With all the current talk of dealer group mergers, dealer defections and spin-off groups, dealer network organisation AOPD represents something of a pillar of stability in the US independent dealer community. Founded in 1978 to service large national contracts, the underlying aim of the organisation has remained virtually unchanged ever since, although, of course, it has moved with the times as the contract market has evolved.
There has also been stability at the head of AOPD, with Executive Director Bud Mundt just a few months away from celebrating ten years in the job, having been dissuaded from retiring in 2004 to join the organisation, first as VP of Sales and Marketing and then as Executive Director from January 2005 (see Big Interview, OPI #186 for more details of Mundt’s career).
Mundt’s still not quite ready to retire (he reveals his personal plans at the end of this interview), and OPI caught up with the Dallas-based exec to get his views on the latest goings-on in the US business supplies world.
OPI: I can’t believe it’s over five years since OPI’s last Big Interview with you.
Bud Mundt: Time flies when you’re having a good time!
OPI: That might be a good place to start. Can you reflect quickly back on that time?
BM: For me nothing much has changed within AOPD – I’m the face of AOPD, I run the day-to-day operations and I report to our board of directors. We’ve turned the board over probably three or four times since I started ten years ago, and I’ve got to credit the stability of AOPD to the board members and their total commitment to the organisation and its principles.
But we do recognise that the industry is changing and that we have to start changing with it, so we’ve done some things differently. We now have 26 business partners. I think when we talked five years ago it might have been 20. One of those new partners is RDA Advantage; it’s a jan/san company and that’s the big change at the moment.
We are not a buying group, but we are encouraging our dealers to start talking to their customers about jan/san and breakroom supplies to help them offset some of the decreases they may be experiencing in the office supply category.
OPI: Do you think your dealers are up to speed with their ranges and their ability to supply these products?
BM: Yes. In fact, if you look at United Stationers and SP Richards, they’re making these items available to their dealers and they realise that they have to be competitive. And RDA Advantage, our new jan/san business partner, is doing an excellent job in fulfilling some of these needs for our dealers as well.
OPI: How many dealers do you have now?
BM: We’re up to 75 dealers, including our Canadian members.
OPI: And what does that represent in terms of end-user sales?
BM: In total, about $1.7 billion in total sales.
OPI: The same as five years ago.
BM: Well, that’s about right, but the main point here to understand is that our overall contracts and contract volume has increased and that is where AOPD supports our dealers. That is what we are all about.
OPI: What does that sales number reflect? Dealer top lines under pressure from market conditions?
BM: That’s a large part of it. We’ve also added a few more smaller dealers in the mix than we had before. The primary reason for that is we’re trying to increase our footprint throughout the country – when you write a regional or national contract it doesn’t mean anything if you have to ship it by FedEx or by UPS, even though that’s how the big box guys ship a lot of their contracts into outlying locations.
OPI: So, is your footprint where you want it to be?
BM: No, I want to go further, say to 80-85 dealers. But they’ve got to be the right dealers; I don’t want to bring somebody in that can’t handle the responsibility of servicing contracts. So I’ve been doing a lot of work on that; in fact, we’ve just confirmed a new member in Florida in an area of the state where we don’t have a dealer.
OPI: What happens in places like Texas or New York where you have multiple members who are pretty much neighbours? You must get some friction sometimes?
BM: That does happen occasionally and it’s part of my job to smooth things over. AOPD has made the decision that we think some markets are large enough to be able to support two or three dealers.
OPI: So how many contracts do you have now?
BM: We have 335 active AOPD contracts at this moment, and I can say that we’ve got 24 new contracts so far year-to-date. We had 56 last year and we are on track to exceed that this year.
OPI: What’s the net win-to-loss ratio?
BM: Well, out of the 56 that we had in total, there were 18 that ended, so that’s a net gain of 38 for last year. When you’re in the contract business, you win some, you lose some – that’s just the nature of the beast.
We’ve still never lost a contract because of service, but we’ve lost some because of price. And we’re keeping and growing significantly in our larger AOPD-controlled contracts. The Premier Hospital Group is doing very well and it’s been one of our larger contract victories in the past couple of years.
Our cooperative contract with NCPA, the National Cooperative Purchasing Alliance, is also into the second year now and is creating a lot of interest from dealers in other dealer groups.
OPI: Which brings us nicely onto these cooperative contracts. That’s something you’ve grown in the past few years – how are they doing?
BM: Very well. I think when IS won US Communities, everybody was shocked that an independent dealer organisation could take something away from a big box. IS certainly did that and we needed something ourselves within AOPD, so we looked at a couple of different situations.
We had what we call America’s Choice where we worked through Todd Sandoval, our dealer in New Mexico, with his cooperative contract, but we did very well for our dealers in 2012 when the Region 14 Education Center in Abilene, Texas – which was working with NCPA – wanted to know if we were interested in bidding on that. And now we’re the sole supplier on that contract; we just renewed our second year and we’ve got three one-year options left and are on the right track to do at least $12 million in 2014.
OPI: How many dealers have you got on that contract?
BM: We’ve probably got about 43 dealers that are on that contract and more are signing up every day. A lot of those dealers are going after existing contracts where they’ve got business with either a state, a city or a county that are extremely happy with the service levels and would like to keep working with a local business to satisfy their office supply needs at an affordable and consistent price and don’t have to go out to bid.
OPI: How do these contracts differ from each other?
BM: The dealers we have talked to say there is more flexibility with our NCPA agreement than with the others out there today.
OPI: There’s still obviously a fee that has to be paid to NCPA, isn’t there?
BM: There’s a fee to NCPA and there’s a fee to AOPD.
OPI: How would you characterise the main differences between US Communities and NCPA?
BM: Less costly, easier to implement and more flexible.
OPI: Obviously Mike Gentile won’t like it when he reads that.
BM: No comment regarding that statement.
OPI: What about your federal government business?
BM: We took a big hit five years ago when we weren’t a winner for FSSI and we’ve made that back with strong commercial and public sector gains.
To give you an example, this past month we were up 19% in commercial sales. That’s pretty darn good. Total sales were up 11% in the first quarter – last year we were flat because we were still feeling the effects of losing out on the FSSI business and the economy.
OPI: You’ve still got access to FSSI through your member Sita Business Systems, haven’t you?
BM: Yes, and we have about 12 members piggybacking on that contract. We’ve also got more than 20 dealers as part of our GSA Schedule 75 agreement that we still hold and they are selling to their federal customers through that.
OPI: Have you bid on the new FSSI OS3 contract?
BM: Yes, we have bid on OS3 and we feel pretty good about our chances of getting a piece of that.
OPI: Have you bid as AOPD or through one of your members?
BM: I will just say that we currently have a bid in for the OS3 RFP.
OPI: You’ve got this global contracts association with EOSA in Europe. How’s that doing?
BM: Actually, that has recently come to an end. EOSA kind of pulled away and they simply told us that they no longer want to be part of a sales and marketing organisation; they’re only a buying group now. So we’re pulling that off our website as we speak.
OPI: Did you talk to Lyreco when they were looking for a US partner last year?
BM: Oh yes, they came to talk to us, but I don’t think they listened to us.
OPI: What did you tell them that they didn’t listen to?
BM: I simply told them that in this marketplace AOPD was the proven organisation that could effectively handle the requirements of a large national or international account. And we didn’t believe there was $100 million in business in the US.
No question there’s some dollar volume, but we knew going in that they were going to choose WB Mason; we talked to them because we felt like we were obliged to.
OPI: What made you so sure they were going to choose WB Mason?
BM: Because of their relationship with United and because I think WB Mason is a good organisation. But I’m not so sure that they’ve got a whole lot of national or international contracts. The vendors all speak highly of WB Mason and at the end of the day it was a great piece of PR for both Lyreco and Mason.
OPI: Is Mason coming up against you more in national accounts now?
BM: Not really. They’re coming after our dealers in their general commercial business, which affects AOPD because if it’s bad for our dealers, it’s bad for us. AOPD isn’t 100% of a dealer’s business; it’s anywhere from maybe 5-10% of the total. So the other 90% they’ve got to take care of themselves, through their buying groups or through their own ingenuity and strength.
OPI: What’s your relationship with IS and TriMega? I guess most of your dealers are members of one or the other.
BM: Well, we have a good relationship with DPCG, Office Partners, TriMega, Pinnacle and IS. We have dealers in AOPD from all those groups.
If there is any… I don’t know if you’d call it ‘animosity’, but whatever is going on between Pinnacle, TriMega and IS, it doesn’t really affect us. We can all survive in this area and we should be cooperating and actually doing things together – but not fully merging our organisations.
I think what IS and TriMega are doing with EPIC makes a lot of sense for the manufacturers because it lessens their expenses.
OPI: You do something similar with DPCG, don’t you?
BM: Yes, and we’re going to do it again in 2015. In fact, we’ve just made a joint announcement with TriMega and DPCG to cooperate on a combined meeting in 2016. We’re simply trying to make things easier for our business partners from a financial standpoint. Just like we’re doing with DPCG, we’re going to try to do that with the TriMega dealers. Not all TriMega dealers, just their larger dealers that attend their annual one-to-one meeting which closely resembles the AOPD annual meeting format.
OPI: Taking cost out of the channel is something we hear and talk about a lot. How important do you think that is?
BM: I think it’s critical. You look at the money in the industry and it all comes from the manufacturers. All these meetings they have to attend are extremely costly and they’re saying: ‘Enough is enough!’
OPI: Tell me something about AOPD’s cost structure.
BM: I think it’s nice to note here that we don’t have the expensive staff of some of the other groups. We are low cost and we make things happen, and I think that is something that our business partners appreciate. And the wholesalers feel that way too. They’re supporting AOPD more than ever before because we’re an extension of their services and programmes.
Back to your question, there are just four full-time staff at AOPD: myself; Sharon Stepien, our General Manager of Operations – just a phenomenal person – who’s also in charge of our federal government programme; Angela Sumner, our National Marketing Director, who does a marvellous job; and Shelley Tousignant, who handles accounts payable and receivables and an awful lot of other things within AOPD which just makes her indispensable.
Sharon, Angela and Shelley are the real backbone of AOPD. I work out of an office in Dallas, I travel and do a lot of things with the business partners and the dealers, but the real strength is back there in St Charles, Illinois. I’m just a good delegator!
Then we have three consultants who do an excellent job supporting our dealers. Tom Buxton is our sales consultant and the best national sales manager in the office products industry; he works with the dealers on developing programmes and helping them with existing accounts. Then we have Mike Matthews, our national accounts pricing manager, who assists dealers on bids – he is tops in the industry. And there’s TJ Crayne, our IT consultant – an icon in the industry who came on board last year.
OPI: Do you think this need to reduce costs will eventually lead to IS and TriMega merging?
BM: Well, I know they tried really hard, but I don’t have the answers.
I haven’t seen their balance sheets so I don’t know what the situation was there exactly, but they tried in earnest to do it and I think Mike Gentile would like to continue the conversation. I know Mike Maggio would too, so who knows what’s going to come out of that in the end.
OPI: But do you think they will merge eventually?
BM: I don’t know. I don’t have a crystal ball and the crystal ball that I used back in 2009 about Office Depot and OfficeMax not merging didn’t come out too well, so I guess I’ve gotten wiser in my old age.
OPI: Sitting on the fence with that one would probably be a good idea! You predicted in the previous Big Interview that Depot and ‘Max would never merge, but obviously it has now happened.
BM: I know. It’s still a mystery to me.
OPI: What changes are you seeing and what will it mean for the market going forward?
BM: There are definitely some changes in the market. They’re laying off thousands of people – Depot, ‘Max and even Staples – to try and get things right within their own organisations. So I think from a contract standpoint they’re going to be hurting a little bit in terms of some accounts out there being left unprotected – where a guy used to have 100 accounts, maybe he’s got 300 accounts now. Can you cover all those accounts effectively? No. So you’re going to have some losses, but they know that – and they knew that going in.
OPI: Depot CEO Roland Smith referred to renegotiating some low-margin OfficeMax contracts in the latest conference call.
BM: Yes, and when that happens it’s going to be an opportunity for independent dealers. I think it’s going to free up a lot of market, I really do.
OPI: And where’s this all going to lead to? Sorry to ask you to get your crystal ball out again.
BM: Yes, and I’ve learned never to do that with you again! All I can tell you, Andy, is that there’s nothing as constant as change and it is going to change. How? I don’t have the answer to that, but I think the Amazon effect is going to become larger, not only for independent dealers but especially for Office Depot and Staples as well.
You look at what Costco and Walmart are doing in office supplies; it all adds up and that affects independent dealers as well as it affects retail. In fact, it affects retail more right now, so Staples is doing everything it can. I think Ron Sargent is doing a great job in trying to deflect that whole charge from Amazon with adding SKUs and new categories – he’s doing what he has to do.
OPI: What can dealers learn from that? Do they need to be hanging onto the coat-tails of that strategy from Staples?
BM: They need to do the same thing; they need to change. They need to get more involved with e-commerce. E-commerce is where it’s at right now and it’s going to be a huge part of the industry. That’s something we’ve got TJ involved in with AOPD dealers.
OPI: And then, just to finish off, what about your own plans? You’ve been at AOPD for almost ten years – that’s not bad for someone who was on the verge of retiring!
BM: I submitted a succession plan to the board a year ago and at the time I said I was going to retire on my birthday in January 2016. That’s changed and now I’m thinking I would like to go on until 31 December 2016. That will give me another two and a half years at AOPD; there are some things I still want to see happen.
OPI: Such as?
BM: The growth of some of our existing contracts like Premier and NCPA, for one. NCPA, as I said, is on a growth rate to do a minimum of $12 million in 2014 so who knows what’s going to happen after that. There are thousands of public sector entities that are part of NCPA and people are now starting to understand what NCPA is all about.
It doesn’t have the reputation that US Communities has, but I tell you that, within the next year or two, it will and you’re going to see a tremendous amount of growth there.
OPI: Thanks for your time Bud, and all the best for the next two and half years.