It’s been a while since OPI had a Big Interviewee from what is now known as the EVO Group of Companies – or any of its constituent parts. Back in 2011, Robert Baldrey, who was to become EVO Group CEO eventually, headed reseller Vasanta when we talked to him, while wholesaler VOW under the guidance of Richard Martin was a very different animal during our Big Interview even further back in 2009.
After many ups and downs, a certain amount of M&A, plenty of integration and the inevitable disruption that this brings, Steve Haworth – Group CEO since May 2016 when Baldrey departed – is now steering the EVO ship into steadier waters, having overhauled the organisation and refocused its structure. That’s not to say that he’s going to sit back and enjoy the fruits of his labour. Quite the opposite.
More acquisitions are on the cards, as are ongoing changes to infrastructure, systems and services, all in an effort to at least keep up, at best anticipate and spearhead the changes that are happening in the wholesale and distribution channel and in the industry as a whole.
Just before Christmas 2017, Haworth visited the OPI offices in London to give CEO Steve Hilleard chapter and verse about EVO, its most recent history and plans for the future.
OPI: Let’s start with some of the refocusing and restructuring actions that have taken place since you assumed your current role.
Steve Haworth: The main restructure was really a subtle name change, from the EVO Group to the EVO Group of Companies. This gives better clarity to the four companies that form the group: VOW in the UK and VOW in the Republic of Ireland as a wholesaler; Banner as a large reseller/contract stationer and Truline as a transport company.
Each one of these organisations has its own managing director with its own management team. All four companies have a unique set of assets and that is why they need to present themselves differently. It’s a differentiated, but scaled approach to the market that is defined by geography – in the case of Ireland – or by product range, service, customer and supply partner proposition.
When we were EVO Group, we had got to a position where we were effectively doing business with ourselves. The operation, transport, merchandising and support structures didn’t actually recognise who their customers and suppliers were outside the group. In practical terms, somebody working in our Arrow flagship distribution centre, for instance, would have regarded an internal sales rep as the customer, not the dealer at the end of the delivery sequence.
Broadly speaking, I vertically aligned all aspects of the business that touch a supplier or a customer. If I take VOW as an example, it was treated like a son or daughter of the umbrella organisation: it had to battle for its voice and to make its own decisions. I flipped that round to make it the parent, so it can now decide on behalf of its customers and suppliers the right approach to its specific market.
It’s very important to me that Adrian Butler and his team at VOW are working solely and exclusively on behalf of their customers, with control over the things that impact them. We’ve never had that before.
OPI: Why was VOW seen as the “son or daughter”?
SH: VOW essentially had to go and ask permission to do things from within the group and it was a group decision that it got, instead of one that focused on what was best for VOW and its customers.
I’ll give you some practical examples of what we changed: all of the VOW range is now being held and picked at Arrow, back to what it used to be like in its successful Kingfield Heath days 15 years ago.
The Banner inventory, meanwhile, is held in Normanton, Basingstoke and Newtonards near Belfast. And Banner has got a fantastic wholesaler called VOW! Think of us now as different companies. Banner has its own stock – in fact, 60% of the items that Banner sells are not consistent with the VOW range.
It’s important to understand that Banner, as a reseller, can buy from wherever it likes, not solely VOW.
OPI: But I guess we won’t be seeing Banner selling 5 Star any time soon (Spicers’ private label brand)?
SH: Don’t rule anything in or out. If Banner decided that 5 Star was a better private label option than the Banner Essentials brand or the Q-Connect brand, it can make that decision.
OPI: So what’s the next stage?
SH: There are a number of things. We haven’t done this segmentation in isolation. It’s part of an overall management strategy of how to take the various companies forward. Our role as a distributor and reseller is to connect manufacturers with end users and consumers.
We are in quite a unique position whereby we can access all aspects of the market in different ways and with significant scale, both as a contract stationer and as a wholesaler.
We don’t want to lose that impetus. The companies within the group are at different stages of their evolution. VOW is a significant leader in wholesale. It has a good market share position and clearly growing from there within its existing categories just by acquiring more customers is something we’d like to do and intend to do. But it’s not going to be as easy as coming from a low market position elsewhere. VOW has a clear intent to help existing customers grow and to win share where it can and where it makes sense.
The evidence of that is visible in all the training, support and development materials that VOW is putting into facilities supplies, in furniture, exclusive brands and other products that are unique to resellers. We’re seeing 16% growth year on year in facilities, for instance, double-digit increases in furniture and we’re doubling our exclusive brands sales month on month.
Banner, meanwhile, has a huge opportunity to win share in a marketplace where its core competitors have been and still are challenged – they’re on a disruptive journey of either integration or new ownership. Banner has been through that disruptive journey over the past two and a half years and has finally come out of the other side. It won £21 million ($28 million) worth of new business in 2017 across a range of public and private sector companies. The aim is to be the number one contract stationer in the UK by the end of 2018, measured in terms of size. We believe we can do that.
Truline, lastly, is now a completely segmented transport company that delivers parcels either to the dealer or directly to the end consumer.
OPI: Going back to VOW, other distributors – particularly EOS ones – have historically flirted with our sector and then backed away from it. Do you think it’s still possible to achieve satisfactory shareholder returns as a pureplay business supplies wholesaler in the current environment?
SH: Yes. In a distribution business that is reliant on high physical volume, low unit value, very low average order value with high numbers of transactions, the cost to serve is always going to be relatively high.
I obviously know who you’re referring to and it’s interesting that those people perceive office products as high margin. And of course, when you look at the margins per line or per unit, when you’re reselling or wholesaling a ruler compared to a laptop or a piece of software or a toner cartridge, they are significantly different. As such, it’s understandable, particularly when you look at the history and the challenges of Spicers and VOW over the past five years, that other distributors would be looking at that and want a slice of it.
But in my lifetime in the industry – just over 20 years – a number of firms have tried to be a third wholesaler and haven’t been able to make it work. Perhaps it’s not as easy as it looks once you get to scale.
From the manufacturers’ point of view, it’s evident that they want to find more and different routes to market – I’m sure we’ll come to the topic of Amazon at some stage. They want to have choice and that’s why we see the manufacturers as much as our customers as we do our actual customers. We’re providing services and efficient routes to market for them that they need and value.
OPI: Do you think they value initiatives like your exclusive brands that you already referred to?
SH: Let me tell you where we stand with exclusive brands. Where manufacturers have got brand leadership or a brand-leading position we’re not looking to displace that – we actively want to work with market-leading vendors that support the market with their brands.
All the feedback we get from our customers confirms that there are too many me-too brands in the second and third division and they are overcomplicating the market. Our exclusive brands approach is intended to simplify that – through the range, the marketing and the message. We want to give resellers something unique they can hook onto and make theirs. It doesn’t mean we’re walking away from well-known brands – they are really important. But brands that don’t actually bring any value to the table are less important.
Also, we’re not looking to reinvent the wheel in mature categories. This is about exclusive brands in emerging segments like breakroom, ergonomics, storage and others where we don’t have market-leading brands that are well-established. That’s where the focus is and it’s looking good so far. As a group of companies we have the ability to invest in and implement these strategies and then stick to them.
OPI: Talking about investments, what’s the involvement of your owner Endless in the day-to-day running of the business?
SH: I’ll start by explaining what the involvement is not. Endless doesn’t run the business or manage it and it certainly doesn’t tell us what to do. Endless is our investor and operates as an investor – it has non-executive seats on the board and we have a monthly board meeting.
This is a private equity firm – unlike some – that is committed to this business and to the execution of the management strategy over the long term.
OPI: Does Endless have any other investments that are eight and a half years old?
SH: I think we are one of the older as well as larger investments in the Endless portfolio, but we don’t feel any time pressure in that regard. In real terms, the clock restarted when EVO merged with office2office, so Endless views this as an investment it has held for three years, not eight.
The firm believes in this industry and in the company’s position in the market; it fully supports the management plan and is confident that there’s an exciting future for the EVO Group of Companies.
OPI: Does that commitment extend to giving you additional finance to make acquisitions and to be involved in further consolidation of the industry?
SH: We have the ability to do M&A and the management plan includes M&A to accelerate the execution of our strategy. It doesn’t necessarily require additional funds from Endless, but the support is certainly there.
That said, we’re not looking for opportunistic M&A, it’s M&A that matches and accelerates the strategy.
OPI: Let’s talk about the big elephant in the room, the industry even. Amazon. Where do you stand?
SH: I like Amazon – it’s here to stay and it’s clearly identified our category as one of great interest. That in itself is exciting, because if an organisation like Amazon says there’s something in this, perhaps we need to stop talking so negatively about our market. There are still great opportunities in it.
For many years, Amazon acted like a retailer and has taken market share from the bricks-and-mortar operators in our category – that’s evidenced by the fact that retailers are reducing the space they dedicate to office products in stores.
Now Amazon is investing in its B2B side and launching initiatives and features on Amazon Business on a monthly basis. It will take share here too.
Manufacturers are interested in Amazon because the site has the ability to get their products close to the end user without the long cycle of wholesaler, reseller, dealer group, etc. That is very appealing to them. My concern with Amazon has always been the threat that the manufacturers are changing their preferred route to market. That’s why it’s so important for our vendors to understand exactly what our – and by that I mean the EVO Group of Companies’ – route to market is and the unique and substantial breadth of coverage we can give them.
OPI: The conversation I used to have with manufacturers was what a breath of fresh air Amazon was because of its fairly transparent pricing model. No soft money, no marketing allowances. Now I’m hearing that it’s become so big and cumbersome that actually dealing with Amazon is as much of a pain as it was dealing with Staples in its heyday.
SH: You’re right. Manufacturers have historically seen Amazon as an easy, neat, simple route to market. They can get their new products out there very quickly for the lowest possible price. That’s great for the manufacturers in terms of speed to market and brand awareness, and great for the consumer in terms of choice and price.
But with scale comes complexity and as soon as things fall outside the norm, it gets complicated. It’s no secret – VOW works with Amazon. But the business we have with Amazon is on behalf of the manufacturers. Manufacturers come to us because they believe we are better at doing this than they are – wholesaling is what VOW does. We have a service that we can offer to manufacturers which takes the pain away of dealing with the complexities of a large reseller. It’s a massive opportunity for us.
From an overall market perspective, however, yes, Amazon is huge and will get even bigger, but 55% of online office products searches are still made away from Amazon.
OPI: If Amazon has 45% of search – you know the numbers better than I do – that’s huge indeed.
SH: It is, but it still leaves 55% to go at in the online channel and it’s worth remembering that there’s still a big addressable market outside that channel too.
I really believe Amazon is good for our market. We have for a long time been remiss at looking to the future swiftly and dynamically. Our industry is technology poor and Amazon will lead us into working in different ways, operating in different ways, being more efficient, being more customer friendly and thinking more about customer quality.
OPI: So should dealers embrace Amazon too and become marketplace sellers or should they plough their own field with the support of the wholesalers, dealer groups and technology providers?
SH: Dealers that are putting their products on the marketplace are feeding Amazon with the data it needs to compete with them. So no, I wouldn’t recommend that.
OPI: Could it be argued that the wholesalers, by providing product to Amazon, have created a beast because once that volume reaches significant levels it just disintermediates you guys anyway?
SH: No, I don’t think so. It’s more the other way round. Amazon approached the manufacturers to begin with and both parties are now realising that wholesale distribution is actually the better way. VOW is working with Amazon in exactly the same way as we have done with Wilko, Asda and Morrisons for a long time.
Like I said before, there’s a value to distribution, so why, as a leading distributor in the market, shouldn’t we engage with that?
OPI: We’ve seen a weakening of the pound against the euro and also of course the dollar since the Brexit vote about 20 months ago. What ramifications has that initial vote had on your business and the UK industry so far? And what do you think will happen come 29 March 2019?
SH: There have been a couple of impacts. Obviously, it’s contributed significantly to the undisputable price inflation we’ve seen. In a good way it’s forced us to look hard at how we approach pricing, price updates and strategies, and perhaps be a bit more dynamic in how we handle pricing. That was hard, but also necessary I think.
We’re looking at several options now. Onshoring more of our supply so that we’re less exposed to currency and being more supportive of domestic manufacturing is one example. I remain nervous about the impact of Brexit on our business in the Republic of Ireland. We have a very strong, fast-growing business there, and it will be interesting to see how duties, tariffs and the open border between Northern Ireland and the Republic of Ireland will work.
The impact that’s perhaps a bit more hidden, but of great concern to us, is the human impact on our people. We employ roughly 1,000 staff in our warehouse operations. Many of these people come from continental European countries and we’ve certainly seen a higher churn of staff from these nations over the past six to nine months, compared to immediately after the Brexit vote, as people review where they want to work in Europe. That’s been accelerated by the fact that the weakening of the pound has meant the money they have available is worth less to them.
OPI: What would be your advice to your smaller dealer customers with regards to Brexit and how it might potentially impact their business?
SH: Don’t get too distracted, but as much as you can, build flexibility into your business, in terms of pricing models and contracts with customers, for example. And be ready for a more dynamic market with a swifter pace of change.
OPI: Before we wrap up, any final words?
SH: Yes. I’m really proud of the entire team that we’ve built – it’s committed, strong, stable and aligned with our investors – we are here for the future.
We’re also listening more than ever before to our customers. I’m specifically referring to their pressures on working capital and cash here. As you will be aware, we launched an Amex facility in 2017 that allows resellers to get up to an extra 30 days’ credit – they can use that cash to reinvest in their business or take pressure off their cashflow. That initiative has started to build some great momentum in the market the last four or five months of 2017.
I’ve already referred to significant investments in new product category growth and in our exclusive brands. We have a plan and we’re going to execute it, supported, in time, with further M&A.
Read more from the interview in theBig Interview Xtra