This month’s Big Interview takes us ‘down under’ to the Australian market as we speak to Brad O’Brien, CEO of Office Choice, one of the ‘big two’ dealer groups in the country.
O’Brien took over from the long-standing Max Ritchie towards the end of 2012, bringing a ‘fresh pair of eyes’ to the business supplies industry following a career in the computer software and electricals sectors.
One of O’Brien’s main achievements since he joined Office Choice has been to drive the group’s brand awareness in the marketplace. Here, he explains this new brand strategy and discusses the key challenges and opportunities for independent business supplies dealers in Australia.
OPI: This is our first Big Interview with Office Choice. Perhaps you could start with a quick overview of the group.
Brad O’Brien: The business was formed back in 1993 and it has gone through a number of iterations in terms of structure, dealer numbers and strategy since then. We’re a co-op that is a public unlisted company, so the bulk of the dealers in our network are also shareholders in the entity, which really contributes to the family nature of our organisation.
Numbers-wise, we’ve got about 110 business owners with around 145 outlets in total, and they’re generally split across two different membership types: an Office Choice branded membership – about 110 outlets – and then there is what we call the Connections membership, which is an unbranded membership.
OPI: To what extent do your members tend to have retail outlets?
BO’B: We are predominantly a B2B business; however, in essence we’re a pseudo retailer in that we take a box and sell it to an end user – the end user just happens to be a business in our instance. Our business mix is about 80% B2B vs 20% retail, with the retail coming primarily from our regional dealers.
OPI: What are your total end-user sales?
BO’B: It’s a very varied membership, so at the top end we have dealers doing A$20-plus million ($16 million) and at the smaller end in some of the regional markets there are members doing sub-A$1 million. But if you take the average turnover by dealer across the group, that sits at circa A$2 million.
OPI: What have been your business priorities since you took over?
BO’B: Just prior to joining the business, our board undertook a strategic planning process that culminated in the establishment of our three-year strategic plan. To the board’s credit, they gave me the opportunity to review and refresh this by applying a number of my views, and that’s what we’ve been working to for the past couple of years.
OPI: Can you provide some more details of the strategic plan?
BO’B: We broke it down into four key elements: branding (having that point of difference), merchandise maximisation, IT integration and operational efficiencies, and helping the dealers to reduce their cost of doing business (CODB).
We started first and foremost with our dealers’ market positioning, point of difference and our brand – so in layman’s terms, who and what we are as a group and who our target market is. Independents can’t be everything to everybody and there are a number of issues that don’t allow them to compete in the top end of town, so we really honed in on that SME market sector.
More importantly than that, we asked ourselves how we were going to position ourselves in the market differently; so we went through a whole customer research, brand architecture piece that said we need to have a point of difference, need to be memorable and need to have relevance and credibility.
Out of that we’ve developed very much a brand-driven strategy. So we’re driving an Office Choice branded proposition in the B2B market which, as far as I can see, is unlike the dealer groups in many other markets. Our brand proposition is about reliability, and that’s been supported with a brand ambassador – Joan, the Office Manager – and our new tagline, ‘Consider it sorted’.
Then the execution part was how we make ourselves memorable. We’ve done that with our ‘office hacks’ campaign, which includes half a dozen TV ads about alternative use of office products in an office environment. Our brand strategy is about creating credibility for our independent dealers, so when they knock on a door they’re not an unknown independent; they’re an independent that is connected with a brand which has volume, scale, credibility and competitiveness.
Our focus has now moved to merchandise maximisation with our new Head of ‘Merch’ executing his category review programme which is well underway. The key outcomes of this process will be greater operational efficiencies, more aligned ranges to our customers’ needs, more full-solution ‘new category’ expansion and, ultimately, improved profitability.
OPI: Who foots the bill for all this – the members?
BO’B: Ultimately, yes, because under any cooperative banner surplus income is distributed back to the dealers via a special rebate or dividend. We are fortunate in that our business is in a really solid financial position, having built a ‘war chest’ of retained earnings over the past 5-6 years. This being the case, we were able to utilise a portion of those retained earnings to fund the programme, which meant the dealers didn’t have to dip into their own pockets – so this was a positive.
OPI: What have the results been like?
BO’B: We are nine months into the programme and I must say the results have been positive. There is no doubting the market is tough and in a tough market we have been able to increase year-on-year purchases and, more importantly, rebate income.
We believe this can partly be attributed to the fact that we’ve been progressive – in our market at any rate – and delivered a very strong digital marketing and customer-engagement programme which has really driven our web traffic and greater brand exposure.
If you look at the statistics, our average weekly web traffic has gone up exponentially, and during our promotional months we have enjoyed a fourfold increase versus the already improved base run rate. That is great from a brand exposure perspective, but more importantly the click-through rate to dealers’ websites sits at around 80% of web entrances, which means our target market is hearing us and is willing to engage.
All that said, make no mistake about it, like all independent groups we were coming off a couple of really tough years, so to see the business performance indicators heading in the right direction is promising, but we still have much to do.
OPI: Let’s look at your performance last year. I’ve seen 2014 described somewhere as “a groundbreaking year” for Office Choice.
BO’B: I’m not sure I’d use the term ‘groundbreaking’, but certainly, if you look at our purchasing, rebates and customer reach results, we are pleased to be showing growth on last year. All the intel sources on our local market suggest that the industry is still down and continues to decline by low-to-mid-single digits, so this means we must be doing something right.
Notwithstanding this, our focus is on continued growth; we’re chasing growth on the back of our brand strategy, on the back of our merchandising category-expansion initiatives and on our market-share push.
OPI: You’ve got this brand strategy. What is the role of private label in that?
BO’B: We’ve had a really strong private label range for a number of years and currently have about 350 products. We’re a little bit different from most groups I’m aware of in that our private label carries our primary brand on it, so the Office Choice brand is our private label; we don’t run a price fighter or a non-name brand.
With that being the case, how we position that product is really important, as are the product specifications, as it’s reflective of our greater brand. So at the end of the day, it has to reflect our brand positioning: one of good quality and good value, not in that ‘down and dirty’ space.
OPI: What is your take on the market and the traditional OP dealer in general?
BO’B: If you look at the independent market in Australia, it is very crowded in what is a small market, and in one form or another there are four independent groups. That raises lots of questions around efficiencies, competitiveness, the ability to compete and customer relevance in the space. Couple this with the declining overall market and there is no doubt that it is tough work.
Add in the competitive landscape and there is a lot to contend with. Take Officeworks, for example. While they’re predominantly retail, their B2B space is gaining a bit of momentum.
OPI: It’s one of their strategic focuses.
BO’B: I believe so. However, from what I can gather the B2B space is proving to be challenging for them because it is difficult to establish that relationship, the connection that is required. Nonetheless, they continue to chip away and are making inroads.
You then have the likes of the multinationals and you have a really crowded market. That puts additional pressure on the independents and, once again, if you do not have a position in the marketplace – a point of difference, customer awareness, relevance and credibility – you are in trouble, hence the approach we have taken.
OPI: How is the BPGI partnership going with Office Brands and New Zealand’s Office Products Depot?
BO’B: From a functional perspective, it is working well. Whilst the BPGI arrangement is global, the practice is very regional; most, if not all, of the activity and contracts facilitated are with the local suppliers at a regional level under the global BPGI banner, and it’s the three groups that drive the agenda around those supplier category commitments.
OPI: How does the BPGI membership bring concrete value for members?
BO’B: Consolidating the volume across key categories without question benefits suppliers and translates into improved trading terms and rebate programmes for the dealers, and paper is probably the best example of that.
We’ve changed the structure slightly with our BPGI arrangement, so are now more hands on managing that process ourselves. We no longer have the BPGI North American representative come out to Australia to coordinate our meetings, which has allowed BPGI to restructure its service and cost base, ultimately reducing the cost of membership.
OPI: How is your relationship with Office Brands at the moment? I saw some mud-slinging at the end of last year in the local press.
BO’B: (laughs) There is absolutely no problem with our working relationship. I think what you are referring to is that there was some inaccurate reporting regarding some of our numbers in the local industry publication and we felt the need to set the record straight. That was several months ago and we’ve all now moved on. We are working together on the new paper tender as we speak.
OPI: On the subject of paper sourcing, I see you have had some issues with environmental groups that don’t like you working with APRIL.
BO’B: Greenpeace has taken aim at us in the past few months based on their view of APRIL’s commitment to sustainability and its sustainability policy, so there has been a bit of bad press associated with that.
OPI: Does that mean you are reconsidering your paper supplier?
BO’B: It’s interesting that this has come out when the paper tender is up for review! Like always, there are a number of factors to take into consideration apart from the specs and the price; so the first question we ask ourselves collectively is if we are happy with the sourcing and sustainability practices of the mills that are bidding – and that gets asked every time.
In APRIL’s defence they have been very proactive in countering any accusations against them. No one wants to get into a public spat with the ENGOs; but behind the scenes APRIL has been very proactive providing us with the information and the intelligence around their sustainability programme and how that is audited by an independent committee including KPMG.
As is often the case, what is reported publicly and what is fact can vary. Importantly, as a business we have a very fixed position on our obligations to the environment and sustainability, so the sourcing practices of our suppliers are paramount. We are also conscious that we don’t want our brand to be affected unfairly in the public arena, so we continue to manage this issue very carefully.
OPI: What are your priorities for the next 12-18 months?
BO’B: Whilst we’ve had really good cut-through on our brand strategy, there is still a lot of work to do and that will continue during this period. We are also six months into our merchandise, category management and supply chain enhancement, so that will carry right through to the end of 2016. This will be complemented with our integration and technology focus, ensuring our dealers are efficient, informed and providing a high level of customer service and shopping experience.
All in all, it will be about ensuring that the dealer network is strong, enjoys growth and is profitable in what will no doubt be interesting times for the industry.