Service please

Two thirds of small independents in the UK are making a loss, research suggests. Several entities, mostly dealer groups, have stepped up to do something about it. It's easy to get confused, however, as OPI explores the tricky cost-to-serve issue.


We said it before – the UK OP space is a very interesting place to be at the moment. And with everything around new wholesale entrant Gem having gone quiet for the moment, over the past few weeks all eyes have been on the dealer community or, more specifically, on its groups.

The topic is always the same: what can we offer independent dealers that helps them lower their fixed costs and overall go-to-market approach?

Handing over part of the responsibility and day-to-day running of the business, on- or offline, and dealing with the hugely costly logistics side, has been the favoured plan of attack.

Several years ago, nectere paved the way with the conception of its new dealer services model. It is now firmly established in the UK with about 35 dealers working with the group, has launched in the Republic of Ireland and set its sights on several other markets, with imminent announcements expected.

NetStationers, later known as the Office Canopy Group and since this autumn rebranded as ‘buro business supplies’ goes even further back, to 2000, but as a concept works very differently as it’s a pure franchising model.

About 18 months ago, Advantia signed a deal with office2office, giving dealers Truline, while in July euroffice surprised the market with its Office Power initiative.

Most recently, Superstat announced Cadabra and XPD launched Pi. Integra is expected to take the limelight next with its very own programme, details of which are still firmly under wraps.

The only thing we know for sure now is that, unlike all the other initiatives, it will not be a programme aligned specifically to one of the two UK OP wholesalers.

Game changers?

In among all these announcements, the terms ‘game changers’ and ‘unprecedented’ have come up more than just once. But are they? Broadly speaking, all parties bring something different to the table. The extent to which they do that is debatable but, quite frankly, it would be unusual if there weren’t any misgivings and a certain amount of snipe given the intensely competitive nature of the UK dealer community – and for now realistically just two viable wholesalers to support it.

“But”, says Advantia CEO Bob Geens, “any new initiative which helps the dealer community to be more competitive and profitable is to be welcomed, providing it does not add in any unnecessary cost to the supply chain.”

The notion of some initiatives only attracting failing dealers – and nectere in particular has faced much criticism here – is a repetitive, if slightly irritating, one. To blatantly generalise: why would anyone doing so very well on their own, with their own warehouse and delivery fleet – most models at least ‘strongly recommend’ a stockless model – want to ‘sign over’ any part of their business to somebody else, no matter how good they are, in some cases giving up their own identity (buro, partly nectere) and most certainly losing a certain amount of control over it?

As such, dealers will be looking very carefully at what’s on offer to establish whether a programme suits them and which they should choose. Going stockless, for example, may not be compulsory, but the benefit of joining a programme might be lost entirely if dealers choose not to go down that route. Yet, the stockless model is usually a core part of virtually all initiatives, enforced or not and presented in varies guises, as it’s typically an area where a large percentage of dealers’ fixed costs are tied up in.

The option of working with sophisticated ordering and web platforms are other advantages that are high on the agenda. They are also areas where small dealers in particular often lack expertise and resources and where the likes of Cadabra, XPD’s Pi (see also ‘The new life of Pi’, right) and, of course Office, Power score highly, often with solid wholesaler backing and support.

Small dealer focus With the exception of Cadabra which, says Superstat Managing Director Chris Collinson, is open to and suitable for dealers of all sizes, all initiatives regard the small independent dealer (or even the individual in buro’s case), with revenues of between £0.5 million ($0.8 million) and up to a maximum of £2 million as their core audience. They are the ones that have the most to gain from them and, as a general rule, also the ones that are struggling the most. Most dealers above that bracket, certainly more than £5 million, arguably already have an infrastructure in place that would make it difficult to take full advantage of the various offers.

Office Power Managing Director Tim Beech says: “We top it off at about £1.5 million because anything above that often means that the dealer is already web-savvy and marketing-led.

“We’re looking for small dealers that have built their model with their own identity and with their own warehousing and logistics. These dealers are our sweet spot because they are the ones that can gain the most from using the Office Power model and make the most savings. “So it’s not necessarily web-based businesses, but those whose time is being diverted with all these other things rather than selling. With the pricing visibility and competitive landscape as it is, a lot of dealers are having their margins squeezed at the top and trying to cut costs at the bottom while at the same time maintaining service levels.”

Modularity and identity are two points that also frequently come up in conversation and it’s here where opinions – and models – are divided. Office Power is not modular – it’s an end-to-end solution – but dealers are, as Beech points out, “often more than happy to go with what we’ve got because it looks better; the way it works, the route to market, website design, etc”. But, he adds, they always keep their own name, colouring, font style and so on on the web platform.

Buro, meanwhile, is not modular in any way and the franchisee also has no identity of its own. But the franchising model also caters for a very specific audience (the individual) and is very much a lifestyle choice, as CEO Alan Bonner points out.

He says: “Operating someone else’s business model is a half way house to outright business ownership and this does not suit everyone, so finding good franchisees who understand the sector and are able to sell and share the values of buro is an ongoing challenge. We are not a dealer service organisation supporting dealers with their own working practices, personality and portfolio of customers. “All customers are buro customers and receive a common experience and our most successful franchisees are those that understand that the job is about selling.”

And, while the dealer group initiatives concur with the view that selling is at the top of the agenda as far as dealer priorities are concerned, both modularity and identity are hugely important, both in the case of Cadabra and also Pi.

Says Collinson: “Dealers have spent many years building their reputations in their chosen field and geographical areas. We intend to enhance this reputation, not take it away. So, while we require the dealer to acknowledge that they are part of the Cadabra family in their marketing, their own name will remain prominent throughout.”

Dealer group lifeline

Arguably, all these initiatives provide as much of a new lifeline and raison d’être to the dealer groups themselves – and a financial and possibly even acquisition target for the likes of Office Power – as they provide a service to dealers.

As Alan Ball, CEO of Spicers which is at the heart of many of them, says: “The buying groups are coming up with these models, because unless they do something to add further significant value, they would come under pressure themselves because they haven’t got any long-term viability. The initiatives may vary, but the underlying principle is the same and that’s helping dealers take cost out of their business and focus on selling rather than all the other administrative things that they are used to doing.”

There’s no doubt among any of the people OPI spoke to for the purpose of this article that the sheer number of dealer groups in the UK is unsustainable going forward. But that’s not necessarily implying that those that have not jumped on this particular ‘cost-to-serve bandwagon’ will be the ones in most danger.

Too good to be true?

As Mike Gentile, CEO of US dealer group Independent Stationers, says with more than a hint of scepticism: “The many new initiatives and programmes being introduced in our industry are most intriguing. But we need to do a deep dive into these specific programmes to fully vet their respective benefits to the independent dealer. Some programmes claim to reduce fixed operating costs and streamline the supply chain which should result in freeing up existing resources for market share growth.

“Who would not be in favour of that? Well, sometimes when it is too good to be true, it isn’t true. We have found that some initiatives are mere “share shift” programmes that can be a Trojan horse for the independent dealer and the manufacturer.”

Fellow US dealer group TriMega is equally sceptical. Says EVP of Member Development Grady Taylor: “We’ve heard of one of these programmes coming to the US and we’re wondering if, at the end of the day, it’s nothing more than a roll-up. There are at least three dealerships in TriMega that are already doing this to a certain extent. If this concept was going to be wildly successful then I would have thought that these [US] initiatives would have made larger inroads already than they have to date.”

Taylor is referring to America’s Office Source, a network of independent OP dealers located in several cities across the US. Created during the heyday of the OP superstores in 2000 when many small independents were rolled up or simply went out of business, like the UK initiatives, the concept revolves around dealers focusing on selling while the host – America’s Office Source – provides the tools to make the rest happen (for more info,

The issue with any model like that, and Taylor also refers to Indoff (see, is that he questions both its appeal, as well as its success rate. “The premise with a concept like Indoff is that the dealer goes out to sell, while the Indoff people handle everything else; the dealer-cum-salesman gets half of the growth margin. But the allure of half the gross profit starts going away when Indoff starts charging back for delivery costs etc and the next thing you know is that the salesperson is making what he was making before, maybe even less…”

And is there room for another layer in the chain that wants a share of the profit too? According to Paul Musgrove, Managing Director of nectere, there is. “Shared resources are cheaper – end of story. If you save £10,000 and use £5,000, that still leaves you with £5,000. It’s not physically possible to remove all the overheads, but by aggregating things become cheaper. In the past 18 months, for example, our dealer margins have gone up by five points.”

Musgrove has been vindicated to a great extent, of course. Having come under heavy criticism when nectere first launched in 2010, he says: “Everybody is now trying to copy us – and a poor copy from what I’ve seen so far – and that’s quite nice.” The good bit, he adds, is “that dealers are really looking up now and hopefully they’re going to see what works best for them”

As Spicers’ Ball concludes: “Some of these initiatives will fail and some will succeed, but overriding any specific platform developed by whoever in whichever format, I have no doubt that it will change the way that dealers operate.”

The new life of Pi

XPD’s Pi programme is so new that it hasn’t commanded quite the column inches other cost-to-serve initiatives have had. As such, OPI spoke to Managing Director David Langdown to find out a bit more. 

OPI: You are the latest in a succession of dealer service models – what is Pi bringing to the market?

David Langdown: The easiest way to understand is to hear what Pi is not. It is not an all-or-nothing solution that requires dealers to radically re-engineer their businesses. It doesn’t require dealers to join or change alliance within dealer groups; it does not require the change of their business name, independence or ownership and it doesn’t turn them into sales agents for another entity.

OPI: That’s some of the competition covered then. So what is your sweet spot dealer and what do you offer?

DL: Pi is about three distinct opportunities. Firstly, it offers a significant improvement to the Oscarnet e-commerce system. Based upon the Netalogue technology platform and utilising the Open Range data, it will provide a function and content-rich solution for processing SME and corporate business.

For some dealers, this is as far as they may wish to go. However, should they want to take it further, the system includes fully integrated ERP that extends it from being customer facing to also operating as a procurement and back-office system. This will streamline processes and improve the dealers’ efficiency.

Beyond that, there is the option to outsource all of the business processes, bar the selling and customer relationships. Here, dealers would be able to choose how far to take the model. They can decide whether to outsource, for example, sales order processing and telephone support, accounts and so on. They could maintain their own stock and warehousing, continue to run their own vans and manage their own deliveries, or they could adopt a stockless model, get rid of all of the overhead associated with it and outsource a direct distribution model.

OPI: It’s a case of pick and mix then? 

DL: Very much so. We are not being prescriptive and it’s a case of marrying the systems we have with dealers’ individual objectives and aspirations.

OPI: What has been the feedback so far? 

DL: We have started discussions with a number of interested dealers, including those at our recent conference. Feedback so far has been overwhelmingly positive from the type of dealers we expected to be interested and for which reducing the cost to serve is very high on the agenda.

We are now fine tuning the systems and refining the outsource model. Our intention is to be live with transacting dealers by the new year.

OPI: How will dealers pay for the services they use?

DL: There will be a monthly licence fee for the e-commerce solution that will include the full Open Range data and will offer both a B2C (web store) and B2B (e-procurement) solution. This will be priced at £250. For dealers that wish to integrate the system with their accounts package and create an end-to-end solution, there will be an additional fee. 

For dealers that choose to outsource service elements such as telesales and handling of end-user enquiries, invoicing, sales and purchase ledger and so on, there will be variable charges based on the value of transactions. In the case of services such as list cleansing, telemarketing, catalogue mailing, campaign follow-up and so on, these would also be charged on a variable basis depending on the volume of work.

OPI: You are very closely linked to Spicers with Pi. How did that come about?

DL: XPD has been involved in the development of e-commerce solutions for more than 12 years and it’s a natural extension to our offering to go down this route. The big question for us was whether to go it alone or in partnership. We ultimately decided that it would better to develop a solution in conjunction with Spicers, and we view them as a partner that can add tremendous value to the whole proposition. And as it’s a joint programme, only Spicers ‘loyal’ dealers are eligible to participate in it.