Dealer groups have become powerful beasts in our industry. They help independent dealers cope with and embrace the many challenges thrown at them: a tough and ever-more expansive competition, a changing, widening and more demanding customer base, and deepening cost and margin pressures, to name but a few.
Integra Business Solutions is one of the UK’s leading groups, headed by CEO Aidan McDonough. Deeply passionate about the present and future state of independents – not just in the UK but globally through his role as Chairman of buying group consortium BPGI – McDonough has devoted his entire career to the dealer cause.
Well-liked, outspoken and hugely knowledgeable about the independent community, he is standing proud at the helm of a group that has won numerous accolades for outstanding dealer engagement and success, not least this year’s European Office Products Award for Dealer Group of the Year.
All that said, it’s been no walk in the park, with the group only last year having emerged from a tough couple of years of ownership battles. But that’s in the past now, says McDonough, eager to move on and address the issues that matter to dealers. Four years after our last Big Interview with McDonough, OPI’s Steve Hilleard caught up with him to find out what exactly these issues are and how they’re being tackled.
OPI: Let’s start with some fairly recent history. The acquisition of Integra by this unknown character William Good caused a bit of a stir in the summer of 2015. Even more eyebrows were raised when there was another announcement shortly after about Integra members buying the group back from Good, resulting in the cooperative model that you have now. What was the background to all of that?
Aidan McDonough: Well, it was quite a challenging time for a sustained period. We had spent the best part of two years trying to acquire the business from Reflex Holdings – a diverse set of shareholders including some former OP dealers and private investors – but the holding company decided to sell it to an individual, namely William Good, in June of last year. We managed to convince Mr Good that we didn’t believe the best interests of independent dealers would be served by private ownership.
We’re now a cooperative that will continue to focus on providing services and solutions to dealers; we believe this is the right way to run it – the group was created by dealers and is now effectively run by dealers.
OPI: You’ve done a good job over the past 12 months or so communicating with your dealers and marketing your services to them. I guess one notable side effect of this was Integra winning the European Office Products Award for Dealer Group of the Year in March. It’s not the first time you won it, but it must be particularly pleasing after a tough period.
AM: Yes, we were absolutely delighted with it, especially when you look at the competition, like Quantore, that we were up against. It’s also gratifying for the whole team to see their hard work rewarded on a European stage. We certainly had a few drinks to celebrate.
OPI: And there have been plenty of initiatives that you have launched. You have recently entered into a relationship with Vistaprint, for example, whereby your members have access to Vistaprint’s professional print fulfilment solutions via a branded online store on their websites. How’s that panning out?
AM: It’s still early days. We’ve put together between 20 to 30 sites for dealers so far; they are all bespoke for those that want to engage with this. I haven’t seen any metrics yet, but I think the opportunity to diversify is critical for dealers. It’s a great platform with a varied product offering that can also be customised.
OPI: Integra is also very involved with workwear and safety products, particularly so through your recent partnership with Portwest Clothing. How important is that category?
AM: To be fair, Portwest is just the latest in a series of 20-30 vendors in adjacent categories that we’ve introduced over the past few years.
It’s a natural extension for dealers, but there’s definitely a learning curve for those that want to get involved, as it moves away from customer service to project management. But we have had some success with it and we’re enthusiastic about the opportunities.
OPI: Are you finding that dealers can quite easily grasp those opportunities – and the sales – and are adapting to those new demands?
AM: That’s a tough call, because I don’t think this is necessarily low-hanging fruit. There are a whole variety of issues in terms of product management and e-commerce data management, for example. Then there’s the need for training and for marketing collateral…
What we do at Integra is to put all these things together in very simple packages to make it easier for independent dealers to actually embrace them. It’s not easy, but it’s a commercial imperative to get more products into the same customers.
OPI: You mention marketing, an area where Integra has been very successful. I believe you have a close relationship with TriMega in that regard. What are the similarities – or otherwise – in terms of marketing approach for dealer groups in North America and the UK?
AM: Yes, we’ve worked closely with Mike Gentile and Greg Fish within BPGI for many years and we have a close relationship with TriMega. There are lots of similarities, but one of the things we were discussing in some detail very recently is the absolute need for dealers to embrace technology more.
One thing specifically that we’re working on at the moment is webinars. So following on from putting these packages together that I mentioned in terms of workwear or 3D printing, for example, we’re creating training sessions in the form of webinars that enable us to offer remote training to dealers via this platform.
OPI: This is not new technology…
AM: No, it’s not, but you need to do it properly for it to be effective and that’s what we’re doing.
OPI: OK. You also make reference to 3D printing which is another area you got into through your deal with Centrex Printing Services. Is that a bit niche or is it an opportunity for every dealer?
AM: We’re concentrating on the education sector for now where 3D printing is forecast to grow massively, so we have introduced a couple of entry-level models for now. As such it’s relevant for those dealers that are active in that sector.
OPI: Another bit of news that came out recently is your alliance with Australian dealer group Office Brands. What does that alliance actually mean?
AM: The essence of it is that Office Brands is now allowed through a licensing agreement to launch our Initiative own brand range of products in the Australian market. We will also be sharing marketing collateral with Office Brands, such as email templates that we produce for our dealers in the UK, catalogue artwork or even things like price lists – basically anything that we are already doing and can pass on to reduce the workload for Office Brands.
And, of course, it’s a reciprocal arrangement and where we know that Office Brands is doing something innovative and new that we’re not, we’ll share that too. It’s a really exciting sharing initiative.
OPI: It sounds great, but isn’t that the type of initiative you should have more of under the BPGI umbrella anyhow, given the close contact that you have with all the groups?
AM: Yes and no. We’ve looked at this in some detail over the years, and we worked together with TriMega and some of the European buying groups in terms of sharing intelligence, joint sourcing, etc.
This is the next logical step going forward and we’d like to take this type of arrangement into continental Europe. And clearly, we have been able to do this through our membership in BPGI.
OPI: Before we head into Europe and talk about the inevitable topic of Brexit, let’s stick with BPGI for the moment. You are currently the Chairman, something of a poisoned chalice some might say. BPGI has come under the spotlight quite a bit in recent times and either nothing much is happening or you’re being very quiet about it. Where is the organisation headed, strategically speaking?
AM: There have been some structural changes in terms of moving the business from the US into Europe. The accounts and operational functions are now run through the UK, thereby reducing the cost base.
We have secured all the vendors for 2017 and a large proportion for 2018 as well, and we’ve now got three new vendor agreements coming online in adjacent categories.
Additionally, we are continuing to develop other areas of member support. The fact that the members unanimously voted to continue in BPGI in 2017 means they are comfortable with the speed of changes at the moment, and we feel there is a positive climate currently within the membership.
OPI: But it doesn’t sound much like a strategy, and more like a logical progression of what you’ve always done.
AM: It’s true in the past 12 months nothing radical has happened. But we continue to have good relationships with the vendors and close working relationships with each of the groups. So much so that the BPGI agreements help drive improved support for the vendors. As a result we see growth in many areas.
It’s more of an evolutionary rather than revolutionary journey and I’m actually quite comfortable in terms of where we’re going. Let’s not forget that we have had one new member this year and we are currently in serious dialogue with some others since the change in our policies and membership criteria. We have rebranded the organisation, launched a new website, and have a significantly more proactive PR offensive.
But fair point, we could be better at explaining what our strategy is and I’ll take your observations on board.
OPI: Moving on to Brexit – what does it mean for the British business products industry and your members?
AM: For a start, the exchange rate volatility doesn’t help and this puts massive pressure on the UK in terms of imports. There isn’t really much of a discussion to be had about UK manufacturing in the OP sector, therefore the effect of a weak pound sterling would be price increases and the challenge on the part of independents of passing those through to the consumer.
We’ve seen a couple of price increases come through on the wholesaler side. And generally, the notice periods are becoming a lot shorter than they once were. Price increases used to come through on a quarterly basis, but with this level of volatility you can’t do that.
OPI: But didn’t UK wholesaler Exertis say just recently that they were going to hold prices right through to next year?
AM: I think so, but we don’t have a contract with Exertis, so I don’t have any details. We’ve done the same with our Initiative brand and the intention is to try and hold the price to the end of this year.
All in all, it’s too early to predict anything in my opinion. I don’t think we’ve seen any real effect of Brexit yet and we need to wait until Article 50 has been enacted. The stock exchange will only react with anything that we can reasonably take away once we have a proper timetable of events. Let’s just hope it’s not going to put us back into recession like some high-level predictions forecast.
It’s the uncertainty that’s bad because that’s when people start putting off capital investment and that’s not what we need, particularly for our larger dealers that have a big furniture business, for example.
OPI: Let’s talk about wholesaling, a fundamental pillar of the UK industry, but also one where there’s been plenty of disruption. Integra enjoys relationships with both of the primary wholesalers, Spicers and VOW. What’s your reading on where we are at the moment?
AM: I actually think we’re in a very stable period. As for performance – and I’ve said this before – it’s off the scale what these guys are capable of providing dealers with in terms of the number of SKUs, delivery schedules, etc.
We’re in a good place and I firmly believe that we need two strong, healthy and dynamic wholesalers because they play a pivotal role in the independent dealer community.
OPI: I agree with you on their service level capabilities, but I’m not sure either is financially that healthy – that must be a concern for anyone relying on them.
AM: But we’re seeing plenty of activity to enhance the performance of these businesses in terms of focusing on going back to basics and not trying to be all things to all people. Integra certainly proactively supports these guys because they are the lifeblood of independent dealers.
As for the financial side, if over the next 12-18 months they can get over the various hurdles, we’ll be in a better place overall as an industry I believe.
OPI: Can you envisage a situation where those two businesses are combined? They are both essentially hybrid models with a reselling division, owned by private equity firms.
AM: I don’t think a monopoly would be a very good idea.
OPI: But it wouldn’t be a monopoly if you consider some of the other players like Antalis, Exertis and Beta that are all supplying product.
AM: They would still be highly dominant though. I thought it would happen two or three years ago that those two could potentially come together.
There are a lot of logical synergies, but it depends on whether the people in charge have an appetite to do it and then also on whether it would get through the UK Competition Commission.
OPI: Does it surprise you that dealers in general have accepted their primary wholesalers are also involved in direct selling operations?
AM: It’s been a challenge I agree, but in fairness to both I think they’ve managed it quite sensibly. It shouldn’t happen in an ideal world, but the reality is it brings economies of scale and that makes them viable operators.
OPI: Lastly, you had your annual conference just before we went to press with this interview. What were the key topics that you talked to your dealers about during that event?
AM: Succession planning is a big topic. There’s no simple solution other than to advise dealers to seriously look at training within their management teams and their overall business. The challenge is particularly prominent for our industry because we’re such a long-established sector and therefore we have quite a sizeable proportion of senior – and therefore older – people.
One way ‘out’ of course is to merge with another company or be acquired. We can help with that and have got very hands-on experience with that. In that context, it will also be interesting to see what happens with the so-called super dealer category that we see emerging. Is their growth sustainable?
There are a lot of people who are really passionate about what they do, but we need more of those in our industry to take it forward. The world’s not coming to an end because of Brexit or because of a competitive landscape. We are all well aware what the predictions were for independent dealers back in the 1990s and guess what – many of them are still here, better and stronger. There’s plenty of business out there and Integra is doing very well, so I’m confident for the future.
Look out for the November issue of OPI where we will take an in-depth look at the topic of succession planning.