When Quantore Managing Director Arnold Theuws last featured in OPI’s Big Interview in 2014, the company had already become a purchasing and logistics powerhouse thanks to a state-of-the-art warehouse opened in 2009. Now Theuws is preparing for the next phase in Quantore’s development, with more ambitious plans to expand the firm’s logistics capabilities and other initiatives aimed at helping independent resellers better compete in the local marketplace. OPI’s Andy Braithwaite finds out more.
OPI: What have been the main developments at Quantore since our last Big Interview in 2014?
Arnold Theuws: At that time, we were implementing our strategy to handle purchasing and logistics for our members. Taking over the logistical activities of our members was one of the main arguments for building our new warehouse [in 2009] and it went very well.
Then, around 2014-2015, we realised that, with the changes in the competitive environment, we had to do even more to enable our members to survive. It meant helping them with sales and with branding; as an independent office supplies organisation we were very big, but nobody knew us.
Although all these independent dealers are well known locally, we believed we could help them with a better pricing image by having a central branding, and therefore better communication and a strong private label.
OPI: So how many of your members have adopted this branding strategy?
AT: In total, we have around 430 members – 370 in the Netherlands and 60 in Belgium – and we have about 130 of them [in the Netherlands] in our branding concept.
OPI: Is it a one-size-fits-all or can they choose from different levels of branding? How does it work?
AT: At first, our plan was to build a kind of franchise concept, but after a few months we realised that this did not really fit the requirements of our members. So we abandoned that idea and gave them the option to choose which parts of the programme they wanted to take.
The only thing that we insisted on was that they adopted the Quantore branding because it is essential for our national advertising campaign – it has to be clear from a customer perspective that a dealer is a Quantore member.
OPI: Do these members have a minimum spend threshold with you?
AT: Yes, they must buy at least 70% of their total office products volume from our organisation.
OPI: When you say ‘office products’, does that mean traditional office products or other categories as well?
AT: Everything we are selling, so it could be jan/san, printing, paper and traditional office products.
OPI: This leads into a question on product assortment. How are you diversifying and what are the challenges related to entering new categories?
AT: Let’s take cleaning and facility products. At first, we were only selling products, but that didn’t really work very well, so we added training materials; instructions on how to clean floors, what types of products are needed for specific cleaning situations, etc. This allows our members to sell a concept and explain how to clean…
OPI: So they can show that they are credible in that particular field?
AT: Yes. In cleaning, we added some concepts behind it. But if you take coffee and tea and the whole breakroom assortment, for example, we are responding to our members’ needs by stocking the lines they want.
If volumes on certain items are not good enough, then we will reorganise them, but in principle, if members say certain products are good and could generate volumes, we are adding stock.
OPI: When you look at the average sales mix of your members, how’s that split up?
AT: In general, 35% is ink and toner, 25% is paper, 30% is traditional office products and around 10% is facility products.
OPI: Are you comfortable with that balance? It seems heavily weighted to declining categories.
AT: No, we are not satisfied with it. It seems to take time for our members to shift from traditional OP to new categories; and apparently there is a big enough market for traditional office products because we are still growing our OP sales.
OPI: But I assume the market isn’t growing in these products?
AT: No. Traditional office products have been declining between 5-10% a year for several years now.
OPI: What are the main reasons that your members are taking share?
AT: One of the opportunities in the market is a result of bigger companies needing fewer office products. This means they are coming into the market of our members. For example, ten years ago a company that was buying €150,000 ($179,000) of office products was a customer of the big boxes.
Now, there are a lot more €20,000-€25,000 companies that are becoming natural customers for our members, and we have the proper tools to serve this market.
OPI: How did you perform in 2016 overall?
AT: We had a small increase in sales of about 1%, but we had a good year in terms of margin. We gave half of our profit back to our members in a profit-sharing programme and they were very happy with that. If you look at it from an operations point of view, we did very well: we made fewer mistakes than the year before, we had more complete deliveries and our members scored us at our highest ever level in satisfaction surveys.
We did well and from January to May 2017 we have been able to increase sales by 6.5%.
OPI: What’s behind that increase?
AT: We are not sure exactly, but we know our members are taking market share. Also, like I said, from an operations perspective we were doing very well, so I’m positive for 2017.
One of the big challenges we have is that we are now preparing our organisation for 2020. I have already mentioned the warehouse plans, and now we’ve started with a new product information management system. We are investing a lot of money in content and good technology behind it to drive this content throughout the whole supply chain.
We will also renew our ERP system and the systems with which we communicate with our members. The goal is for 2017/2018 to have our IT programs on par and then in 2018/2019 we are planning to undertake a major extension of our warehouse.
OPI: When you say half the surplus is given back to the members, is the rest used to finance these various investments?
AT: Yes. All the things we need to be successful in the market; we need to have the money to invest and we have those funds.
OPI: Just to recap on your members in terms of their model; is it retail or just delivery – or a mix?
AT: It’s a mix. We have approximately 70% B2B and 30% retail; but about half of retail is due to one big local legal chain. We have B2B members with shops, but that is a different type of retail.
OPI: What are the key trends and challenges that you see in your market?
AT: There is a very high level of online penetration in the Dutch market and all servicing and invoicing is hugely automated.
Belgium is a far more traditional market, but in the coming years I expect that it will also change to be more like the Dutch way of doing business; we will need to adapt to these changes.
OPI: In Belgium, is it the Flemish-speaking area that you service?
AT: We have translated all our information and our systems into French in order that we are now also able to serve the French-speaking region. That has helped us to achieve growth so far this year of more than 20% in Belgium.
OPI: Does that also mean you could move into France now?
AT: We could move into France, but somewhere there is a logistical distance where transportation costs would be too high to be competitive.
OPI: So you have no geographic expansion plans?
AT: It’s possible. We are talking to an important French company to see where we can cooperate. We believe that with our strength in purchasing and logistics, we could deliver cost-effectively from the Netherlands to parties in France, but you need volume and full trucks for that.
We are also exploring the possibility of working more closely with Exertis on different commercial and back-office areas.
OPI: So this is Quantore acting as a logistics service provider?
AT: For the French market this is an option; for the UK market it’s less likely.
OPI: Your logistics capabilities have a good reputation in the industry, but you completed your warehouse in 2009. What updates have you made since then?
AT: We are constantly working on improving efficiencies, not necessarily through investments in mechanisation, but with things like lean techniques. Having said that, we are now in the planning process to double our warehouse capacity.
I believe we made a very big step forward in 2009 when we introduced this warehouse, and we are now in the designing phase of taking the next step which will help us in the 2020s.
OPI: What’s the rationale for this project?
AT: First of all, we want to be the specialist for offices; everything that an office needs has to be in our warehouse and we currently stock only 24,000 SKUs, so we probably have to expand that.
We see a lot of opportunities in working more closely with vendors and with different resellers in order to fulfil their retail and e-commerce needs. The combination of handling the logistics to both shops and to end consumers is something that is fairly unique.
We are looking at collaborating with a few manufacturers to stock all the items they have for the Dutch and Belgian markets in order to fulfil not only the orders for our members, but also for their customers. That means we would be a kind of fulfilment centre for our vendors.
In addition, we are investigating a concept we call cross-dock 2.0 in conjunction with a few big vendors that have facilities very close to our warehouse. The idea is that, commercially, we will offer their entire assortments, but we will not stock everything ourselves. Products from their warehouses will come to us on a just-in-time principle and we will create one order from these and the items we stock ourselves. That way, we reduce small orders which are expensive to ship.
But this type of solution needs volume and we are now talking with different vendors in our vicinity that are interested in working with us and also sharing the risk.
OPI: Staples and Office Depot both have their European operations based in the Netherlands and have both recently been sold to private equity owners. What impact has that had?
AT: It has certainly helped us because they have been more focused internally and less on the customer. On the other hand, they are competing more with each other than with the small independent office supplies dealers, so our members don’t come across them that much. That will hopefully change, because we are now preparing ourselves to sell directly, in partnership with our members, to large end-user companies.
OPI: Is this partly driven by the challenges that Staples and Office Depot have been having?
AT: To some extent yes, but it’s mainly because we have all the competencies needed to sell to the big companies, even if we don’t want to do exactly the same as Office Depot, Staples and Lyreco. We want to develop an optimum solution between the local dealer and Quantore’s central distribution facility, so we will only participate in tenders where local dealers can provide services that enable them to differentiate themselves from the international resellers.
OPI: What will these services be?
AT: For example, customers want the last mile to be as carbon neutral as possible. Therefore, we have a proposition whereby deliveries are made by bicycle which has been well received by our dealers.
I really believe in the local dealers because they can perform these additional services which the big boxes usually can’t because, apart from Lyreco, they are not doing the last mile.
OPI: Is there a ‘buy local’ movement in the Netherlands?
AT: Yes, it’s becoming more prevalent, but you still have to have your price right. Customers don’t buy locally just because they want to; you need to have the right service, quality and price.
OPI: Where are you with this contract initiative you’ve just mentioned?
AT: I’m am very pleased to say that we have just won our first major tender with a total contract value of €500,000. Previously, we had been successful in smaller contracts, but we have been able to improve our pricing to be more effective against Office Depot, Staples and Lyreco on larger contracts.
OPI: Is the name on the contract Quantore or that of the dealer?
AT: It is our name because we meet all the ISO requirements and various balance sheet criteria. Therefore, our members are subcontractors to us and we operate a margin-sharing model.
OPI: That sounds similar to what ADVEO has announced. Talking of ADVEO, is it – and its members – a big competitor of yours?
AT: ADVEO is a competitor, but we hardly see them in the marketplace; they are mainly in the Belgian market and we are mainly in the Dutch market. Having said that, there are, especially in Belgium, a lot of potential customers of ours that are still doing business with ADVEO and we see opportunities there. Especially now that we also have all the catalogues in French, we think we will have better opportunities to take share.
On the other hand, the wholesale market is organised differently in Belgium and there is still a lot of direct business from vendors to bigger local dealers. As such, wholesalers are mainly for the very small resellers, but I believe that model will change over time. Also, if the bigger Belgian resellers want to organise drop shipments, they will need to work more closely with wholesalers, and that will be another opportunity for us.
OPI: So who then are your main competitors in the Netherlands?
AT: The main competitor for my members is Lyreco, and then to a lesser extent Office Depot and Staples. For the rest, as a wholesaler, we don’t really have much competition.
OPI: What about pure-play online resellers? How is that market developing?
AT: They are growing significantly; I have several big online reseller customers and they are growing between 15-30% each year. But still, that market is quite small in relation to Quantore’s entire B2B business; small, but growing.
OPI: You rejoined BPGI at the start of this year. Just remind us why things didn’t work out with Interaction and its Q-Connect brand.
AT: BPGI mainly concentrates on A brands and marketing programmes for A brands. For Interaction, its biggest added value is the Q-Connect brand. What we noticed is that the Q-Connect brand is very much focused on the UK market with a quality level which is needed for contracts in the UK.
But I am serving in my market and I’m not serving big contracts; I’m dealing with retail and SMB customers. While price is important, quality is even more important, and we found that while the quality of Q-Connect was good, it was not good enough for the needs of my members. And at the end of the day, we couldn’t make compromises with the quality.
OPI: The Q-Connect name was obviously a great branding fit with Quantore.
AT: From a name point it couldn’t have been better, because I had my Quantore A brand and Quantore Connect, let’s say, as a B brand. But we didn’t have the volumes to have that Q-Connect brand fully used.
OPI: Do you have a replacement B brand?
AT: No. What we now have is a neutral brand from different vendors. So we have a private label A brand with a high level of quality, and then we have an assortment from a vendor of a lesser quality and lower price.
OPI: And this will be sufficient to have a low-cost ‘fighter’ brand to help you compete in the contracts market?
AT: Yes. In the contract we recently won, we included this lower price assortment in our bid. It doesn’t have the same quality as the Quantore brand, but it meets the basic requirements of the customer.
OPI: What do you see as the main benefits of BPGI?
AT: When we came back to BPGI, one of our wishes was for closer cooperation between the warehouse members on the one hand and the non-warehouse members on the other. We are trying to shape that cooperation so that members with similar operations and needs work more closely together.
OPI: What are some of the things that you are doing in that regard?
AT: For example, one of the members we are working very closely with is Makro Paper in Spain – they are doing our private label sourcing in Asia. It was something we were already doing before we rejoined BPGI and we are very satisfied with it, but let’s see if there are other initiatives we could share.
That will be one of the topics at the BPGI meeting in Berlin, Germany, in October.
OPI: OK. That about wraps it up. Thanks for your time Arnold.