OP companies have been doing it for years – branching out, looking at ancillary products in an effort to combat reducing sales in traditional categories and margin-pressured segments such as EOS, and of course to provide that much sought-after one-stop-shop experience for their customers. Education, technology, facilities management (FM) and maintenance, repair and operations (MRO) supplies are just a few categories that now constitute part of the “office solutions portfolio” of many OP resellers and distributors.
But suppliers in those very same categories – and more besides – haven’t been watching idly while this has been going on. And the flipside is a potentially whole new threat to the OP status quo if these same players that OP companies have been taking market share from choose to sell office supplies as part of their ranges.
But is it? Do these peripheral players really understand what it takes to be successful in the OP world?
Take billion dollar global businesses such as WW Grainger or Bunzl, with their (potentially) OP-related product portfolios, vast resources and acquisition-happy leadership teams, and opinions are divided. There’s no doubt that none of the OP resellers or distributors, large or small, want a Bunzl or a Grainger playing in their backyard with too much of an office products focus.
That said, rather than just a threat (and Grainger indeed already sells OP – see below), in many cases, these large operators are indeed suppliers at the moment as OP resellers (and even the wholesalers) often don’t have the direct vendor relationships within those important ‘marginal’ and ‘non-core’ categories (see also ‘Friend or foe?’ below).
It’s interesting that these two companies have made it into OPI’s Top 100 Resellers list for the first time this year for their obvious importance in the global OP space. Whether they will take their involvement further and become more of a threat remains to be seen.
Taking the OP plunge
There are others, however, that have taken the plunge into OP already, as much to tie in their existing customer base as to grab new business. Westcoast in the UK and Pollock Paper in Texas in the US are two such companies.
The two firms come from very different backgrounds – Westcoast distributes IT products while Pollock Paper traditionally sells cleaning equipment and packaging material. What they have in common is that they are both targeting their existing customer base first with their OP offering.
Lonnie Pollock, President/CEO of $240 million Pollock Paper, is refreshingly open about his company’s foray into office supplies: “Up until recently, we’ve only been on the fringes of OP with products like copy paper and nothing that I would really call office supplies. And this wasn’t a problem for a long time – we’ve been around for about 95 years now – but in the last few years the channels have blurred and changed. The OP people started to cross over more into our type of product and we needed to do the same. Basically, we had to ramp up our overall offering so that our customers could buy the whole bundle of products from us. So not only did we need to put new business our way but we also had to protect our existing customer base.”
Pollock Paper launched PollockDirect.com at the beginning of the year. The web-only e-commerce portal holds about 40,000 SKUs. Many in the jan/san category in particular have been available in the past, but most of the core OP items plus all the breakroom products are new.
Given the different nature of the company’s two businesses in terms of margins, delivery expectations, average order size and frequency, Pollock Paper decided to operate the OP website – which incidentally is open to the business as well as private consumer, in direct contrast to its traditional business which is B2B only – as a completely different entity. “We’re dealing with the same customers, but through a different system that is more tailored to the workings of a Staples or some of the other national OP players as far as pricing, delivery, etc is concerned,” says Pollock.
All OP orders are fulfilled via third party providers and unlike the company’s traditional business which operates mostly on a regional basis, predominantly the south-east and south-west of the US, Pollock Direct is set up as a true nationwide shop.
Price over service
Going back to the other company that predicts potential in OP, the UK’s Westcoast sees its differentiating factor predominantly in one main area – price! Or, as Office Products Project Manager Damon Pickard prefers to call it, a better value proposition.
He comments: “The question is: would customers like a value proposition or a service proposition? Does it matter to have next-day delivery, to get the order before 10am, to have a mass training seminar every other week?”
Like Pollock Paper, Westcoast is opting for the existing customer route first, a sensible move since the IT market as a whole operates on leaner margins and a lower cost to serve. As such, customers are already used to a different depth of service that would be provided by, say, a Spicers or a VOW.
Pickard adds: “Our customers are very happy with the service they’re getting from us. If they can get that same service for another range of products that they need then it definitely makes sense for them to take that option.”
Westcoast’s entry into OP is imminent but small, with about 1,200 SKUs – the top selling branded ones – on offer to begin with. Pickard is acutely aware of the dangers of jumping the gun and predicting instant success. “Of course we want to storm it, but we have to see how it pans out. There have been plenty of failures in this area, companies that in the past have set up, at huge cost and in direct opposition to the main wholesalers, an OP offering. Or they offered products that Spicers and VOW didn’t, but the reason they didn’t was probably because they weren’t that popular.”
It is indeed understanding the little nuances and different peculiarities between various industry sectors, even product categories, that often make or break a company venturing into unknown territory; even a territory that, like office supplies, is commodity driven with little emotional attachment and often low levels of customer loyalty. As one prominent reseller from the OP community says (author’s note: there has been a certain reluctance to speak out publicly about this topic but OPI nevertheless values the opinions of those participating): “Seen from a non-OP industry view, selling OP to B2B end-users is all about the mix of high reliability and attractive prices. It might therefore look simple and attractive for non-OP players to offer office products. However, a lot of the non-core OP companies today have a lack of knowledge of driving fast-moving consumables and a set of KPIs for measuring their own success that mostly isn’t suited to the office products segment.”
However, there’s no doubt that a whole host of players are making inroads into ‘our’ space and the manufacturers are particularly well placed – if rarely outspoken about it – to gauge the situation. Simon Larard from Portuguese vendor Bi-silque says: “We sell to all the various channels such as office products contract, retail, the mass market etc, but specifically the OP channel is our biggest route to market. That said, the channels are becoming increasingly blurred and the biggest blurring I see is between what we call industrial mail order – companies like Manutan Group and Schaefer Shop – and the more traditional office channels.”
Kaut-Bullinger’s Group Managing Director Johannes Peter Martin agrees and while he doesn’t believe these players are anywhere near the same competitive league as the OP big boxes, they nevertheless “take another small slice out of the OP cake that is not getting any bigger in itself”.
The new Amazon?
On that note, there’s a fast-growing company in the German market (with big pan-European ambitions) that has the potential to become a greater threat as well as a big opportunity to parts of the OP community. It’s Mercateo, a company set up in 2000 as an online marketplace for the B2B sector. With more than eight million products on offer, it may be trying to be all things to all people, but the results speak for themselves – it’s quadrupled its revenues in the last six years to €130 million. And, similar to Amazon in that sense, in addition to taking yet another bite out of the overall OP cake, it offers potential not only for manufacturers but also for resellers and distributors from the OP industry that can use it as a sales platform.
As Thomas Apelrath, Managing Director of ADVEO in Germany, says: “Mercateo is a very interesting concept in the e-commerce arena and certainly a competitor for those operators generating most of their revenues online. It’s less of a threat for traditional independent dealers, assuming they play to their strengths of local customer contact, flexibility and speedy response. For distributors and manufacturers Mercateo is definitely a route to the customer and ADVEO is also using that route.”
It will be interesting to see what happens if/when AmazonSupply has more of an impact. If the e-tailer’s B2B plans ever really start bearing fruit, a relatively unknown player like Mercateo could struggle, especially outside its home country of Germany where it hasn’t substantially made a name for itself yet.
Defending your territory
Rather than going after the customers that have historically been the domain of the OP fraternity, of course, there are also companies that are adding office products to their ranges predominately as a means to defend their own territory.
John R Green from Kentucky is one such company. It’s a supplier of educational supplies to children from kindergarten up to the age of 13 years, and its 600-page catalogue now comprises about 100 pages of office-type material.
Mo Beck is VP of Operations and Purchasing at the company and believes that changing customer purchasing patterns, deregulation in the education sector and a generic industry effort to branch out into other product categories have all contributed to OP companies playing a bigger role in education. And so his company must do the same, he says: “We’re not going after the OP industry per se, but we’ve had to increase our OP offering to protect ourselves against companies like Office Depot which are playing a bigger part in education now.”
Beck freely admits that the company is not set up to sell into the OP space as such, particularly regarding delivery expectations, but feels it has to offer more of a one-stop shop in the education field just to remain competitive.
And so it goes full circle as all progressive players across industry sectors do the same – attempt to become and remain that must-have supplier that the customer simply can’t do without, for one reason or another.
WW Grainger is best known as a global distributor of industrial supplies in the MRO segment. In that sector, it’s by far the biggest player, certainly in the US, with total annual revenues of nearly $9 billion. But it does much more than that and it’s often been mooted that it will ultimately make a big splash into the OP sector.
Take a look at its portfolio (www.grainger.com), however, and one of its over 30 product categories is indeed office supplies and there’s more than a smattering of office-related products on there. Small fry perhaps in the overall context of over one million products on offer, but like fellow non-core OP companies Pollock Paper and Westcoast, using its existing customer base as OP guinea pigs won’t be the worst strategy to employ.
Acquisitive mostly in recent years, Grainger has long been a strong promoter of e-commerce, having had a website since 1995. Hailed as the first transaction-capable website in the industry, today 30% of sales, or $2.7 billion, are generated online.
Pollock Paper left its comfort zone of cleaning equipment and packaging earlier this year when it launched PollockDirect.com, its web shop for office and FM supplies. Early days yet, but with a total portfolio of 40,000 SKUs on the site, it’s certainly serious about its foray into office supplies, on a nationwide US basis.
Westcoast’s OP plans are taking shape, with the first office products expected on the shelves this month. Eager to dispel speculation that it will become ‘the third wholesaler’ in the UK office supplies market, Westcoast’s initial OP offering is small and will be chiefly marketed to its existing customer base to begin with. Put bluntly, its main differentiating factor is expected to be price over service.
NB: Fellow UK tech distributor Beta has also been rumoured to be going down the OP route, but nothing concrete has so far substantiated those rumours.
At the core of the Manutan Group is its one-stop-shop strategy. The European facilities and business products reseller generated 2012 sales of €571 million ($771 million). It has 22 operating subsidiaries in 19 European countries. Manutan’s range of over 200,000 products (available online or through its print catalogue) includes handling, lifting, storage and manufacturing supplies; safety, hygiene and packaging products; and office and workshop equipment, supplies and consumables. It’s a company that’s often quoted as “one to watch” by OP industry peers in the B2B space. It has plenty of good relationships directly with OP vendors.
In a very simplified way, Mercateo is the Amazon of the B2B space, a sophisticated online procurement platform for professional end-users. With €130 million in total revenues, it’s still largely Germany focused, but already has budding operations in 11 other European countries.
The overall product range is vast – over eight million – and unlike Amazon, Mercateo has no warehouses but will only deal with suppliers (agents, distributors, manufacturers etc) that ship from their own facilities to Mercateo’s customers. As such, it can be described as one big marketplace (the closed web shop can also host a wide variety of supplier catalogues). With 60 suppliers in its OP category alone (there are 12 product categories altogether), however, it’s another one to watch out for.
Germany-based business equipment mail order B2B reseller Takkt has many strings to its bow. Acquisitive and increasingly e-commerce focused with a global outlook and a particularly good performance in the US in 2012 (revenues up 10%), Takkt has total revenues of about €940 million ($1.22 billion). It’s unlikely to go down the route of fast-moving office consumables, but remains on the radar of the large B2B OP players.
Bunzl: Friend or foe?
There are many companies muscling in on the changing OP stage, be that for their potential foray into office products or for their sheer size and all-encompassing product portfolio.
But it’s global distributor Bunzl that has really captured the imagination of late, particularly its hygiene and catering segments (there are several other facets to the company), basically the jan/san and breakroom categories that have become such popular product extensions of the OP reseller community.
It’s not just the size of the company that puts the fear into its competitors – Bunzl had FY2012 sales of £5.36 billion ($8.11 billion) – but its acquisitive strategy which some believe could also take it down the OP route at some point.
According to Pat Larmon, President/CEO of Bunzl North America, the region that accounts for about 54% of the company’s total revenues, that’s a very unlikely scenario. He says: “We don’t carry office supply products and we don’t intend to carry them at this stage of the game. We’re not in the business of competing with our customers!”
And that’s the crux of the matter. In the business segments that are most interesting to the OP world as far as Bunzl is concerned – catering and hygiene – the company chiefly works with the reseller community. (That’s in direct contrast to its other product categories such as food services and non-food retail, for example, where it deals directly with the end-consumer.) As such, companies such as Office Depot and SP Richards, to name but a couple just in the US, are important customers. Large though they are, they don’t necessarily have the direct relationships with the vendors in those categories so they work with Bunzl for their FM requirements – Office Depot to sell to the business community at large, SP Richards to sell mostly to the independent dealer.
In an interesting reverse spin, Bunzl is also a customer of Office Depot – and many other OP firms around the world – and procures its OP supplies from the big box operator.
As one other large contract stationer who wishes to remain anonymous says: “Bunzl is an important supplier to us upstream and an important customer downstream; in simple terms, we buy from them and sell to them.”
So is it a case of “if you scratch my back I’ll scratch yours” then? That’s debatable, adds the same contract stationer: “Any interest of Bunzl in the OP market is either being explored or soon will be. So for us for now it’s simply a friend being kept under review. That said, I think Bunzl should be admired for its single-mindedness in building its core offering geographically with numerous acquisitions over recent years.”