Global grip



Office 1 is one of those companies that never stops moving. It refuses to rest on its laurels or even just take a breather. So, as CEO Mark Baccash looks across his kingdom like Alexander the Great, is the company  where he wants it to be? He says: "I would say ‘yes’ in terms of number of stores (over 400) and markets we operate in. We are now in 28 markets and have more countries in the pipeline than we care to accommodate at this time.
"What I did not expect is for Europe to become our focus and the bulk of our franchisees to come from existing dealers and stationers as opposed to new entrants to the business. I am most proud of the quality of the Office 1 staff we have built up over the years and feel we are well positioned for the next five years."
Shoring up
However, as a change of pace for the business and its normal frenetic entering of countries, Baccash adds that the priority for these coming years will involve Office 1 slowing its expansion in favour of shoring up the markets it has already entered.
"Until now, our focus was to expand into new markets as rapidly as we could, as there was an advantage to speed and being first to enter. Our strategy has now shifted to developing the markets we are currently in rather than adding new markets."
That said, the firm is still keeping its eyes open and Baccash cites untapped markets in Mexico, Brazil and Australia as "appealing entries".
But it was no surprise to learn that the company is keen on approaching the Lithuanian market for a second time. Office 1 terminated its original master franchise agreement with UAB Daily Service (then – Alna) by mutual consent in June 2005, and will be re-entering in March after signing a deal to open five new stores with Sanitex, and will continue its progress into the country.
"Let’s review what we know and not what we think," Baccash says. "We entered into a master franchise agreement with Alna over five years ago. At the time, Alna was a small dealer with sales around $2 million. The collaboration has been very positive for both sides, with Alna reaching sales of $20 million in 2005 and Office 1 becoming the undisputed brand leader in the market. Alna decided to drop the Office 1 name last June to change its mark to Daily Service.
"I believe Alna has excellent management and should continue to do well, but will now have in Office 1/Sanitex a formidable competitor it created for itself."
Office 1 is still the brand leader in Lithuania with 14 franchises and the company was not about to give up the fight for this slice of the Baltic pie so easily. The main concern for Office 1 regarding Lithuania and the termination of the prior agreement, was to ensure it re-entered the country while the brand still had its power.
Baccash explains: "We had to rush back in before the brand lost its momentum and our franchisees scattered. We were incredibly fortunate to quickly sign up Sanitex – the largest logistics supplier in the Baltic, as master franchisee. These five stores plus the existing franchises will provide the necessary traction to maintain our leadership position in the market and reach fifty stores in the next three years."
The markets of Lithuania and its border country Latvia are very similar, both sharing small populations and a potential for rapid growth. With Sanitex on board, Baccash has good reason to be confident that this second attempt to get a tighter grip in the region will have similar success and even surpass former glories.
Less clear are the company’s intentions on Russia. Baccash labelled the market "risky" last year and Office 1 will be careful how it approaches this unusual but potentially valuable market in future.
"We stubbed our toes upon entry in this turbulent market and made a few mistakes. Russia is a real challenge with high retail costs, a generally inexperienced but fast learning workforce, and an undisciplined market.
Fortunately, the country is geographically far flung and decentralised making it ideal for franchising. There is a great deal of interest on the part of stationers and small dealers in joining us and I expect that the Office 1 concept will ultimately prevail and lift all boats," he says.
When it comes to Asia, Baccash is more philosophical. Recent entries into India (ten stores to be launched this year) and a re-entry into China (a superstore in Shanghai by February) look like an impressive foray into the region. Less successful were the company’s efforts in Indonesia last year.
That small blip aside, Baccash is positive over Office 1’s status in Asia and excited by the "ideal" set-up for franchising that the region offers, listing culture, population, geography and growth prospects as the perfect scenario.
He adds: "We are launching our first company-owned store in Shanghai in February and, a first for us, will handle it directly and not through a master franchisee. Success in China would bolster our global position immeasurably. Like Tesco, we believe that a successful China would make up for the lack of an Office 1 presence in the US market."
With master franchisee Indo Rama Retail Holdings, the company has entered into an ambitious (would we expect anything less?) expedition into India. But with the country being so fragmented and underdeveloped, can success be assured?
Well, firstly, Baccash is delighted with securing his "forward-thinking sophisticated partner" which has the financial resources to help realise the goals for Indian entry. And, as ever, the timing of the entry is key.
"It could not be better," Baccash explains. "Regulations have been relaxed, there is a lot of interest in retail and franchising, many shopping malls have been built and offer great locations and conditions for Office 1 franchisees. There is money sloshing around as well as a dramatic increase in small and medium-sized firms, and Office 1 can bring to the market good service and ease of shopping under one roof. We plan to expand slowly and steadily and capitalise on the hard earned experience we accumulated in Asia."
Office 1 is joined by Tesco and Staples in its admiration for the Asian market – weighty opposition for any company. But Baccash rejects the notion that he is in direct competition with the retail giants. With 80 per cent of the firm’s sales made through delivery companies, it’s hard to see Office 1 as a retailer in the same vein and in fact Baccash sees their integration as a benefit.
"Stores are essential to Office 1 as advertising and brand builders, but the action is in selling to companies. Tesco and large discounters have had a great impact on retailing of OP in Europe and on the generally deflationary environment.
"On the other hand, by putting pressure on stationers, they push them into our arms. The Asia entry of leaders like Tesco or Wal-Mart would educate the public and raise service and price expectations throughout, and that can only be beneficial to us in the short to intermediate term."
And for all the hype over mass market retailers taking all of the glory, the laid-back CEO has this rallying call for dealers: "The non-traditional European markets are dominated by well-managed and entrenched local companies that will not be easy to dislodge and will hold on to their leadership position no matter what.
"Many brave and wonderful companies come to mind: Panda in the Balkans, Plaisio in Greece, RTC in Romania, Alna in Lithuania, PBS in Hungary/Austria, Pragmatic in Russia, SEVT in Slovakia. These companies are no pushovers and have nothing to fear but fear itself."
And what of Office 1’s future? Does this business get easier the more countries you enter?
"Our current task of developing depth or gaining leadership in markets as diverse as Ireland, the Netherlands, Russia, Poland, India and China should call for maturity on our part and draw on everything we have. It will tax our master franchisees as well as our staff and resources to the utmost – but I am totally confident that we are up to that challenge."