OPI: Hi Graham, I would like to start with an update on how your partnership with New Zealand’s Office Products Depot is going – that was a story we announced as an exclusive a while back. Is it working out how you would have liked?
GH: Yes, it is. The partnership with New Zealand is fantastic. Culturally we fit very well and we’re very similar in our mindset and it’s going really good. Rob MacGregor, who is the CEO of Office Products Depot, and I have an excellent rapport. Its board and our board meet once a year and brainstorm certain issues.
OPI: There seem to be a lot of partnerships being struck in the industry at the moment, all over the world and in all channels. Why do you think that is?
GH: I think it’s part of the new culture in the world. It’s becoming a smaller world. Distance, travel, communications – everything is just at lightning speed now, and so things that took months or weeks in the past, you can do so quickly.
Also, I think I’ve got to give credit to BPGI. It has certainly brought say, Office Choice and I a lot closer than we would have been, had it not been for the consortium and that’s interesting. But just talking about business in general, I do believe the world’s spinning and things are changing, and if you’re not keeping up with the pace you are getting behind. If you’re not reinventing yourself at least 20 per cent per year you’re probably going backwards.
We’re just human beings. When the going gets tough we get going and try and find new opportunities, we’re looking outside the square. I think our suppliers are doing that as well. It’s a competitive world and if you’re a decent business person, you’d want to do that. And that’s just a natural by-product of the changes in the world.
OPI: What has been the growth pattern of your membership over the last few years?
GH: We have 176 members. Of that, 156 are in Office National and the rest are in Office Products Depot.
When you’ve got a large group like we’ve got, it’s just like in a football team. There are going to be some really strong players, there are going to be some average players etc.
In our groups it’s the same. 83 per cent of our guys are showing positive growth, whether that’s 1 per cent right up to 20 per cent plus. The people who are showing negative or zero growth are roughly 17 per cent, so we are experiencing growth overall and most guys are reporting that.
It’s actually been fairly good times for a number of years now, probably since Office National commenced. In around the last six years we’ve continually experienced growth and we’ve seen some of our members grow significantly over that time. Total member sales are at A$550 million ($405 million).
In terms of the number of members we have, we do see some potential for growth but, if I’m blatantly honest, now that Office Choice has regrouped, that will certainly slow the growth process.
OPI: Moving on to Office Choice, we covered the closure of the Appaloosa warehouse quite a lot in the magazine. What’s your final analysis of that situation?
GH: I actually had some criticism from people when the Appaloosa thing was first announced because they thought it was something we should have been doing. They said, "hey, we think you’ve missed a great opportunity Graham," and I said, "well, statistically that doesn’t add up and, if it does add up, I’ll tell you now we’ll just copy it, we’ll emulate it". But to me it didn’t add up.
In Australia when the wholesaler Sands McDougall went broke many years ago, most of the major suppliers – Acco, the IT consumable guys, the paper guys – they all stepped up to the plate. Now if you take our figures, about 38 per cent of our sales are actually in IT consumables and those guys can get a box from point A to point B better than anybody. When you’re talking paper, and when you throw in Acco – and Acco alone is about 20 per cent of our turnover for most of our members – that doesn’t really leave a lot to run a wholesale business.
Even in other products, they’re not necessarily your fast moving lines and, unless you’ve got some scale and you’ve got some volume to get the economies of scale working, you end up being a very expensive distributor.
The reality was, suppliers weren’t giving us a 14 per cent saving as a logistics margin and, without that logistics margin, it would have meant that we were going to be more expensive to our members than they could buy direct. And these guys aren’t stupid. They are, at the end of the day, deal hunters and they will go where it makes most sense for them to go.
If Appaloosa had worked we’d have been there supporting it – not necessarily supporting the model but emulating that model. But I personally didn’t think it was going to survive.
OPI: Do you think that’s it for wholesalers in Australia?
GH: Do I think it’s the end for an independent dealer group opening up a wholesale operation in Australia? I wouldn’t necessarily discount the fact that a dealer group may, eventually, do some warehousing, but if that happens it’s a direct result of us being pushed from a competitive situation with imports out of China.
I went to OPISource, as you know, and it’s not that hard to get product in the quantities that they’re asking when you’re a group of our size. To comply is really not that difficult. Our difficulty is distribution and while I don’t think I’d be going into the wholesale commodity market when the players in Australia are already doing quite well, I do think there may be warehousing opportunities.
I’m not saying that we are going to do that, but potentially we could be forced into it just because our competitors, such as Corporate Express Australia (CEA) and Officeworks are setting up offices in Asia and are doing this on a regular basis.
OPI: I wanted to ask you about Lyreco. Obviously, it acquired National One in 2004. What’s the view in the dealer community of Lyreco entering Australia? Is it prepared for another power player there?
GH: I think the dealer community doesn’t know what’s about to hit it. Some of my thoughts are based on the fact that I talked to other BPGI members and the first guy I mentioned to that Lyreco was opening up in Australia went white. I said, "why- He said: "Graham, it’s a major competitor that is chasing the client directly in your space. It’s not after CEA, it’s after your client base." It’s got a very sophisticated model that works well.
It’s going to be a contender, there’s no question, particularly in that middle market. Not necessarily the corporate, not necessarily the smallest end, but the middle market client. Lyreco will be carrying between 4,000 and 5,000 SKUs in the catalogue and clients that fit that profile are just going to be spoilt by this service, as in representation, and also the back-end fulfilment.
I think it’s going to be a success in Australia and it’s going to be potentially to our detriment if we don’t make sure that we have strong relationships with our clients.
OPI: So it’s definitely something that the dealers have to look out for.
GH: Well, I’m proclaiming that, and I hope I’m wrong, but that’s the sermon that I’m preaching.
OPI: Sometimes you’re happy to be wrong.
GH: I would be happy to be wrong in this situation. As I said, I’m only going by people I speak to in the UK and France. Lyreco has opened up in some other countries too where we have BPGI members and I’ll say to the guys, "is Lyreco a threat- and they say, "absolutely". I say, "does it cause you pain- They say, "no question".
I lot of people might think it’s different in our country, but I don’t think we’re that different. At the end of the day, people want their product delivered in a timely manner.
The other thing about it is that Lyreco is prepared to invest. With that sort of determination, I can’t see why we’re any different from the UK or France or the other countries where it’s been successful.
OPI: When I spoke to you initially to set up this interview, you mentioned a phrase that was kind of new to me – glocalisation – can you tell me about that?
GH: You know where I heard it? From your CEO Steve Hilleard. He put it in a presentation when he was in Australia. I said, "hey, I didn’t steal it from him, I think he stole it from me" and we laughed about it.
OPI: I’m just surprised you managed to get something of interest out of one of Steve’s speeches! (that’s a joke by the way – editor)
GH: (Laughs) Yes, well it just means what it says, think globally act locally. I think it’s a pretty good rule to live by.
OPI: Another story that we have covered a lot and that I wanted to ask you about is Corporate Express Australia buying up dealers. Is that still going on?
GH: Yes, it bought Office Matrix just a little while back, a A$25 million dealer. Office Matrix originally was called SCS – Specialist Computer Supplies. It actually joined our group and became a member. SCS bought out a couple of our members and back-doored into our group. We inherited it rather than it joining. It left our group to join ASA, which is another group, and then from there it got bought out by CEA.
Let me tell you, it’s not after my smallest members, it’s after my biggest members. If I was in CEA’s shoes I’d be doing the same thing.
OPI: What kind of a job do you think Grant Harrod is doing at CEA? Has he laid the ghost of Ted Nark to rest?
GH: The thing is, people said that Ted Nark was a genius and Grant Harrod had big shoes to fill. I’d have to say Grant has done a fantastic job and the doubting Thomases have to look back and say he’s lived up to it. I think he’s done exceptionally well. If you look at its latest results, the company is still pumping it, it’s still growing. He’s doing well and I’m sure that CEA is out there talking to our members or certainly has its eyes on some of the bigger ones.
OPI: I believe CEA has also put a catalogue directly into the mid market now.
GH: That’s right. Its new CE Direct initiative of moving down the food chain targeting companies with 20 staff and less is a strategy that can’t be ignored. Recently, it released a 370-page plus priced catalogue directly into our space.
CEA has been moving down the chain. It’s always talked about moving down, but never really got its act together and it probably hasn’t really impacted us. But if it gets its act together, we will have a major problem, it can actually cause us some pain.
OPI: You know it’s funny. For years and years dealers have differentiated themselves from the power channel by saying that they offer a more personal service that the big boys can’t. However, more and more I hear that that is just not enough for dealers to hide behind and that good service is a ‘gimme’ nowadays and not a realistic differentiator. What’s your view on that?
GH: I agree. People don’t demand fanatical service, they expect it.
I think with the internet one of the downsides of people buying on the web is it takes out the relationship anyway. In fact you start to get a relationship with the look and feel of the website and the user-friendliness of it. So I certainly believe that personal service is being diluted, but I don’t think it’s over yet.
Why has Lyreco got such a great big sales model of representation? Personally, I think that people still like some representation. They don’t want someone on their doorstep everyday, but they want to know that they can pick up the phone to talk to somebody. They want to know that they’ve got some relationship there.
Time is money and we’re all busy and we want to do things effectively, but I still believe that there’s a need for pressing the flesh and having a relationship with the customer.
I’m saying to my guys: "Don’t lose that relationship. You’ve got to keep that relationship." I’m saying, "go deep and wide". You don’t just know the girl on the front desk who orders it, make sure you know her boss, and make sure you go wide as well. It’s like building a wall. The higher you build it and the wider you build it, it’s harder to infiltrate than if you’re just dealing with one girl at the front counter.
I don’t know, call me old-fashioned, I’m just not discounting the fact that genuine relationships are still pretty strong. I’m not saying smother the clients, but I’m saying you must have a relationship with them.
You can play it very cleverly though too, because you go to your clients, you look at their purchasing, you look at their history and you show them cost savings or you show them ways that they could be more efficient, and I think people are prepared to pay for that level of service. So I don’t think it’s over, but it’s definitely diluted.
OPI: You mentioned ecommerce. Are your back office systems good enough? Do you think your providers are good enough over there?
GH: I think we’re all conscious of the fact that we need to be better in that area, and we’ve got the tools now to be better. It does take a time and a financial commitment from any dealer to get its head around it and to implement it. Bear in mind that dealers traditionally don’t really like systems. They don’t like structure. And what a decent ERP system will do is actually introduce good business principles to dealers’ businesses. I think people that endorse that and adopt that will be the winners at the end of the day.
We’ve moved into a logistics and technology game. You’ve got to have that leading edge technology and you’ve got to have the logistics to back that up. Those two things alone are strong.
Let’s face it, Officeworks, Corporate Express and Lyreco, that’s where they really excel. If they don’t excel, if CE put in a new system and it happened to be inefficient for a week, or two or three weeks, we would actually get a bunch of customers coming our way. They don’t tolerate it, they just move to the next place and we have to be there.
As I see the future for independent dealers – and I’d have to say this has got to be worldwide – they’ve got to have technology pumping, they’ve got to have the back-end systems working perfectly or they’re under threat.
OPI: Let’s talk about branding now. How important do you think this is for independent dealers?
GH: I think one of the things that surprised me when I joined BPGI, is how many of the dealer groups aren’t strong in branding. We call ourselves Office National, we answer the phone as Office National, we have Office National signage and Office Products Depot is the same. We have all the orange buildings up and the vans and everything else, and I think people underestimate the value of branding.
If I say "Office National" to people they say, "Office National?! You guys have got outlets everywhere". So I don’t underestimate the power of branding, because I know I buy from brands myself.
In our country was have a muffler company called Midas Mufflers. I’ve got to tell you, if I was driving up the country and my muffler fell off, the only place I’d know to go is Midas Mufflers, so I’d walk in and buy it. Someone would probably tell me, "but did you know Countrywide Mufflers down the road? They’re good Aussie boys and they’re all good steel and they’re not imported…" I’d have to say, "I don’t know them". Secondly, if I did buy it from there I don’t have that security, whereby if the muffler wasn’t fitted properly, I know I can get to the next town or the next city and I can go into another outlet and get that repaired.
So I don’t think we’re any different from any other segment of the market. People buy brand and there’s power in branding and we shouldn’t underestimate that power. I’ve actually gone one step further, because a lot of BPGI guys were at OPISource and I said to them: "I think we should have an international brand. We should have one brand and come up with a really spunky name that we have right across the country."
In our country we’d need two names, but wouldn’t it be fantastic if people fly to every country in the world to see that one brand. That has power. You walk around and see McDonald’s, Pizza Hut, Subway… They’re all here and, guess what? We’ve all eaten at McDonald’s while we’ve been away because we know the brand, we know the level of consistency, we know that the food is not going to be dog or cat, we know it’s probably going to be beef and chicken. We feel really comfortable and I don’t believe office products consumers are any different.
The point I am making with branding is that customers do pay a premium for brand – people will say, "you can get it cheaper down the road," and you say, "yes, I know, but I feel comfortable here". The whole "we’ve been around for this long; we’re independent; we’ve got good service; we’re friendly and blah blah blah" thing doesn’t always float. Customers don’t care about that when you’ve got a powerful brand, because the brand already portrays that to them. They know what their expectations are.
When you want to sell your business, there is a multiple pay for a brand. People are more likely to go and buy a brand name than a non-brand name. When you’re trying to attract staff, people are more likely to want to go and work for a brand name than a non-brand name. When suppliers want to do business, they want to do business with brand names. Whichever way you cut it, it absolutely makes sense to have a brand name.
Independent dealers might say: "I’ve had this name for 87 years and I’ve been in this town for that long, and everyone knows me." That’s not cutting it. We’ve got a new generation of people coming up, this whole Generation-X who love buying brands.
I’m not saying there hasn’t been a dilution in branding overall, and I know the big majors are worried about where their brands are going in future, that’s individual brands. But I believe there’s a trend moving towards retail brands, as in Tesco which you see around the country, and Wal-Mart which is all around the country. And when I go in there to buy an LCD TV my trust is now in Wal-Mart.
My trust is actually not in LG or Sony or Pioneer. My trust is in that brand because I feel comfortable if I buy it. If I don’t like it I can return it. I’m going to get the right device – I know that company is not going to rip me off because it’s always got sales on.
I see that as no different in our space. If we make sure that we’ve got a powerful enough brand out there, half the job is already over. Now, I’m not saying we don’t need suppliers and we don’t need their brands – I think we’ll always need them. I think it’s a collaborative approach.
So I see the appeal in one brand that we all sell in every single BPGI outlet, so that we don’t have to worry about quantities, we’ll just buy a whole truck load of the stuff and store it in a warehouse in China and pull it as we need it. So, as I’ve mentioned, I’m very excited by the brand.
OPI: And you are also very excited about spreading that brand. You opened up in South Africa in April I believe. How is that tidy little venture going?
GH: We’ve got 50 outlets and I was the keynote speaker at our own conference there just a few weekends ago, and just went through the whole technology and branding thing, and I know that everybody really sees that as a key to future success as well.
It’s not that we necessarily underestimate branding – we just haven’t been focusing on it because business has been pretty good. We’ve been going out there and we’ve been growing our businesses and, at Office National, we’ve enjoyed almost seven years now under the new brand, under the merger, some pretty exciting times and some really good things happening. We’re out there winning corporate sales business and our growth is happening and our programmes are better.
But that gets you to a certain level, and to move to the next level, I really see that on top of technology, in really getting serious about branding. The organisation has a perception in the market in the customer’s mind even before you knock on the door.
OPI: Just to finish up then, do you see more consolidation in the market among dealers? As you said yourself, Office National itself is a result of consolidation?
GH: Yes, I do see more consolidation. If I actually said to my members in Australia right now that we’re somehow going to end up being involved in Office Choice, some of them would just hit the roof, because you have to bear in mind that a whole bunch of my members are ex-Office Choice. But if I’m really realistic about it, I’m not saying we would necessarily merge, but I think there is going to be consolidation and that’s just going to be because it will be forced upon us.
These guys aren’t silly people at the end of the day. If it makes sense, their business will have to be there. Members will buy up members, Corporate Express will buy up members. For all we know, OfficeMax may get serious in doing that as well. Lyreco is only going to get stronger. Some of our older guys are going to sell up and move away.
Probably, if I think long-term, yes it will happen. When? I don’t know. I really don’t see it happening in the short term – and when I say the short term, I don’t see it happening in the next couple of years. But long-term, I believe it will happen.