What do you expect when you visit a £5.4 billion ($8 billion) company that over the past 18 months alone has bought 17 companies and just posted half-year revenue increases of 11%?
On a sunny summer’s day, OPI visited the global distribution giant’s headquarters in London and found a lean organisation (42 staff in the HQ) run by a multilingual leader who’s keen to take the company much further – but not down the OP route. That’s not to say the OP community hasn’t got a role to play, as CEO Mike Roney points out.
OPI: Mike, let’s start with some history. Everyone knows the name Bunzl, but where does the name actually come from and how did the company start out?
Mike Roney: Well, Bunzl is a family name and the company was originally a haberdashery family business from Slovakia, started in the 1850s. The family moved the business to Austria pre World War II and eventually split it – part of the family went to the US, the other part came to London. The London side was listed on the London Stock Exchange as a public company in 1957.
It’s a very old company that’s come a long way from its origins and has reinvented itself several times. At some stage it was in a lot of different manufacturing businesses, but we exited all manufacturing about the time when I became Chief Executive and are now strictly a distribution company. The initial investment in distribution started earlier, however, back in the 1980s.
OPI: Is there still a Bunzl family connection?
MR: No. There are still some Bunzls walking around and when we had the 50th anniversary of Bunzl on the London Stock Exchange we did invite a Bunzl family member who had been on the board in the 1960s and retired as chairman in the 1980s. He was well into his 80s, though, and it was more symbolic than anything else.
OPI: You’ve been in charge since 2005. What was your remit at the time – where was the company going?
MR: There wasn’t really any fundamental change in direction, but the board wanted greater internationalisation and that’s what I did. Since I became CEO, we’ve moved into Israel, Belgium, Switzerland, Spain, Hong Kong, Brazil, Argentina, Chile, Peru and Colombia.
We also increased our business in Mexico and opened a sourcing office in Shanghai – we didn’t have any presence in China beforehand. We’ve been averaging about nine acquisitions per year since 2005.
OPI: Is that how you break up the company – in terms of geography?
MR: That’s correct. We have regional headquarters – such as St Louis in the US, or Sao Paulo in South America.
OPI: Let’s talk about Bunzl’s business segments, as there are quite a few.
MR: Yes, we sell into seven broad customer markets globally: grocery, food service, cleaning and hygiene, safety, non-food retail, healthcare and an ‘other’ category which includes selling into governments, airlines and so on.
OPI: How standalone are these various business sectors?
MR: You mean safety versus cleaning and hygiene versus grocery, for example? Very standalone. Each business is completely independent, has its own warehouse infrastructure, P&L and management team, and it’s run by country. We don’t have a global safety business or a global cleaning and hygiene business. We do it by country.
OPI: And do you have all these segments in every country you operate in?
MR: No, we don’t. We do it bit by bit and we only go in via acquisition, we don’t go and greenfield. And when we do purchase a company, we tend to go for 100% ownership, unless there’s a specific reason the owner wants to keep a minority stake.
OPI: From an OP point of view I’m particularly interested in everything that revolves around facilities management (FM), so presumably that’s mostly the cleaning and hygiene business. 14% of a total of £5.4 billion is still about £750 million. Where is your biggest market in that category?
MR: It’s Europe.
OPI: And who are your customers?
MR: It depends, but here in Europe we mostly sell directly to the end-user. Our big cleaning and hygiene customers in the UK and Ireland, for example, are Mitie Group, ISS and Rentokil Initial.
In the food service sector, just by way of comparison, we also go directly – at store level – to Costa Coffee, Starbucks and Dominos Pizza while in the grocery business it’s Waitrose, Morrisons, Sainsbury’s, Asda, etc.
It’s not a one-size-fits-all concept, but as a general rule, Europe is much more of a branch-based business across the various categories. In North America, on the other hand, there’s more redistribution with much larger drop sizes.
OPI: In Europe then, how do the OP players, with their ever growing interest in jan/san and FM at large, fit into the overall picture? Spicers or VOW in the UK, for example – are they customers or competitors?
MR: I think our offering is broader than what they would have so it’s on the fringes, but yes, they are probably more competitors than anything else.
OPI: What about the large resellers, like Lyreco, Office Depot and office2office – where do they sit? They all sell FM products, but where are they getting the product from?
MR: As I said, for the majority of our cleaning and hygiene business in Europe – that’s about 90% – we sell to the end-user, right down to the contract cleaner, ISS and Rentokil, but about 10% also goes via resellers and they include Depot, Lyreco etc. These companies buy from us if it’s in their interests. They buy the majority of their fast-moving products direct, but then there’s a tail of many products where the turnover isn’t that high and they couldn’t take a full truckload. So they buy from us and move the product on to their customers.
OPI: What about continental Europe – how’s the cleaning and hygiene business going there?
MR: We have a substantial presence in several European countries, such as Spain, France, Benelux, Switzerland and Denmark. The one country where we’re not very big, even though it’s a big market for cleaning and hygiene products, is Germany.
OPI: Why is that?
MR: It’s a very traditional market with a lot of family businesses, much like in the office products sector I would imagine. There’s a strong emphasis on the so-called Mittelstand – medium-sized businesses – and keeping those businesses in the family. Even in the big cities there’s often a perception that to sell out to a Bunzl is an admission of a failure to pass the business on to the next generation.
As I’d like to put it, we’ve taken a few firms to the altar, we just haven’t got married yet. We bought one business in Germany about 15 years ago and another small one about five years ago.
It just hasn’t quite happened yet, but we’ll continue to try as there are a lot of good and very profitable businesses in the country. It’s the biggest market in Europe by far and it’s our smallest position in Europe relative to the size of the economy.
OPI: Let’s go to North America. Your sales strategy there is quite different if I remember rightly.
MR: Yes it is, it’s much more about redistribution. In North America, for example, SP Richards is a big customer. They sell to a lot of small independent dealers and we supply them with what we call their tail in the cleaning and hygiene category.
OPI: What about United Stationers?
MR: United is a direct competitor for us because of its Lagasse subsidiary that buys directly from all the various manufacturers. Lagasse is very strong in selling to resellers in the cleaning, hygiene and food service categories, and that’s exactly what we’re doing in the US – selling mostly via resellers.
OPI: There’s been plenty of speculation about your interest in office products as a potential add-on category. Is that speculation justified?
MR: No, it isn’t. Our core business is not office products and never will be. But, for argument’s sake, let’s say that we supply a large office building in London’s Canary Wharf and 90% of what we sell them are cleaning and hygiene products.
They could say: “Hey, could you send us some pencils over too?” So we may call somebody and ask if we can buy a small quantity of pencils and sell them on to our customer. That somebody would typically be an OP reseller as we could never approach a manufacturer direct with a small quantity like that. So anything outside our core offering we would buy from somebody else, the same way that OP resellers would buy a tail of FM products from us because they can’t take a full truckload from the vendors.
OPI: But you are a very acquisitive company – are office products not a tempting addition?
MR: No, not really. We have a very clear strategy about where we want to compete and where we don’t want to compete. The decision that has been made is that we are not going to go into office products, that we are not going to go into MRO and that we are not going to go into the distribution of electrical supplies.
Of course someone could say “well, that’s not true because you do sell, around the fringes, everything”, but that’s very different to going after something as a core category, which would mean dedicating working capital, having people trained to sell those products, educating customers and so on. OP is not our area, we’re very clear about that.
OPI: I don’t think many OP players are as clear-cut about their priorities. Have you noticed a more competitive side from the large contract stationers, for example, as they’re focusing more on FM as a product segment and are perhaps increasingly going directly to the manufacturers because of their increased purchasing power?
MR: Of course, you’re always a bit paranoid about everybody else’s strategy. There’s no doubt there’s some competition around the edges, but it’s no more than that at the moment. There’s a difference between what they are selling and what we are selling.
A washroom needs to be cleaned every day and the toilet paper needs to be put in every day. Take an office like ours here: we would probably take a delivery once a week for those kinds of products. But if you’re selling office stationery, you don’t need to replace it once a week, but maybe once a month, once every six months. So we’re going to our customers all the time.
As I said, occasionally and if it’s an emergency need, we may ship some office products too, but it’s not our core business. And likewise, the companies you’re talking about wouldn’t go after our business wholeheartedly unless they decide that they really want to penetrate the washroom area. It’s a question of where you want to compete.
OPI: We’ve talked about the vendors. What’s your branding strategy, who do you work with?
MR: We work mostly with the big national brands. In cleaning and hygiene, that’s Kimberly-Clark, SCA, Georgia-Pacific, Johnson Diversey, Ecolab, 3M and so on. We do have some of our own brands but it’s a small part. About 15% of all our products are own brand and no brand, so it’s still relatively small and we want to keep the balance and support our branded suppliers. That said, own brand is important and if customers want a product for a lower price, I’ll offer a non-branded or own brand product.
OPI: We’ve talked a bit about acquisitions. They obviously make up a considerable part of your revenues – 9% in the first half of this year I believe. What business segments are providing the best growth and the most opportunities?
MR: Every year is different, but the areas that have provided us with the most growth in recent years would be cleaning and hygiene, safety and food service. About two thirds of our growth over the past 12 years or so has come from acquisitions – in 2000 we were a £1.8 billion company, last year we reached sales of £5.4 billion – while one third of it has been organic.
OPI: Does that growth – organic or through acquisitions – relate to particular geographic areas?
MR: There’s no clear repetitive pattern, but over the past nine years certainly, we’ve seen more spend on European acquisitions overall than in the rest of the world. In terms of fastest growing region for us at the moment, however, it’s probably Brazil and the rest of South America.
OPI: What about Australasia? You made an acquisition there earlier this year I believe when you bought several Jeminex businesses.
MR: Australasia is an important area for Bunzl and we will continue to invest there, especially in Australia and New Zealand.
OPI: Without referring to any particular business segments, in general what do you think are Bunzl’s core competencies and assets?
MR: If you take acquisitions and new territories, one of the key things we try to do is to get a national footprint as soon as possible. Most of our competitors are local or regional, so to really take us on you have to have a national footprint. Obviously a national footprint in North America is broader than a national footprint in Switzerland; we can cover Switzerland with one warehouse while in North America we have 100 plus.
OPI: On a final note, we always hear that OP is a declining category and that times are tough because of spending cuts, increasing digitisation etc. Do you see the same in your business segments?
MR: Yes, we do. Our products – much like office products – are in fairly slow growth and mature markets. To really eke out gains here is pretty tough. Also, we sell expense items and generally there’s an annual budget for these products. And every year companies try to reduce that budget and make some efficiencies.
So what we try to do – just like our competitors – is to help our customers cut their costs with different product offerings and better information on how to reduce costs and make savings. You have to be proactive like that, even if it sometimes hurts us financially, because we feel that in the long run it builds customer loyalty and makes it more difficult for somebody else to get in.
In terms of the digitisation you’re referring to, in the short term I don’t see that threatening our business that much. You can digitise the whole supply chain process, of course, but you can’t digitise the product. You still have to manufacture it, distribute it and ship it.