It’s often said that to survive in today’s business supplies sector and to have any chance of standing up to the might of Amazon and Amazon Business in particular, scale is becoming increasingly important. This scale doesn’t merely apply to product range, but also to technology and logistics expertise and the all-important tie-in of product and service.
Ohio-based FriendsOffice is under no illusion as to the task at hand. OPI’s Heike Dieckmann spoke to three of the company’s longest-serving senior executives about its strategy and how they have jointly grown the dealership from a small, local retail store into a far-reaching B2B supplier with multiple locations serving facilities across the US.
OPI: You’ve spent most of your career in the OP sector. What brought you to this industry Ken?
Ken Schroeder: Good luck I would say! My background is actually in finance and I spent the first few years of my working life in a Ford automobile dealership as a controller. I was then hired by Evans Office Equipment in 1986 to become its CFO.
I had never really enjoyed the specifics of accounting and I kind of fell in love with the office products industry at Evans. I’ve also always wanted to have my own company, so when Dave Evans wanted to get out of the copier business in 1991, I offered to buy this part of the company from him. I got hold of my long-time high school and college friend Dale Alt and we decided to run the business together.
We did that for about three years and then sold it to Danka, a company that was incredibly acquisitive at the time. Dale had to stay with them for another year, but I went out and bought a small retail store called Friends Office Products and decided to develop the commercial side of the business. Dale re-joined me a year later and Betsy Hughes the year after that. The rest, as they say, is history.
OPI: How have you evolved from that little retail store – what does FriendsOffice look like today?
Dale Alt: Today, we’re completely B2B-focused. We got out of the retail business within three years and since then it’s been all B2B. In terms of our product portfolio, we cover furniture, OP, jan/san and facility supplies, breakroom products, custom print services and promotional products. We’ve also relaunched our copier business through a partnership with Kyocera, which began earlier this year. We used to be in that business with Toshiba, but sold it about six years ago.
We have 105 staff right now and are mostly Ohio-based, with some coverage in Pennsylvania, Indiana and Michigan.
OPI: You’ve been a very acquisitive company in the past. Has that been your strategy for growth?
KS: Yes, we made several acquisitions between 1998 and 2003, and then again between 2010 and 2015. The strategy behind those was twofold. Initially, we wanted to grow our footprint in the state of Ohio, while the later acquisitions had more to do with product and category expansion in the areas of furniture, jan/san and office supplies.
We’ve also increasingly been looking at non-transactional deals where the service aspect comes more into play. Most recently – in April – we bought Global Paperless Solutions (GPS), which is very much in line with that strategy. GPS is an authorised value-added reseller of Laserfiche software. The uptake of this service has been very positive so far and we see a really big opportunity here.
We feel we have a pretty good footprint in Ohio now and are not looking for more acquisitions, but would rather consolidate what we have already. However, if a good company comes along, we might consider it.
OPI: What’s your current run rate?
DA: We finished last year just under $30 million. That’s up from $18 million in 2010.
OPI: Are you a stocking dealer?
KS: We stock about 20% of the office supplies we sell in our own warehouses, so the majority is wholesale. For jan/san, we stock 60-70% while furniture is predominantly purchased direct from manufacturers.
OPI: And SP Richards (SPR) is your first-call wholesaler I believe?
DA: Yes, we’ve been with SPR now for five years. What we were after was a real partnership with a wholesaler. Overall, SPR has delivered and it’s a good relationship. We recently won a large contract in the education sector. SPR brought their operations team into our facility and we went over all the details of that contract. Among other things, they agreed to order a range of unique supplies for us and keep them in stock – so that we don’t have to – and the contract gets fulfilled completely by SPR. That’s what I would call a mutually beneficial deal.
OPI: Anything that could be improved on?
DA: There’s always room for improvement. Supplying the jan/san sector and stocking the right mix of products is a perennial challenge. But we feel that SPR is taking the appropriate steps to improve this product category.
OPI: What’s the history of this segment for FriendsOffice?
DA: Well, we bought a small jan/san company called ADU in 2004 and that was our first foray into the category. We gained some expertise, but we were still just dabbling. Since then, we have recruited an expert in the field and she works closely with our sales staff as well as our manufacturer partners.
Having this category expert has really helped our traditional OP folks get up to speed. There is a lot to learn in this segment, but after several customer wins, our sales people now trust her and bring her in whenever they see a jan/san opportunity with their existing account base.
OPI: What kind of specific knowledge do you need?
KS: We often get asked about floor care, for example – that’s a big one. A customer calls in and says: “I’ve got this cork floor, it’s dirty, how do I clean it?” The sales team will get in touch with our expert who will liaise with the vendor and then they’ll go in together and present a solution to the customer.
The high-volume sellers in this category are toilet paper, hand towels and bin liners. It’s the low-volume items where most of the expertise is needed.
Importantly, there’s plenty that the jan/san sector can learn from OP too. Next-day delivery and high service levels are a good example, as are reporting tools and managing inventory for the larger accounts. We are able to bring something to the table that the ‘traditional’ jan/san incumbents cannot.
OPI: How much of your total sales is jan/san now?
KS: It’s about 15% of our revenues. We include breakroom products in that segment too, but we don’t do a huge amount in this sub-category – no more than 3% and most of that is actually coffee. Jan/san is by far the bigger part for us.
OPI: How is the rest split up?
KS: About 45% OP, 35% furniture and the remaining 5% comes from printing and promotional sales.
Our copier division is a new category for us and relates to our partnership with Kyocera that I mentioned earlier. We’re excited to see this category grow in the months to come.
OPI: What is your customer sweet spot?
KS: It’s very mixed. We do very good business with schools. Mid-sized businesses are probably where we excel, in a variety of sectors. Small universities, regional hospitals, financial institutions – those are core to what we do.
OPI: What about the competition?
Betsy Hughes: There’s always going to be competition – Amazon, Staples, Office Depot/OfficeMax…
So much is about technology now – buyers have three different companies up on their screen at the same time, with ever-changing pricing, rich and up-to-date content and so on. It’s a challenge to stay ahead all the time.
OPI: This issue of OPI is also our Technology Solutions Special. How well-versed are you in terms of digital commerce, analytics, etc?
DA: We use ECinteractive for our e-commerce solution. Overall, I feel that ECi has done a pretty good job for independent dealers and has provided us with the features to compete in the B2B market. One of the challenges we have is that our customers are increasingly expecting their B2B experience to equal their B2C online experience.
It’s difficult and we’re not there yet. Our industry just doesn’t have the monetary or technical resources that an Amazon has, so we’re always playing catch-up. If something keeps me up at night, it’s our ability to stay ahead of technology on the e-commerce side.
OPI: There’s often criticism that dealers don’t make enough use of tools like Google Analytics or indeed the wholesalers’ analytics offerings…
DA: We use all of those tools. The question often is: once we have all the data, what do we do with it? Say we see a trend from the data that comes back. Our challenge is that we don’t have enough control of our e-commerce site to specifically target that trend and efficiently maximise the opportunities it may present.
Also, what we do is almost always reactive and that is in complete contrast to Amazon. The company’s website is hugely proactive and that’s what customers have come to expect.
OPI: Is that trend analysis not something that the wholesalers can help with?
DA: The wholesalers do provide broad analysis like spend per employee per category. But the analysis I need is located at the customer level, which the wholesalers do not have access to.
OPI: What dealer groups or networks are you affiliated with?
KS: We’ve been a Pinnacle dealer for five years and on the jan/san side we’re part of the AFFLINK network.
One of the great things about Pinnacle is that we’re talking to like-minded dealers. We’re all $20 million and above in revenues and when we get together for national meetings, there’s always a huge amount of best practice sharing and strategic discussions. It’s a very productive use of our time because we’re talking about topics that are really relevant to us.
Of course, we’re not all the same – some of the dealers are 100% stockless, for example – but it’s still interesting to hear their views.
OPI: You mentioned technology already. What else keeps you awake at night?
DA: That’s easy but also goes back to technology – it’s Amazon. Back when Ken and I started this company, we used industry-leading software and were ahead of the curve. Now, like I said, it’s often playing catch-up and reacting rather than being a leader in technology.
Amazon has a model that really works. They’re not just attractive with low-price core office products – where, by the way, we’re still doing ok by comparison – but also with the higher-margin C and D items. And it’s the C and D items where it’s getting harder and harder to be competitive, because purchasers have more places to buy them from.
BH: Independents don’t have the luxury of a room full of people manipulating pricing all day. Amazon and our big-box competitors, on the other hand, do have that, so it’s important we play to our strengths.
At the end of the day, it’s all about efficiencies. Warehousing, distribution, our computer system, our people – FriendsOffice is constantly looking at all of these things to be as cost-efficient as possible. It’s never-ending.
OPI: You mention your big-box competitors. Depot and Staples are re-focusing all their efforts back on North America. What impact do you think that will have on the market?
BH: They may have announced a re-focused effort, but it’s the execution that matters. There’s plenty of disruption in the market. That being said, we’re always looking for new opportunities and we’ve consistently been able to capture business because of our commitment to customer service and support. This, paired with the inability of the competition to match our level of dedicated service, allows us to stay competitive in the market.
OPI: Does it worry you that Depot and Staples want to take a bigger slice of the mid market and the small business sector?
BH: Depot and Staples have always been there. Now it’s Amazon that’s the far bigger challenge.
OPI: Everybody talks about services and you referred to these a couple of times as well. What do you do in that regard?
KS: Well, on the furniture side, design, planning and project management have become very important to us – it played a big part in our acquisition of Salem Office Products four years ago.
That’s just one product segment. Overall, we have a very thorough evaluation procedure in place whereby we check out what services customers are lacking and where we can help. Providing usage reports, combining purchase orders and optimising deliveries are a few examples. These are all services we have in our toolbox and that we can take to our customers as value-added offerings.
Most of the services we’re providing are not charged for, but they help us sell our products and our company. There are a couple of exceptions to this, such as furniture installation and premium software services like Laserfiche document management, which I mentioned before.
OPI: Final thoughts as to where you’re headed?
KS: Our goal is to continue to improve what we’re doing; try to put 6-8% EBIT down on the bottom line; find products with a real service aspect that give us higher margins versus just pushing them through.
Jan/san remains a big opportunity for us, partly because it only represents 15% of our annual revenues. So, while we’re continuing to see growth, we don’t own a lot of this category with our current customers, and there’s plenty of business out there.
DA: Staying ahead of technology is critical to the success of any company and is hugely important to us. It’s making sure we use all of the tools at our disposal. Whether it’s e-commerce site customisation through ECi’s digital services or training all our sales reps to be proficient with our mobile shopping app, OfficeShopper, our understanding and use of the technology we have available is key to customer retention and acquisition.
