhaps not dissimilar to that experienced in the OP industry in the 1990s. Schultz comments: "I have said in the past that the jan/san business is about ten years behind the OP dealer side of the business, where consolidation came in and there were fewer and fewer independents. A lot of this was created by the OP superstores.


"We’re not going to have a jan/san Depot or a jan/san ‘Max on every street corner, but there are other market pressures that will influence consolidation and the main driver for that will probably be the end consumer, who is going to want and demand more services, more timely deliveries and more efficiencies than the jan/san community has historically provided.


Shaw agrees and adds: "Traditional FM suppliers tend to operate on longer lead times or deliver by carrier. They don’t have good marketing back up and they certainly can’t claim to have the same kind of service levels as the office supplies market.


"Many specialist suppliers are starting to question how they grow their sales into the future, particularly in light of the push from the consumer for the one-stop shop. Over time it is inevitable that there will be a degree of convergence, whereby more specialist suppliers look to widen their product offering.


"However, this is where logistics becomes critical and the wholesalers can play their part. How much product should be stocked? How will the products be marketed? What will be the service offer? Ultimately, the dealers that will thrive will be the ones that embrace the changing mix of products in the market and fully understand the need of the consumer for a one-source supply arrangement."


The signs are that dealers are clearly seeing the benefits of a comprehensive jan/san and break room offering. Maybe one day soon, the humble jar of coffee or bottle of floor cleaner will become as synonymous with office products as the stapler.