Players on Europe’s fringe unite



It makes perfect sense for companies in the small and fragmented markets of the western European fringe to club together. By combining their strength they have a significantly better chance of expanding and of moving into territories occupied by the larger European players.


This is the thinking behind the European OP industry’s latest marriage — between Iceland’s Penninn and Aigas Nams (AN) Office, one of the largest players in the Baltics. "There are only 300,000 people in Iceland and although we have been moving into new product segments such as breakroom, we are not able to increase our market by much," Kristinn Vilbergsson, CEO of Reykjavik-based Penninn, told OPI+. "So we had the idea of moving to another market. We saw a lot of similarities between the OP markets in Iceland and the Baltics, so we started to look at companies in that area."


In the end, Penninn’s shareholders decided to acquire AN Office — for an undisclosed sum — which had also been seeking a partner in Europe via a business consultant. Vilbergsson claims the partnership will provide Penninn with a platform for "robust growth" in the Baltic markets. "AN Office has good IT systems, uses the same business methods as us, the same focus on logistics, and the company is very stable in the Latvian and Baltic markets, which have a lot of potential."


"And in some ways AN Office is in a better position than us when it comes to its internet service and online sales. We would like to use that knowledge to push online to a greater extent in Iceland."


At the request of Penninn’s shareholders, key officials at Riga-based AN Office, CEO Girts Timinieks and sales director Andrejs Sivaks will stay on in their positions.


Timinieks told OPI+ that in the short term, the alliance would allow AN Office to be stronger in its home markets. "The move means a lot to us. With the acquisition we will be able to increase our OP offering and expand in new product segments such as office furniture, computer accessories and printing. We currently have 5,500 SKUs and we would like to see this increase to 6,000."


The alliance makes even more sense due to the fact that there is a large overlap between the two companies’ suppliers, which will mean joint purchasing and increased purchasing power.


AN Office is one of the top three OP suppliers in the Baltics — along with Infotark and Daily Service, which entered into a partnership with Corporate Express earlier this year. Timinieks claims that the other two are — at present — stronger in office furniture and computer accessories than AN Office is.


With 80 percent of his company’s business going direct to offices and 15 percent going via dealers and small distributors, the company, which has over 200 staff members, has a high brand recognition and strong corporate customer base in Estonia, Latvia and Lithuania.


It also boasts a strong online presence, with 42 percent of the company’s sales made via the internet, something which helped to attract Penninn. And the logistics operation is finely-tuned. From one warehouse is Riga, Latvia, products are distributed overnight to all corners of the Baltics.


Penninn, meanwhile, is one of the largest and longest serving office furniture companies in Iceland, having been in operation since 1932. The company, which has around 300 employees, also operates a nationwide chain of bookstores in the country.


The two companies claim that they share a similar culture and that the management just "get on". "We feel very comfortable with Penninn’s management and its shareholders," said Timinieks. "We have similar backgrounds, a common language [English] and are already learning a few words of each other’s native tongues."


Certainly the respective markets are easy to comprehend. Although the Latvian market is significantly larger than the Icelandic one (with a population pushing 2.3 million), both markets are small and fragmented compared to the sizeable national markets that rest between them — but they are growing rapidly. "Having a lot of players like we have in Latvia influences profitability so our average gross margins are still high," explained Timinieks. "Although the markets are becoming more concentrated, the economy is expanding thanks to higher expenditure in both the public and private sector."


Further into the future though, once more of the Baltic pie is captured, both companies look to move — together — into Scandinavia. "The Penninn management agreed with us that moving into Scandinavia is a future possibility, which was another reason for our partnership," said Timinieks. "We are not currently considering exact countries but we are looking at options in each Scandinavian market with the help of financial advisors. We will discuss this strategy further at our general finance meeting, which will be held at the end of the summer."


But with the Scandinavian markets populated with long-term players and brand recognition being highly important, Penninn and AN Office are clear that their Nordic journey will involve acquisitions rather than organic growth.


But Vilbergsson recognises that they will have to consider each country as a separate entity. "You cannot focus on Scandinavia as a whole. Typically 40 percent of the national markets there are divided between three to five companies, with the rest divided up between many small companies. A big player in Norway will not be big in Sweden, and even within the countries, players are very regional, usually based around a certain city."


And in five to ten years’ time? "Hopefully, together, we’ll be a multinational company in the Baltics and Scandinavia, with the power to process good volumes at good prices — that’s the aim," said Vilbergsson. "And it’s a big step for us, if you look at how small the Icelandic market is today."


"We will be working in the Baltics and Scandinavia," added Timinieks. "We won’t be massive but we will be a strong market player. Together with Penninn we have an interesting future."