One of the most recognisable and charismatic figures in the German OP market, Dieter Taffel is at the spearhead of a major new wholesale venture in Germany. The man who has led top wholesaler Kanzenel & Beisenherz for more than 15 years is now PBS Deutschland’s figurehead
OPI: You became managing partner of PBS Deutschland after Kanzenel & Beisenherz was brought into the newly launched German business of PBS Holding. Can you tell me a little bit about this process?
DT: Kanzenel & Beisenherz is very traditional, very old, and one of the bigger German wholesalers. We are located in Munich and we are over 300 years old, serving about 2,000 customers just in the southern part of Germany.
When PBS Holding took over a competing wholesaler in Hanover called ALKA, we started talks about doing something bigger in Germany, including us and some other wholesalers. We have known PBS Holding for 15 years, they are colleagues in Austria. We are both in InterACTION and that’s where we met and where we got to know each other, and that’s where we started all this.
The German market, as you know, is very strongly influenced by global players on the reseller side. There are almost no big resellers on the contract stationery business left owned by Germans. So our customers, traditional office and stationery resellers, are facing big competition by Viking, for example, and all those other companies.
We were always looking for a structure to be able to provide European or international services to our customers. They are facing international prices and international conditions, but as a German wholesaler we would never be able to make them comparable.
So we started the talks. Anton Stahrlinger, owner of PBS Holding in Austria, came to us. He said that he had bought a fine logistics operation in Hanover, comparable or better than the one Spicers has in Germany, and I could cover the whole contract stationery market with this. He asked if I would like to join him and address the traditional stationery product market. I said yes.
Kanzenel was the leader of a wholesaler group called Deutsche PBS over the last five years, and I said: "OK, I’m going to try to bring five additional wholesalers into that business so we can cover the market, and we will be the first nationwide operator covering wholesale for the whole range of products in that assortment."
Three months later, in June 2004, we sent a letter of intent to join it.
OPI: That was in June last year?
DT: Yes. And four weeks later we signed a letter of intent with another German wholesaler – about the number four in the market – Hermann and Meyding.
So by the end of the year, we signed the contracts, we made the deal, and since 1 January 2005 we have one big company in Germany called PBS Deutschland, under the umbrella of PBS Holding in Austria.
OPI: So Kanzenel still exists?
DT: Kanzenel still exists. It exists with its salesforce, with its logistics, and its part of PBS Deutschland. And, just to finish that, at the beginning of 2005 we signed another letter of intent with yet another German wholesaler, the number three in the market. The name of the company is R & S, and it’s situated in Berlin. From now on, we can cover the whole of Germany under the umbrella of PBS Deutschland.
OPI: What do you think that will do for the German wholesale market?
DT: First of all, it messes the landscape up. Traditional connections between wholesalers in our wholesaler buying groups are, of course, cut through now. We are there to deliver to the whole market. We, of course, changed from a partner, from a member in that group, into a competitor, and we changed into a European competitor.
We changed into a competitor providing the highest reachable service levels in the German market, because we’ve got three warehouses, we cover the whole assortment from A to Z, and together with Austria, we do have outstanding technical possibilities to connect the reseller directly to our ERP systems.
We developed this system in Germany for ourselves within the last 10-15 years. It’s called Paperware. There are 1,400 installations in German, and it’s the market leading system. And PBS Austria also did that for itself, but on a higher technical level. It goes more into ASP solutions while our systems are more based on the installation at the reseller’s PC. So together with Austria, we have 1,600 systems installed in central Europe, which is an outstanding number. And we do have a better technology now – and a wider range of technology.
Another very important aspect is that first of all we are now a European company which means advantages in purchasing that we could never achieve in Germany alone.
Second is the financial background which is completely different now. As you know, the German economy is struggling. The banks are very defensive in giving money to the market or to new enterprises. With this new backing, completely new possibilities have opened for us in Germany, possibilities that as a local German wholesaler we could never have had and could never participate in.
OPI: How difficult has the German market become for companies like Kanzenel?
DT: It has become more and more difficult over the last few years. First of all, the market is shrinking. It’s hard to increase the turnover in a shrinking market. We do still have very strong dealer groups fighting against the traditional wholesalers. Branion, for example, the biggest dealer group in Germany, built up its own warehouse three years ago and came up with a new wholesaling system for its members.
The stationery and office products industry here is mainly made up of German companies like Edding, like Staedtler, like Schwan Stabilo. They are all German companies with a very strong salesforce in their native country. In Austria, for example, PBS Holding is doing all the business for those manufacturers. In Germany, they are doing the business because in their own country, they have their own salesforces in competition to us – a very unique structure as far as I know. You would never find that anywhere else in Europe – an industry fighting against its own customers.
OPI: So it sounds like the timing of this link-up was perfect.
DT: It was. It was the right decision at the right time for the future of the wholesaling business and for the future of our resellers.
OPI: In the German office supplies market, do you see a huge difference because you’ve changed your strategy?
DT: The office products market is strongly related to the development of the economy. 4.5 million or five million unemployed people don’t use office products. So as long as I don’t see a light at the end of the tunnel of the economic development in Germany, it’s hard to separate this from the development of the office products market. For German players in the German market, the times are going to get harder than they are already.
OPI: How do you think other companies might look to combat these tough market conditions?
DT: I don’t know. The choices are few. One idea could be to put their staff together and make one big company out of many small ones – to consolidate. This is what we tried with our group. We built it up with five German wholesalers in the last five years, but we were stuck in the middle.
OPI: So you see consolidation as being increasingly important?
DT: It is one possibility. The other option is to find an international partner to benefit from those possibilities – global financing, global purchasing. I think it’s necessary to find a solution like that. If you would have asked me five years ago, I would have said no, we are German companies. We know our market better than anybody else. We don’t need anybody from outside to tell us how to run our business.
But Spicers showed us what the capital strength, the financial strength, the financial background behind those companies can do with our market. They can buy it. Of course they have to change any preconceived ideas about that market and its customers.
OPI: So what different countries is PBS in now? Obviously Germany and Austria…
DT: Yes, Germany and Austria and Slovenia, the Czech Republic, Slovakia, Hungary, markets that are still growing and together will be as big as Germany. And there are plans to extend our activities to some other countries in the south and the south-east of Europe
OPI: The old adage of German organisation appears to hold strong?
DT: First of all, those structures grew up over decades. I really can’t tell why it is, or if it’s a special German phenomenon to organise ourselves. Germans always have to belong to some kind of organisation. The German people want to be members. So German dealers started to organise themselves 40 years ago in these dealer groups.
Most dealer groups are fighting for their own reputation, for their own reason to be there right now. So they are making up special assortments for their dealers. Branion, which was acting Europe-wide a couple of years ago, is coming back to Germany. It has made up its own warehouse to fulfil wholesaling or logistical needs. And all those other dealer groups, everyone for themselves, is trying to find a reason to be there.
They are looking for a reason to exist. They’re taking money and taking margin. We say every margin wasted in between the manufacturer and the reseller, taken by the dealer groups, by wholesaler groups, from retailers, by data management companies like PBS Network – all those margins are wasted. It’s wasted money, it’s wasted margin.
Germany is a very low margin market. Dealers, wholesalers and manufacturers don’t earn in Germany what they earn everywhere else in the world. So gross margin, or small margin, is additionally eaten up by structures that are not really needed.
In England, the Kingfield Heath example shows that dealers don’t need anyone else between them and the manufacturer. Here’s someone that provides their marketing services, somebody that provides their technical services, their ecommerce services, the logistic services and the product, of course. And we are working on that.
This is our main message to the market. We want to help clean up the market. There is enough money to make in Germany, not by itself organically anymore, but by breaking up traditional structures, and this is what we need in the European structure, because we can prove what we are talking about is the way forward – we have proved it in other countries like Austria for example, which is not very different to Germany. It’s the same mentality.
OPI: Do you have a set of goals for the next, say, two years?
DT: Are you talking about numbers?
OPI: Yes, numbers.
DT: Together with Spicers, we’re the number one. We’re the market leader in the wholesaling business in Germany, with a turnover of 190 million ($120.3 million). This year we need to consolidate, so we’re not talking about turnover goals, but within the next five years, we want to grow to 1130 million realistically just in Germany. In Europe, in the countries we also have a presence in, we want to grow up to 1300 million and 1350 million. But these are the only goals by numbers.
Other goals are that we want to keep as many resellers alive and existing as we can. We want to make money. We think realistically we can still earn money in this market. We want to grow into Europe and enter the European fantasy, and in Germany we want to be the number one wholesaler and the market leader. We want to grow organically in Germany. We want to grow by acquisition if it’s necessary and, of course, we want to grow against our traditional competitors and the existing structures.
OPI: To what degree are you looking at acquisitions as a way of growth?
DT: It’s just a possibility. Right now we cannot imagine an acquisition in the very near future because we are covering the market, and it’s probably not necessary to acquire an additional wholesaler. But, for example, PBS Holding acquired software houses in the past that are doing all the services for the mother company – or a media company, catalogue producers, or something like that. Additional services could be added to the group to provide a service to all European companies.
OPI: Would Kanzenel have been in critical danger in the future if this hook-up with PBS had not come along?
DT: Kanzenel, compared to the rest of the wholesalers in Germany, is the biggest operator. It has a very settled market in the southern part of Germany, a very fundamental and long-lasting and traditional connection to its customers. I wouldn’t have seen critical danger, but there would have been no aspects of growth, lower margins and cost reductions would have been made wherever possible. There would have been no growth against other wholesalers. In a shrinking market trying to grow with a high cost level is a tough thing. So for the future, it would have been completely different. There is now the opportunity to have much more fun in this market with PBS Deutschland.
We want to be proactive and not just reactive, and this is why we did it. In the last three to five years we always had to react to economic market developments. We had to react to global players coming into our market, to other competitors, to the changes on the manufacturers’ side. All big traditional German manufacturers have been taken over except those pencil producers – Leitz, Rotring etc. And all these are changes we just couldn’t react to.
Now I’m on the proactive side again. This is where I belong because I want to have fun with it.
OPI: Can you tell me what the feedback has been from customers and vendors as a result of this move into bed with PBS?
DT: Two different kinds of reaction. From the back, from the customers’ side, they prefer to have a partner that can guarantee to be their partner in five years, and we can guarantee that.
Then, from the front, manufacturers do not like to hear about best price strategy, it is not the favourite subject they want to hear from a customer. Global acting manufacturers – like 3M – are used to that and they can handle it easily. But German manufacturers have more of a problem with this because they were very comfortable with us.
We paid high prices, we were very close to them, we made their business, they could compete with us without being bothered by us. They were just not so used to having this German price system and the German markets all over Europe. Hungary paid higher prices. Now they get the same prices that we do.
Also, our wholesaling dealer groups and wholesaler colleagues are not very positive about the move but this isn’t very important for us. The interest is high, but the most important thing, the reason why we do it, is because we want to make our customers happy and if they’re happy, well that’s perfect.
OPI: You announced the launch of PBS Deutschland in Paperworld in Frankfurt in January 2005. How did you find that event? Trade shows are a hot topic at the moment and Paperworld changed its sequence of days this year.
DT: It started slow. It was the same thing as it was the last few years. The only difference is that now we start slow and we end up strong. In the last few years we started strong and we ended up slow. We expected our customers to be there. We expected more customers than we had last year because we had a new message to tell. We had two shows at the fair, and some special events.
One was for the contract stationers, where we showed them our vision of a tight cooperation between the dealer and his wholesale service partner. On the stand, we presented our licence system – that’s the kind of business we want to develop with our traditional retail stationery shop dealers. It is a very convenient shop contract and is for the more traditional stationery shops. So during two special events we presented this to our dealers, and we’ve invited our dealers to come on board and a couple of hundred said they’re going to.
OPI: Will you be actively looking to grow the companies you bring in under the PBS Deutschland umbrella?
DT: No, no additional acquisitions are planned. Because we want to reduce complexity. We tried to introduce more wholesalers to our ideas, but they wanted to stay independent. They were family-owned businesses just acting regional, and we offered to cooperate and work with them. But after we talked to all of them, it was interesting to find that it would reduce complexity not to have too many partners, to have our own systems, and to be able to act for ourselves in the market.
So the cooperative was a model, was an idea, to have a partner in every region of Germany, but we finally found out that it makes sense to have just a few – there are four companies under the umbrella now – covering the market and being owned by PBS Deutschland.
OPI: When you first went to the established accounts that you have and you told them about PBS Deutschland and kind of sounded them out, what was their immediate reaction to that?
DT: They said: "Do whatever you want to do, but stay like you are at present." Secondly, they said: "We trusted you for the last 40 years, so we will trust you in the future." We’re not an anonymous shareholder-driven operation. We say we are face-to-face with the customers. We keep our salesforce. The people stay the same. I stay the same. I know every one of my customers, and this is what we want to continue.
Just to show examples, Spicers came here and nobody knew them. No salesforce, no people, no history with the people. I think it’s much easier to build up such a business on a basis of trust grown over the years, and this is the advantage we have.
OPI: Do you think that the German market has taken its time to get used to Spicers and why would that be?
DT: Yes, it has taken the market time to get used to Spicers. First of all we weren’t used to that wave of globalisation in our market. The stationery and office products market is very traditional. All these players in that market, from the manufacturer down to the end user, were German companies. German companies never sold to France, to England, to wherever. We were a closed shop.
The tsunami of globalisation came in the early 1990s and all the major contract stationers were taken over within five years by Corporate Express, by Buhrmann Tetterode, by Lyreco, by Guilbert, etc. The German market or the German dealer groups didn’t have an answer to it. We didn’t export our services. But all of a sudden everyone had been taken over and we had no international experience in that market.
The second wave was the takeover of the manufacturers and the third the arrival of the international wholesaler. No one expected this 20 years ago – somebody else being interested in wholesaling in this market, in this low margin market, in this market with the 120 wholesalers that we had 20 years ago.
So first of all it was a case of, "Who is this coming into our market? Somebody from outside. Somebody from England which is not the natural born partner of Germany". They would have accepted it more easily if Spicers had been an Italian company, because we know Italy, because we go there for our holidays.
So the first question was: "Can I trust somebody coming from England? A big company- Small dealers were used to dealing with small wholesalers. And then there was a wholesaler coming with big and colourful leaflets promising things they weren’t used to.
OPI: So there was a natural suspicion?
DT: Of course. That was the first reaction. The second reaction was that it is much sexier to buy at a global company than to buy at a local company. It’s old-fashioned to do business with the company down the road. It’s much better to say, "I’m a Spicers customer. I’m a global player."
Then all those customers came back because they found out that first of all Spicers was just using water to cook like we do. It made mistakes concerning the culture and adapting it to its customers, and the salesforce it came up with wasn’t really everywhere it was needed. There are still problems. The problems it has solved are all the technical problems. Highly integrated logistics, a good assortment, good conditions for the customers, good services. What makes us different is the management culture and the social connections we have to our customers. But, whenever pure technique is needed, Spicers is a good partner. It is doing its job.
Whenever any additional services are needed, like helping the customer creating his store, helping him with concepts like this, I think we are closer to the market. We know more about the market because we have been here longer. And now, with PBS Deutschland, we combine both technical outstanding achievement, comparable with Spicers, with the human factor.
OPI: Do you think Spicers will ever reach the heights it is aiming for in Germany, or do you think it will be a constant battle with the German market?
DT: What I can see is that Spicers is staying on a certain level of turnover. It’s not growing anymore and the possibilities to grow are limited. So obviously there’s a certain customer base it is dealing with which fits, and it fulfils the needs of those customers, those resellers, but the fact that it is not growing anymore shows that the market it could serve is obviously served well right now. The rest of the market is ours. And part of Spicers’ market is – with Alka – ours as well.
OPI: Do you think Spicers will react to PBS Deutschland?
DT: It’s hard to react in Germany because the margins are too low already. You can’t undercut your competitors for a seriously long time. Spicers did this before when it reacted with a very expensive bonus programme. It can’t do this every year.
So, for that reason we’re not focused just on Spicers, we are focused on a much broader, much wider range of dealers. We didn’t declare war on Spicers, we just said we are somebody that can offer much more than Spicers can if you need it. And we’ll start a quality attack on the market.
Basically, Spicers is not our only competitor. It’s hard to compete with Spicers and it’s hard to top Spicers technically and logistically, although it’s always easier to take turnover and take growth out of the market from elsewhere. Spicers is a high level competitor and as far as I’m concerned, it’s going to be one of the few market players left in 10 years.
It worked hard for its right to be here. It brought things into Germany that Germany didn’t know. It is a couple of years ahead, and I mean not ahead of us, but ahead of the traditional wholesaling business in Germany.
Spicers also brought good publicity for the wholesaling business in Germany. It made wholesaling fashionable again and now we are going to perfect it.
OPI: So that’s good news for everyone then. Thanks for your time Dieter.