Collective gains



Let’s be clear about this. For independent office products dealers, no partner in the supply chain is as crucial as the wholesaler they choose to do business with. Without an effective wholesale channel and the service offering that comes with it, independent dealers – both large and small – would struggle to survive.
That’s assuming, of course, that the OP markets in question are wholesale-orientated and, more importantly, wholesale-reliant. Entire continents, including Australasia and large parts of South America, are not. Efficient and/or nationwide wholesalers in these regions are more or less non-existent. Much of continental Western Europe, meanwhile, has produced its very own model, whereby dealer groups have often created their own warehousing operation.
Two of the largest OP markets in Europe, France and Germany, are only just beginning to evolve into wholesale-focused countries. The main wholesale force in Benelux remains dealer group Quantore, much more so than Spicers-owned Timmermans.
Among the Western OP markets, the UK and the US are arguably the only ones with a strong, expansive and nationwide wholesale tradition. And here, with dealers channelling anything from 20-30 percent – at the lower end of the spectrum – to 100 percent of their cost of goods (COG) through wholesalers, their importance cannot be overstated.
Without exception, all wholesaler customers that OPI spoke to talked of the all-round stellar performance that their first-call wholesaler is performing for them. Service is exceptional and support outstanding.
Martin Reid, managing director of long-established UK dealer Egan Reid, says: "Spicers is our main wholesaler and currently represents about 26 percent of our business, with a growth trend in emerging product categories.
"We are finding our mainstream wholesaler very competitive on price, and it gives us extra value-added services such as distribution marketing, thereby helping to keep our operational costs down."
Spicers’ man himself, CEO Rob Vale, adds: "Potentially, the dealer/wholesaler partnership is a very powerful one. Taking advantage of locally held stock, for example, enables the dealer to offer a very strong service proposition to the customer. This enables high service levels and speed of response as well as the opportunity to reduce working capital. Importantly, dealers are also able to offer a comprehensive facility management solution to the end user, rather than getting trapped in the supply of a tight range of low- margin commodity office products."
Bespoke services
There’s no doubt that the wholesaler’s role has moved far beyond that of a mere logistics operator to that of a bespoke service provider.
ActionEmco is a regional wholesaler based in the north east of the US. Its typical dealer partner has annual revenues of $1-$5 million and with only very little business done with Corporate Express (CE) and none with the other power players, its focus is firmly set on the independent community.
Mike Maggio is the company’s CEO and it’s easy to see where his loyalties lie. "We approach our role today as that of a consultant – we basically do what our dealers want us to do. We help with anything from procurement, consumer pricing strategies and product category extension over marketing to sales-force extension and management."
But, and there is always a but, once the niceties are out of the way, there are some issues that need to be addressed, according to OPI‘s poll of vendors, dealers and wholesalers. Some reach right across the channels, from the manufacturer via the wholesaler to the buying groups, and from the dealer groups over the dealer to the end user.
One of these issues is marketing. And this really starts at the very beginning of the supply chain, the manufacturer. Most dealers purchase a percentage of their products either directly from the manufacturers or via their buying groups. As a general rule, the bigger the dealer, the larger the volume and the percentage of direct buys. Almost by default, a direct buying relationship results in a better sales and marketing relationship. And who better to educate resellers about their products than the company that makes them?
Lost relationship
The perception is, however, that many independent dealers have lost this direct relationship with the manufacturer. With wholesalers, as well as dealer groups, often taking over the marketing side of things, dealers may never see a manufacturer’s sales representative, neither from a buying nor from a pure marketing perspective.
And that is not a good thing, according to many. Dave Guernsey, CEO of large US dealer Guernsey Office Products, is outspoken in his views: "Wholesalers and dealer groups position themselves in between the dealer and the manufacturer, to the detriment of all concerned. Both view their ‘buy-side’ role as a be-all-and-end-all and, in the name of cost effectiveness and control, restrict our access to the manufacturer. I’m confident the wholesaler and dealer group folks will paint a different picture, but this inhibiting of the relationship is becoming progressively worse.
"I firmly believe dealers and consumers benefit from the dealer having a direct working relationship with the manufacturer. The wholesaler rep, and there are many of them, is well trained, but can’t begin to match the manufacturer rep for product knowledge, brand-awareness strategies, and developing innovative approaches to meeting consumer needs."
Esselte UK’s managing director, Chris Exner, entirely agrees, saying that the wholesalers’ marketing efforts for manufacturers’ brands could be improved. "There are not enough conversations between true marketeers. A lot of the wholesalers’ promotions are too dealer-orientated and not focused on the end users. In addition to a lack of use of modern communication, there also appears to be little evaluation and measuring activity after marketing promotions – what did we achieve and how can we make it better?
"If wholesalers made their campaigns more end-user orientated so they generate more demand for the dealers, used modern communication and measured their activities, they could do a much better job of supporting dealer and manufacturer brands."
Despite his reservations, Exner readily admits that it’s the manufacturers themselves that are not doing enough. Many, especially the smaller, local ones, are financially troubled and have a very limited field sales force, making more contact with the dealer community somewhat of a challenge. It also forces them to focus more on their top ten or so customers.
"I don’t believe that manufacturer brands have been sufficiently supported by all the wholesalers as of late. The danger is that wholesalers are emulating the contract stationers, limiting manufacturer brands and concentrating too much on their own-label offering and reducing choice.
"That said, the manufacturers themselves haven’t done enough to support their brands and innovate. There’s always a lot of talk about innovation, but it’s not just a simple line extension or a change of colour – a lot more has to be done. It’s the manufacturer’s job to come up with some truly innovative products. If we do, we then allow the wholesalers and dealers to charge a premium for those products. The role and the purpose of wholesaling is to provide a wide range of products to the dealer community. It’s up to the manufacturer to innovate and generate demand for those products."
Embracing innovation
He adds: "Wholesalers would do well to embrace innovation and we have been very encouraged by the approach of Kingfield Heath – it looks at the products and thinks carefully about how to take them to market."
In fact, as of this month, every Esselte SKU will be available through Kingfield Heath. The philosophy behind this move, says Exner, is that all Esselte products are available to everybody – not just the larger players through direct purchases. "We want to make sure that small dealers are not disadvantaged and can have any product the next day."
Like Esselte, Accentra is acutely aware of the importance of marketing, promoting its range of products through the various channels. And senior VP of sales, David Conner, has no complaints about the results: "I believe the wholesalers do an excellent job of promoting and marketing Accentra/PaperPro products. Our wholesale numbers continue to grow at a staggering pace and that is due to the support of our wholesale partners. Independent dealers also do a great job of promoting PaperPro. We offer them an opportunity to gain incremental business at existing customers by providing a product that customers love."
It’s clear that flexibility and co operation are the path to a successful – and profitable – future. As Vale says: "The key challenge is to recognise that there is only so much margin between the manufacturer and the end user, and that this available margin is constantly under pressure. This means that the wholesaler and the dealer have to work more closely together in more innovative ways than in the past, in order to focus on taking cost out of the supply chain, and not just beating each other up over margins."
And it is exactly that – price and margins – that lies at the core of many heated debates between dealers, dealer groups, wholesalers and, for that matter, manufacturers.
Some companies don’t seem too concerned. They have more purchasing power through size alone and buy a large percentage directly from the manufacturers.
Langstane Press’ managing director Colin Campbell is pragmatic about the issue: "We recognise that our volumes with the manufacturers are not the same as those of the contract stationers and whoever is buying more gets the better price. We have nowhere near the volume of a Lyreco, so should we be getting the same price? I suggest probably not. That said, for some products, prices are so rock bottom already that I think we might actually be quite close."
Langstane’s position is somewhat unique due to its geographical position in the north east of Scotland. Says Campbell: "Our remoteness created our strategy. We couldn’t rely on any wholesaler to give us the service we needed and consequently only ten percent of our spend is with Spicers, and its nearest warehouse is in Glasgow, several hours drive away. Buying in direct from the manufacturer and stocking the product allows us to provide a better service to our customers. We don’t have to rely on anyone else, and we can service our customers on a same-day basis from stock.
"Having the product here is one of our competitive edges. Even our mightiest competitors, the Lyrecos and Office Depots of this world, haven’t got any products up here and have to ship them in from the South – it allows us to beat them with local service."
It is this top-end customer – and dollar – segment of the market that many large independents are trying to capture. Sheer demographics make this more feasible in the UK where stocking dealers like Langstane Press or Egan Reid can compete more readily with the big boxes – on price and service.
Cosmetic approach
The picture in the geographically vast US is somewhat different. Even for those with the critical mass to reach beyond the mid market, compete with the power channel and go for the big boys, the challenges are staggering.
Of course, the infrastructure is already in place, with the two national wholesalers having facilities in most major cities, offering a product portfolio of over 40,000 SKUs, and IT platforms that, if not perfect, are nevertheless improving at a steady pace. Several regional wholesalers, including ActionEmco in the east and PPI Wholesale in the west, are also exploring various avenues through their Advantage Marketing Wholesalers (AMW) group to give dealers a better geographic footprint to work from.
But all that doesn’t seem enough. "The rub," says a frustrated Guernsey, "is the wholesalers’ attitude towards facilitating our competitiveness outside the mid-market consumer segment. They purport to support national/major account sales, but their efforts are more cosmetic than substantial.
"I give you an example. For us to warehouse, pick, pack and ship a delivery to a customer (procured directly from the manufacturer) costs about 5.5 percent. When United does a pick, pack and ship for us in another city, it charges us around ten percent.
"I don’t have a location in Miami Beach, Florida, for example, but CE does. So for me to deliver down there to a customer being charged 10 percent – and you can assume that CE’s cost to pick, pack and deliver where it actually has a location is at least as low as mine – I’m 4.5 percent under water, just on the operational cost alone. Not only that, I’m being charged wholesale price on the product, but I’m competing against a rival that has not only a lower operational cost, but also has products bought direct from the vendor at a lower cost.
"The bottom line is that the wholesalers say ‘yes, we can do this’, but functionally, when we compete in the marketplace, we’re not able to win at that level. The wholesalers need to look at ways to strengthen the partnership with the independent dealer community. We are their channel of distribution to the end user."
The wholesalers’ perspective? SP Richards’ customer portfolio is wide-ranging, with 50 percent of business coming from the small and mid-sized dealer, while the other 50 percent comes – equally shared – from dealers with revenues larger than $15 million and the power channel. Chairman/CEO Wayne Beacham says: "The goal is to provide competitive pricing, which is being done in many cases. Beating big boxes is unlikely, not usually required, and could be harmful."
That’s clearly not what Guernsey thinks. "Wholesalers limiting themselves to the traditional wholesale service is limiting everybody. I am convinced that the lower end of the Fortune 500 is a valid target of opportunity for independent dealers. If you can reduce the cost to these customers to what they are used to, you can reduce the competition to a service competition and we win there. Not all the time, of course, but we can win some."
Dealer group support
For the smaller dealers, the issues lie elsewhere, but are equally price-orientated and, according to some, equally frustrating. One small independent dealer is a member of and one of the advocates of the group’s RDC programme. Because of the current issues surrounding this programme, it wishes to remain anonymous. With the exception of paper, the dealer buys its products 50/50 direct – through the RDC – and from the two wholesalers.
The spokesperson says: "We’ve always had good relationships with the wholesalers and I believe they are beginning to listen more to what we want and need. What was interesting was that once we launched the RDC, prices for a lot of the commodity items were decreased through the wholesalers. They were losing out on that business. Lowering prices on those A and B type items didn’t do us any good, of course, because we were buying them direct anyway. But they increased the C and D items, which ultimately hurt anybody using the RDC."
The way forward, this dealer thinks, lies in better collaboration between the wholesalers and the buying groups. "We think that the wholesalers need to create more programmes for buying groups. And it’s not about marketing. If you’re part of a buying group, obviously marketing through the wholesalers is not going to help you that much because they’ve got a lot of private label.
"The bottom line is that wholesalers need to keep doing what they’re doing, but they need to improve their pricing on C and D type items – low commodity items – because that’s where we’re losing. Yes, we’ve got over 4,500 SKUs in the RDC, but there are still 21,000 other products that we need help on."
Nobody disputes that independent dealers and wholesalers have a natural partnership that can be leveraged to increase their collective market share in the industry. But to do so, Guernsey maintains, will require go-to-market strategies very different from the arm’s length way that has been adopted in the past. "We’re working around the margins today to do just that… and I’m hopeful that in short order we’ll truly roll up our sleeves and open our minds to the synergies that are right before our eyes."
As somebody who has been in the wholesale business for many years and who, in his current capacity as managing director of Germany-based wholesaler PBS Deutschland, has evolved from a regional into a nationwide operator, Dieter Taffel’s message is quite simple: "The wholesalers’ job? We have to ensure that dealers have more fun being independent than being yet another ‘acquired entrepreneur’. We have to incorporate and make them part of our networks and systems and provide them with all the tools of the big players – we have to make them successful."