OPI: There’s much talk about the role and the value of dealer groups in our sector. Pinnacle carved itself a very specific niche and, like you said before, it’s not for everyone. You don’t have all the fringe benefits that other dealer groups offer to their much smaller members, for example. Is there room – and a need for – both in your opinion?
Craig Bartholomew: Absolutely. The value of the programmes offered by IS, TriMega, DPCG and Office Partners are important for their dealers. However, there is a cost to maintain these groups. Especially for a very large grouping of dealers – like IS or TriMega – you need a good infrastructure in place to manage that group. However, you need to balance that against a shrinking dealer community.
Pinnacle Affiliates is comprised of large market-leading dealers who believe in our core principles of being a low cost group that drives dealer and manufacturer collaboration. We have been successful because we have not lost sight of who we are. We have a number of committees in the group now, for things like merchandising and technology, for example. But the overriding premise is best practice sharing and being the lowest cost option in the marketplace.
OPI: IS and TriMega’s sporadic merger discussions – do you think that merger is ever going to happen? It can only be a good thing, surely?
CB: Yes, it would be a good thing and they have to find a way and figure it out. It’s not from a lack of trying. It sounds trite, but I think it’s imperative that dealer groups realise they’re there for the dealers. It doesn’t have to be an IS or a TriMega; it has to be group that totally has the interest of its dealers at heart, irrespective of the personalities involved.
If those two groups came together, cost savings can be generated for dealers. It’s logical and needs to happen. Will it happen? I have no idea.
OPI: What about the wholesalers – particularly given the evolving and expanding product needs of independents, are they doing enough to meet dealers’ needs?
CB: That’s an interesting question. When I went to my first Pinnacle annual group meeting several years ago, all the traditional office products and furniture manufacturers were there, and of course the two OP wholesalers. Today, we have manufacturers attending that I’d never even heard of before, many making products that fall into the very broad facilities supplies area. Many of the Pinnacle dealers are developing direct relationships with those manufacturers.
When we – 360 I mean – first jumped into the breakroom category, we had to seek out and develop direct relationships with manufacturers. We even had to develop relationships with local Coca-Cola and Pepsi bottlers in our area, for example.
Both SP Richards (SPR) and Essendant are evolving and have become more competitive in the facilities supplies area, but it’s a challenge. In some areas they’ve made adjustments and become more competitive while in others it’s still a learning curve.
Overall, the wholesalers want us and need us to be successful and we want and need them to be successful. It’s a symbiotic relationship. They’ve lost business when they haven’t got it right and are correcting it where they need to and are earning that business back. Essendant and SPR have certainly improved in this space, but there’re still a lot of products that they don’t have and that dealers are looking to expand into, so they can differentiate themselves. By that I mean perishable products like fruit and vegetables, yoghurt – those types of things.
OPI: What else do independent dealers need from their wholesale partners?
CB: Well, I think you would get a cross-section of different opinions if you ask several dealers because we’re all in different phases of our evolution. I will answer from a 360 slant because that’s all I know. We need the wholesalers to continue to make investments and drive the digital direction with our 3PDs. It’s a fundamental weakness in the channel that you’ve got a dealer, a 3PD provider, the buying groups, the wholesalers – there’s just too much redundancy.
We’re getting better – digital strategies are getting better, content is getting better, how you go to market, compete with Amazon, etc, but there are still too many redundancies and too much cost between buying groups and wholesalers and even dealers.
We have two people that work in our marketing team, for example. They’re great people, but the manufacturers are also putting marketing materials out there, as are the wholesalers. How can we leverage all that spend and use it most effectively?
The wholesalers play a key role in the distribution of products. They are doing more drop-ships and going after some of the national opportunities on behalf of the dealers. But we need them to compete from a cost of goods perspective, so that we are able to compete ourselves.
They are also developing all these programmes to drive volume to help dealers compete. Where the weakness lies is that in this strategy they’re completely dependent upon the dealers to execute and use those programmes.
If SP Richards, for example, comes up with a great model to embrace the breakroom and we didn’t do what we needed to do as far as following through on the roll-out, everything they prepared is for nought because we’re not playing our part.
About 85% of the wholesalers’ revenues come from us as dealers. That is pleasing as well as worrying, because they’re so heavily dependent on us to be successful. Of course we don’t want to lose our independence, but we have to realise that we have to come closer together and to look at where we can truly take costs out. In other words, we need to have more of a transparent, open book relationship. Additionally, we need to continue to explore segments that we can expand into to continue to grow and diversify our respective business.
OPI: What about the other 15% of revenues? Does it worry you that the wholesalers also work with your main competitors?
CB: That’s just the reality of life. Of course they have to perform for their shareholders, but look at their actions and where they invest their time and capital in terms of the programmes they’re rolling out. Those programmes are not aimed at Office Depot and Staples. Those big operators would only be too pleased not to have the wholesalers, because if they weren’t around, independents would cease to exist and they would capture more market share.
OPI: Talking of Staples and Depot, now that they’re in the process of bringing their assets and all their operations back to North America, is that a threat to the dealer community?
CB: Much wiser guys in our industry ought to answer that question. In my opinion, there’s going to be increased focus on our markets because they’re going to re-entrench themselves and Staples and Office Depot are going to invest capital in buying dealers. There will be continued consolidation and I presume an accelerated pace of acquisition.
All of that has benefits and risks across the board. If you want to sell, it might be a good time to do that. If you want to stick it out, you know it’s going to be risky and there’s going to be fewer of us and we’re going to have to pull tighter together to compete.
OPI: What about Amazon? Is that in fact the biggest elephant in the room rather than Depot and Staples?
CB: It’s a different elephant that’s charging through our industry. No doubt, they’ve got an online tool that’s phenomenal. Everybody’s benchmarking against it and trying to repeat the Amazon experience. But they’ve got an Achilles heel and that’s the personal relationship. There is the digital relationship, of course, but if we try to replicate that too much, we as independent dealers will lose because we’ll sacrifice the personal one.
We need to understand Amazon and have tools that are close to theirs, but never move away from our core. And nowhere is that more important than in rural markets like ours in Montana where a handshake still means a lot.
It’s different from the big metropolitan areas, for sure, and is one of the benefits of living where I live. We have fewer than a million people living in our entire geographic territory. I have so much respect for the guys in Seattle or Washington DC or Chicago – they have a much bigger fight on their hands in Amazon terms.
OPI: Lastly – and I have to ask: you’ve got a new President in the US. Opinions on Donald Trump are divided, to put it mildly. What’s your view? Is he good or bad news for your own dealership, Pinnacle dealers and the industry at large?
CB: Being from Montana, and talking about 360 specifically, it’s a very tight line between the two main political parties in the State and I’ve always thought it works pretty well because they’ve had to work together to be successful. Donald Trump is an unknown quantity, politically speaking, for sure. What I think is important now is that we have change and new ideas. Is he going to be perfect? No, nobody would be. But hopefully he’ll come in with some good ideas. I think it’s healthy that we are going to be challenged in our views. Change is good.
That mantra is the same in our industry, so I’m bringing it back there. You need to know when it’s time to step aside and make way for someone new. That’s me now as Chairman of Pinnacle Affiliates. Bruce Eaton began his role in January and will be in the job for two years. He’s a great guy who has done so much for the dealer community, not just in the US. He’s helped form BPGI, he helped guide TriMega and its DSC large dealer members, plus many other things. He’s going to do a great job as Chairman and I’m going to do whatever I can to make him successful.