When UK dealer group Advantia Business Solutions announced in 2011 that it was ending its wholesaling relationship with Spicers and moving to a new sourcing and delivery model run by office2office’s (o2o) Banner and its logistics arm Truline, there were plenty of sceptics who thought it would never work. Two and a half years after the switchover, those naysayers are eating humble pie as Advantia’s members prosper under their new, lower-cost business model; a model which has undoubtedly encouraged other market players to tackle the issue of removing duplicate costs from the supply chain. Advantia’s courageous decision to adopt the Truline model was recognised by the industry when it won the Dealer Group of the Year prize at the 2014 European Office ProductsAwards, so it seemed like the ideal time for OPI to catch up with group CEO Bob Geens.
OPI: Perhaps we can start with a quickoverview of your career.
Bob Geens: I’ve been in the industry 40 years – 16 with Advantia (or COSTS as it was called when I joined), 16 with ACCO and then before it was with manufacturers and furniture resellers. So, apart from being a wholesaler, I’ve been involved in pretty much all aspects of the industry.
OPI: I know you’ve made a lot of changes at Advantia over the years, but I’d really like to focus on the Truline initiative for this interview.
BG: Well, what kicked it off was when the news came out in 2009 that VOW was in serious trouble. The Spicers Managing Director at the time told me that if anything happened to VOW, then Spicers would implode too, so we had a board meeting just after that to look at finding a delivery solution if ‘Armageddon’ happened. I brought in some logistics people to advise us and one of their observations was: “Your industry is mad! You’re handling the goods far too many times. You should be looking at this from packing and storing centrally, picking and packing once, distributing to local hubs and then delivering straight to the consumer.” While this was going on, we were approached by o2o.
OPI: So they approached you?
BG: Yes, they’d made a decision to get into the mid-market sector; they’d bought Accord,
our largest member, and two other dealers. Then I got a phone call saying: “Can we have a chat to you about the SME market?” You never miss that kind of opportunity to talk to somebody, so I went and met them, and we had a very honest and open chat about the market and how we worked. Then a few months later they came back to me and said: “We’d like to work with you.” And I said: “OK, let’s sign confidentiality agreements and we’ll share all of our information with you.” Well, frankly, I had nothing to lose and credit to Simon Moate and his team – they were totally transparent. Obviously we have a non executive Chairman called Graham Cundick and what Graham doesn’t know about purchasing isn’t worth knowing. He looked at it and said: “This is for real; they are being totally transparent with us.” We started the serious talking in June 2010 and the following May we presented, in effect, two options to our members. Our deal with Spicers was coming up for renewal and I’d got offers from Truline and VOW.
OPI: So the Spicers deal ending gave you a cut-off point?
BG: Yes, so I went to VOW and Spicers and told them I wanted another three-year contract, but that I wanted to look at an open book, a true cost-to-serve and last-mile service model. VOW said it would give it a shot, but Spicers and the now-departed Mr Ball said that unless we gave them another contract, they wouldn’t even look at it. I don’t think they even looked at the tender documents, so it became a two-horse race.
OPI: Were your members on board with the plan at this time?
BG: I’d obviously taken it to the board firstand got their approval and then done a lotof sounding out with the members.They all knew that the Spicers contractwas up for renewal and that there couldpotentially be a change. We called themto a meeting and just presented the factsof the market in terms of product mixchange, margin change, rising costs, etc. I always knew it was a gamble and we’d lose some members, but I absolutely believed it was the right thing to do. We had 54 members at the time and we retained 46. Six of those that left, it was absolutely the right thing for them to do because the savings I was proposing in terms of the logistics and all the other costs didn’t apply to them. For the other two, it was just the pure emotion of not wanting to deal with a contract stationer, so they left.
OPI: At the time we talked about Banner being a competitor of your dealers.
BG: But it’s really not. Banner’s strength is in central government and very large corporate accounts. I can count on one hand the number of competition issues we’ve had, and in all but one of them Banner has backed out – and the only reason it didn’t back out of the one was because it was linked to a public-funded contract. In fact, they actually give us more business – leads they get that are not in their market sector and which they pass over to us.
OPI: VOW got the bad end of the deal, didn’t it, in terms of supplying the tail?
BG: Well, yes and no. They were obviously disappointed not to get the business, but credit to Robert Baldrey – he said our model was to be applauded and they’d support it. And they have ever since.
OPI: How many SKUs do you have going through Truline?
BG: About 8,000 through Truline and then the balance we get through VOW. We have a good, open relationship with VOW because our views on the market are very similar. Sometimes we look at each other and say: “Well, we shouldn’t really be friends because in theory you’ll take a dealer off me and I could take a dealer off you.” But that’s part of what goes on, and probably for the good of the industry going forward it’s better to stay friends and I appreciate what they do for us. Spicers, we just have no relationship with them at all at the moment. I can’t say I was surprised at the news of Alan Ball’s departure and they’ve got a huge rebuilding job to do there.
OPI: How important is it to have a healthy Spicers operating in the market?
BG: Very important. We need an alternative and I think the market needs an alternative.
OPI: An alternative might come from somewhere else; it might be a Gem or…
BG: It could be, who knows? But I don’t knowenough about Spicers’ situation, whetherthey will need a white knight or not…
OPI: Your Chairman has been mentioned in the same breath as Spicers in the past few months.
BG: I’m glad you brought that up because I can finally lay that one to rest. Officially, I can tell you there is absolutely no way Mr Cundick would want to get involved in any sort of Spicers acquisition or with any other PLC for that matter. He loves what he’s doing with Virtualstock and with the dealer community with us. He’s like me: we’ve lived the corporate life and wild horses wouldn’t drag us back there.
OPI: So, the switchover to Truline happened in January 2012. Things didn’t go smoothly at the start, did they?
BG: The first two months were absolute hell for everybody. Ideally, we’d have phased things in over the last three months of 2011 and the first three months of 2012. But that was out of our hands and it ended up being a ‘big bang’ on 2 January. And on top of everything else, that January was an exceptionally strong month in terms of sales, which compounded the situation. So I had lots of sleepless nights thinking:
“What have I done to these dealers’ businesses?” Because, by then, all their drivers had been transferred across and they’d got rid of their vehicles. It really highlighted to us the speed of service in the dealer community versus the contract players, but I cannot fault what the operational team of Truline did to crank up the service – they got in more stock, put in some additional resources, built a much better portal of information and by June everything was great. Now service levels are so good that nobody ever talks about it. Operationally, it is now so smooth that at our last board meeting – which is seven dealers of all sizes – they said Truline now gives a service that is better than they could ever manage themselves.
OPI: What impact has it made on the dealers’ businesses?
BG: Obviously, it took a lot of fixed costs out in terms of warehouses and drivers. We also saw improvements in product margins because the buying was better. It varied because of mix, but it could be anything between 2-6% in gross margin improvement. But the thing dealers talk about more than anything is the ‘noise’. The thing that’s in the front of their mind is how much noise has been taken out and how much time they’ve got to focus on selling and on the market. Dealers think they’re good at logistics, at buying and at IT, but they’re not; they’re excellent at selling and looking after the customer. Our members didn’t realise how much time and noise logistics, buying and IT took up in their businesses.
OPI: So, you are two and a half years into a four-year contract?
BG: That’s right and, yes, we have to start reviewing it and we’ve already started the discussions; the ‘what ifs’ and what the options are.
OPI: Any sense that you’re tied to o2o regardless?
BG: When we first started, that was probably the case. I think what we will see emerging in the next 18 months to two years are viable
alternatives that will give us other options.
OPI: From the wholesalers?
BG: Potentially, yes. I can’t speak about Spicers, but certainly from what Vasanta announced with its bokz programme and last-mile delivery package, it could potentially become a viable alternative.
OPI: o2o has had share price issues and there seems to be constant takeover chatter. Does that make you nervous?
BG: I think the way to look at it is that ten years ago we had this very stable market with the wholesalers. The reality now is that our supply chain is not stable; Spicers and VOW are run by venture capitalists and so you have to make a decision based on where you are now and minimise the risk. So yes, there is some risk with o2o. The good thing is that Simon Moate has kept us fully informed – as much as he can – on what’s been happening and why, and everything he said has come to fruition. I can’t ask any more than that and certainly we’ve had a lot more stability than Spicers dealers in the past two years.
OPI: So what’s your current membershipnumber?
BG: It’s 47. I knew that once we launched the new model we had to prove it. At the start we had some problems and it wasn’t the time to go out and recruit – so we didn’t. We concentrated on refining things so we knew we’d got an absolutely-rock solid model, and now it is proven. I’ve got back-up in terms of dealer performance stats and things like that. Whatever the size and profile of the dealer, I’ve got the numbers to show someone. The openness we get from Truline in terms of the data on how everyone’s performing is fantastic. Every month the dealers see their complete activity and where all the issues are – if it’s a customer fault, the dealer’s fault, a warehouse or driver fault – and they get a benchmark. They can measure themselves against the group and they really appreciate that.
OPI: And now you’ll look to grow themembership?
BG: We’re now coming into what I call the‘mating season’ when people start to thinkabout catalogues and decisions for thenext year, so you’ll see our activity step up. We probably have a prospect list of about12 dealers; not that big by other groups’standards, but they’re good ones. I’m notlooking for hundreds of members, but I’mlooking to grow membership very steadily
over the next 2-3 years. It will also be dealers that ‘get it’, because I don’t want dealers where the first question they ask is: “How much is your paper?” If all they’re interested in is the price of goods, I just walk away. I spoke to one quite substantial dealer a couple of weeks ago, and during the three-hour meeting we never once talked about the price of goods. It was all about how this model could help them grow their business and service their existing customers.
OPI: Looking at aggregate sales, I think you did about £27 million ($46 million) with Truline last year.
BG: Yes. The first year it dipped, but then it started to grow steadily from the second half of last year. The growth is continuing because of the new members and the existing members are growing as well now. We have some dealers that have gone backwards 10-15% and others that have grown by that amount and more. In terms of financial performance, all of them have seen the bottom line improve because of the cost savings. But if you look at it on a like-for-like basis, it’s starting to show real growth now this year because the members are starting to win business.
OPI: Dealers declining in the highsingle digits or even more – that’s notsustainable for any business, is it?
BG: I’m sure it’s the same message in every interview you do, but part of the strategy is to get everybody into new market categories –water, shredding, catering supplies, etc. Actually, I’m finding that the successful dealers are winning new business not in stationery, but in other market sectors and then they go back in with office supplies. One dealer won some business in promotional goods and health and safety and then went back to the customer six months later and won its stationery business. They grew stationery sales by 12% and put two
points on the gross profit. If they’d tried to do it the other way around they’d either have not got the stationery business in the first place or they’d have had to buy their way in. But going in the other way round, winning other categories and getting yourself so embedded in that customer – and then getting the stationery – is a better strategy. We had one instance last year using Truline where a member used the Truline model to help an organisation that had an internal distribution problem across five sites. He’d been trying to win that stationery account for three years but couldn’t get it from a contract stationer. But after he signed the logistics deal, they said to him – almost in passing – “By the way, do you want the stationery contract – £80,000?” Provided he now keeps servicing it right on the logistics side, how easy is it going to be for somebody to come in and take that stationery contract away? There are so many opportunities in new product areas. We beat ourselves up at times, thinking perhaps we’re not as smart and as efficient as incumbent suppliers, but actually if you look at our IT and our logistics, we are really quite good at it. I recently spent a few hours with a large organisation in the catering category and they couldn’t get their head round how sleek we were in terms of EDI ordering by 4pm and having the products the next morning.
OPI: You mentioned Vasanta’s bokz. What do you think of some of these other dealer initiatives that have cropped up over the past couple of years?
BG: I think they’re great because anything that helps bring about change is good as it forces dealers to think about it and face up to the reality that the world is changing. So all these initiatives that are coming alongwith their various options – whether it’s a back-office solution, a marketing solution or whatever it is – they’re a breath of fresh air.
OPI: But they’re competing with Truline.
BG: They’re all different in a way and I think they’ve all got their USPs. For us, our real USP is our last-mile delivery; none of them really have that very clean, straightforward, totally managed and controlled last-mile delivery. That’s the big difference. We’ve looked at some of the other solutions and it’s not there.
OPI: So, how do you see the channeldeveloping?
BG: My area of knowledge is really dealers and my personal view is that there will be dealer consolidation. There needs to be. There’s reported to be about 3,200 dealers in the UK and that number needs to come down. It will be horrible for those that go, but it needs to slim down to 2,250-2,500 dealers that are more efficient and more switched on in terms of use of technology and how they’re going to operate. In terms of what the dealer model is going to look like, for me the only model that’s going to survive is completely stockless. The dealer does the sales and marketing and someone else does the logistics. So it could either be a Truline-like model or a variation on that. I think that’s where others will go; certainly in discussions I’ve had with people like VOW, they have quite a similar view on the market so that’s where I see it going.
OPI: You said you think there are too many dealers. Do you think there are too many dealer groups?
BG: Yes, there needs to be some consolidation there as well. I think one goes with the other, but can I see it happening? In the short to medium term, no.
OPI: Are there any natural fits in the dealer group community?
BG: I suppose the only two that are very similar in structure are ourselves and Nemo because we’re owned by the members, whereas the others are owned by individuals, so it’s very difficult to see. For me, the Achilles heel we’ve got to address is IT and data; I think that’s the next big challenge for the dealer community. And I think a great service that dealer groups could do for all their dealers would be to try and work together on IT and data because there’s a huge duplication of costs there. We did a lot of good when we worked together as Europa a few years ago and I just think we could work together on IT and data without compromising our current positions. Whether that will happen or not, I don’t know.
OPI: Is that likely to be controversial?
BG: No doubt it will upset people, but I think that unfortunately there are too many individuals with egos – and also fear – who won’t sit down and have a sensible discussion about this as something we need to do. It will end up being forced on us, but if we were actually to all sit down and say it would be in all our interests, and if we could work together to come up with the complete package – front and back end – on IT, that would be utopia. The reality is I don’t think some of the individuals would be up for it.
OPI: Finally, what are your own plans?
BG: Well, I’m 60 now, so my goal is to make sure the logistics model is absolutely solid and then put in place a new five-year plan. We’ve pretty much got the marketing, but then it’s the IT and the systems that will enable dealers to compete. We’ll do that and then they can put me in my little chair and wheel me off to the old people’s home. Simple as.
