Formed following a consolidation of UK dealer groups in 1997, Integra is the UK and Ireland’s biggest dealer cooperative. CEO Rick Needle gives OPI the heads up on the state of play at the group and the future of the UK dealer community
OPI: Hi Rick, to start with can you give me a bit of background on Integra?
RN: Integra was formed in 1997. It was a consolidation of two of the bigger UK dealer groups at the time: the National Dealer Association (known as the NDA) and Instat. Basically, they were looking at what was happening in the market, in particular with some of the large corporates. The groups at the time were relatively small but influential with approximately 30 dealers.
When Integra was formed, I came on board as the chief executive of the new business primarily because they wanted somebody who didn’t have an axe to grind as a leader of the two groups. The BCSA, which is the British Computer Consumables Association, also joined Integra at around about that time. It was a dealer group of EOS specialists and that was quite instrumental because it gave us a kick-start into focusing on the EOS sector in 1998.
Very shortly after that we acquired another group called Computer Office Group – known as COG – and they were computer product specialists. So we brought in a group which specialised in the consumables side in terms of EOS, and then we brought in another group which specialised in the hardware side as well.
All this meant was that we were really beginning to form a broad-based group with expertise in several growing niche sectors, and we were moving away from just traditional business and stationery products into far broader business solutions.
Each of those areas has been kept fairly discrete. We now operate with five different marketing divisions. Within the commercial office products sector we have the Directory division, which are the larger dealers. Their average turnover is about Â£4 million ($7.4 million). We then have two other divisions, Gold and Alliance, and they’re for small to medium-sized dealers. Average sales are approximately Â£750,000 to Â£1 million.
OPI: What is the current state of membership at Integra and what is the growth pattern of your membership at the moment?
RN: The reality is that our membership numbers in total have not changed fundamentally over the last two or three years. We’ve have had slightly under 400 members for that period of time. Unfortunately, we are seeing dealerships going into liquidation due to financial difficulties. We inevitably lose dealers because of that.
But there is also quite a lot of merger and acquisition activity going on, and it’s not just as it was many years ago with the multinational corporates buying up big dealers. Now, the large to medium-sized dealers are merging or acquiring one another and actually buying smaller dealers. Also, particularly with a lot of family businesses, they don’t have clear succession plans. There are Â£500,000, Â£1 million or Â£1.5 million turnover dealers being sold to other, more progressive, younger and vibrant companies. We are quite aggressive in our recruitment though. Last year, we brought in about 30 high quality new dealers, but unfortunately we lost a similar amount because of financial failures, and mergers and acquisitions. So I don’t see any fundamental change in terms of the actual size of the dealer group.
OPI: This whole succession thing seems to be a bit of a topic at the moment, particularly in the US. Is it as important over here in the UK?
RN: Well it’s absolutely critical, but it all depends on the individual dealer’s lifestyle and business. We’ve got some obviously very successful dealers that regard it as a family concern, and they want to try to pass it down from generation to generation.
Other equally progressive dealers are building up their businesses with the prime objective of having a financially rewarding exit at some stage in the future when they can sell the business on.
Yet other dealers are really just looking for a way out as they have nobody to pass it on to. But this is absolutely critical, because unless you’ve got something in place, the business will just wither away.
OPI: How has the last year been for business compared with recent years in the market?
RN: I think that 2004 saw several false starts, and we’ve seen the overall business supplies market relatively stagnant over the last two or three years, but within that there’s quite a significant change in the product mix.
If you take the general stationery sector – traditional office products – there is no question that it is in decline, and has been for quite some time. In our estimate, that sector has declined by about 6 to 7 per cent this year. But then, when you look at the growth sectors, they compensate for that.
Obviously EOS is still showing very strong growth, albeit at a very small margin. We have actually seen a turnaround during the last quarter on furniture, which is very encouraging, because furniture has been an extremely difficult sector for three years. But that’s showing signs of improvement.
I also think new product areas for dealers, such as jan/san and FM, are showing strong growth. The dealer groups, the wholesalers and the dealers themselves are putting a lot of effort behind these products to broaden their portfolio on the basis that they are compensating for the loss of general stationery sales.
So overall, the market has probably shown some small growth this year, and with our membership remaining virtually static, we will be seeing probable growth, as a group, of maybe about 8 to 9 per cent. We don’t know, until we’ve done our year-end audit which doesn’t normally take place until Q1 of the following year. So I’m quite optimistic really.
OPI: Could you put a figure on total member revenue for the end of 2005?
RN: I would see it probably going up to about Â£750 million or Â£760 million, but there again, that’s essentially growth within the existing membership and if we were to bring in some high profile, large new dealers, that would make a difference as well. I’m relatively confident.
OPI: How are your members’ margins stacking up?
RN: We review our members’ performance every year. The indications are, from speaking to dealers, that margins are generally holding up which is good news. Last year, average margins, and these very much depend on the size of dealer and what type of business they’re competing against, for the small to medium-sized dealers with a fairly standard typical office products range, were around 35-36 per cent.
If you look at some of the bigger dealers who are competing more against the corporates, their gross margins are around 30 per cent, and I think they are broadly holding their own, but again, it depends on product mix, because we do have a lot of EOS specialists within the group, and also computer products specialists. They tend to have margins in the middle 20s.
But overall I think it’s relatively good news. Although the market is becoming more and more competitive at the front end, in terms of selling prices to the end user being constantly under pressure, we’re actually able to compensate through our purchasing via Europa and BPGI, and overall I think margins have broadly been maintained.
OPI: What are the key differences between the service that you offer at Integra as opposed to the other UK dealer groups?
RN: I think we’ve got a far broader menu of service and support programmes than other groups. We provide options for individual dealers to pick and choose from, depending on their different business models. And very clearly dealers don’t have a consistent business model.
Some of them hold a lot of inventory; others have minimum amounts of stock. Product mixes vary between dealers from those very much focused on furniture, or EOS, or general stationery, and it’s making sure that we’ve got a marketing portfolio to meet all those different needs. That’s one of the reasons why we also split our membership up into different divisions so we can actually provide different solutions for different types of dealer. We have the normal paper publications, paper catalogues, mailers and flyers, and we have very strong ecommerce offerings as well.
I think Integra has been at the forefront in terms of IT support for dealers. It offers Integrated Technology Services which goes into the dealers’ companies and gives them a thorough consultancy service in terms of how to get the best out of their back-office systems. We provide them with all sorts of different software tools to help improve their margins and profitability.
Basically, we recognise that it’s not one-shoe-fits-all and we provide differentiated offerings to meet the needs of the different dealers in the group.
OPI: Do you act as a distributor, like is.group is doing in the US now?
RN: As far as our Initiative own brand is concerned, that is distributed through Europa. So the Europa warehouse will stock all of the Initiative range. We also distribute it through both Kingfield Heath and Spicers, because it’s absolutely critical that all dealers within the group, no matter how small, can have access to the brand. So the dealers that are relatively small and can’t use Europa because they can’t take in large quantities of pallet orders, can actually buy from us through the wholesaler on a next-day basis.
It means that all dealers throughout the group have access to the brand through various channels, and it’s also available in terms of the EOS range. We’ve developed that very strongly over the last couple of years, and we’ve got getting on for 300 EOS lines branded Initiative available through the Integra EOS warehouse.
OPI: Overall, would you say this is successful for you?
RN: Well, there’s no question about it. On the one hand we have the traditional stationery products distributed through Europa, and its association with BPGI has been extremely successful. Talking about what’s happening in the US for example, I know is.group has tried to emulate in many ways what we’ve actually already achieved over in the UK, so I think it’s early days for them. But it certainly saw the advantages of being able to take out cost from the supply chain. As Europa is a not-for-profit-making organisation it means that all the benefits of its buying, warehousing and logistics can be passed on through to the dealer.
OPI: How big of a part of your members’ business is EOS?
RN: It varies from dealer to dealer. The average across all dealers would be between 35 and 40 per cent, but within that we’ve got our EOS specialists where probably 80 or 90 per cent of their business is in EOS. Those are resellers who came in through the BCSA and others that have joined us since then. Although margins are generally extremely low in EOS, big specialists like that can do very well indeed. They have expertise in selling the products and not just the fast moving, very low margin HP commodity type products, but the whole raft of different B, C and D lines where they can actually make some very decent returns.
OPI: How healthy do you see the independent dealer channel in the UK at the moment? Maybe you can compare it to what we see in the US?
RN: Well, I think the numbers speak for themselves. By and large independent dealers have probably still got in excess of 50 per cent of the total market in the UK. I think that compares, in terms of the figures which I’ve seen as far as the US is concerned, with round about 15 per cent over there. Independent dealers in the UK have also consistently performed well against the large corporates.
There are signs at the moment, with the various integration programmes that the multinationals have gone through over the last couple of years, that they’re beginning to flex their muscles again. They are actually going down in terms of size of customer that they serve, which puts them head-to-head with a lot of the medium-sized dealers. The reality is that even though on average the independent dealer finds it difficult to sometimes compete on price, its local service and support programmes give it a very, very significant advantage.
There are many examples, certainly within Integra, whereby over the last year or two we’ve seen our dealers lose out to the contract stationers, maybe losing some of their larger accounts, but there’s many an instance where they actually get those back in a relatively short period of time because of the better service.
I think that overall the health of the independent dealer in the UK is extremely good. As in any business or business sector, you’ve got dealers that are not really aggressive enough. They’re not actively out there promoting their business and they’re maybe wondering why they’re going backwards. But there are a lot of very young, vibrant dealers out there winning good business from the corporates and developing very good year-on-year growth.
It’s quite interesting. If you look back over ten or 15 years in terms of dealers that are around now that are doing multimillion pound turnovers, many didn’t even exist then. So there is a churn there as well. Some of the old established companies fall by the wayside, but they’re replaced by young, new, aggressive, successful businesses and I think it looks pretty good to be honest.
OPI: I know in the past it’s been said that there are quite a lot of independent dealers that perhaps don’t have the dynamism to see the opportunities and go for them, but do you feel that’s going to change? Do you think it’s a cyclical thing and that people are going to be adapting to how the market is now and being a bit more entrepreneurial?
RN: I think there are a lot of very successful dealers out there. We are seeing probably a polarisation as well. We are seeing a lot of the larger independent dealers, ie the Â£10 million plus organisations, getting even bigger. And we are seeing quite a lot of dealers in the Â£5 million or Â£6 million turnover category that, I think, will within the next couple of years break through the Â£10 million barrier. So there’s a lot of aggressive activity out there.
I think that it goes back to the conversation we were having earlier regarding succession, whereby dealers don’t have a clear plan to pass the business on to somebody else, whether it’s family or outside. It’s inevitable that they’re going to become less committed and their performance will be going backwards rather than improving. But, as I said, it is cyclical and those businesses are replaced by successful new dealerships.
OPI: Do you think there is room for any further consolidation in the UK dealer channel?
RN: My personal view is that consolidation is good for the independent dealer. This subject is relatively controversial in terms of people having very polarised views. At the end of the day, as long as you can actually consolidate and still maintain a differentiation, even within a large dealer group, it’s got to be a positive opportunity.
I also believe over the course of the next few years that some of the multinational corporates will probably go back on the acquisition trail. We’ve already got the larger contract stationers in the UK like office2office and OyezStraker stating that they are looking around for acquisitions. They both turn over well in excess of Â£100 million and I can see them buying up some of the larger successful dealers. That, in turn, will dilute the effectiveness of some of the dealer groups if they lose some of their better members. So I do actually see, long-term, that it is in the general interest of independent dealers to join together to get the economies of scale to get more leverage in the market place.
Now whether that will happen or not is a different issue. I think that’s easier said than done, because a lot of the dealer groups have very different philosophies and cultures. Some are owned by entrepreneurs who hold all the shares; others are cooperatives – as Integra is – whereby all of the dealers are shareholders. Trying to bolt companies or groups like that together is exceedingly difficult. But I do actually see a medium-term benefit for the majority of dealers belonging to a more powerful entity.
OPI: How large can Integra grow now?
RN: I think it can grow in many different areas. For example, we estimate that a Â£700 million plus turnover equates to 6 to 7 per cent of the total market. Turning that around, it means that we’ve got 94 per cent of the market still to go for. So there is room for growth there, just organically without actually increasing the numbers of members. Having said that, I would like to see the membership grow but not without proper planning and control in place.
We have several geographical areas where we’d still like to have new members, but we also look at new product sectors and niche areas as well. As I said earlier on, over the years we’ve brought in BCSA which specialised in the EOS sector; we brought in COG which specialised in the computer product sector. More recently we’ve created the Aspire division which is more for printers and print management companies. But they all sit very comfortably under the general business supplies umbrella. So there are growth opportunities there as well.
OPI: Seeing as you mentioned the Aspire division, can you tell us a little bit more about that, about the idea behind it and where you think that might go?
RN: I think it’s just another example of us identifying convergence in the marketplace, whereby end user clients are looking more and more to put their purchases through a smaller number of suppliers. That was the case with EOS and traditional office products coming together. Computer products, printing and print management is just another extension of that concept.
A lot of our dealers are already involved in printing and print management as part of their overall client service. Talking to a lot of printers outside the group, they were being asked more and more to supply stationery and EOS products, and it became a fairly clear opportunity for us to create a new division for printers and print specialists.
The synergies are that other dealers within the group benefit from their expertise in print management, and the printers and print managers benefit from the traditional dealers’ expertise in office products and EOS. It’s all part of creating a one-stop-shop solution.
OPI: How are things going in Ireland?
RN: We’ve got about 36 dealers in Ireland. The Irish market, in the latter half of the 1990s, was extremely buoyant. In the last couple of years it has slowed down and particularly in the last 18 months it’s been quite difficult. Our dealer membership over there has remained virtually the same. It hasn’t changed significantly. They’ve gone through a tough time.
Overall gross margins of the Irish dealers are, generally speaking, higher than they are in the UK. They’re being hit by some of the large corporates coming in, such as Guilbert, Banner and Lyreco, and I think that their margins, as opposed to the UK, have decreased on the basis of that. But again, I think the scenario is very similar in Ireland to the UK, with those dealers that are active and progressive and are out there promoting their business and looking for new opportunities, are doing relatively well.
OPI: I want to just quickly touch on BPGI. Your BPGI membership – give me an idea of the kind of benefit you feel you get from that.
RN: I think from the manufacturer’s point of view, it is a really very powerful way of providing them with tangible opportunities on a global basis. Global suppliers can agree with BPGI on global product launch programmes, marketing support, catalogue listings and therefore get commitment back from what are basically several thousand independent dealers throughout the world.
So that’s what we put on the table for BPGI suppliers. In return, we obviously expect to get best in market or best in country terms as far as possible. We will actually commit to cataloguing their products and we will obviously benefit from those global negotiations.
In many ways, it is the independent dealers’ response to what has been happening with the multinationals in terms of their global power. Independent dealers have got to do something together to try to emulate that on a worldwide basis, and BPGI is doing it very successfully.
That trickles down to what we do through Europa, which enables us to take product in from the Far East. For example, we are now able to source product throughout the world, not just manufacturer branded products but own label products and own brand like the Initiative range, which we can then bring into Europa and store in our own warehouses. So there are very definite buy side prices which are clearly a lot better than we could be doing if we were just focusing on our own local suppliers and local markets.
I think another benefit is networking. A lot of the dealers in the different dealer groups, whether they’re in Australia or New Zealand, in the US or the UK, actually have the opportunity to talk to one another. Certainly, the dealer group head offices and key people exchange strategic information which ultimately is to the benefit of independent dealers throughout the world.
OPI: Can you tell me about the MAIN event – the new combined dealer group conference.
RN: As well as Integra, it involves Momenta as it was and United as it now is, plus Nemo and Advantia. There had been a lot of noise from suppliers about the number of dealer group exhibitions and conferences that they go to every year, and the resources that they eat up.
We listened to that point of view and it was overlaid with the high level of cooperation which already exists between those four dealer groups. We don’t only just co-operate on purchasing through Europa, but we also exchange marketing programmes and work closely on IT. A joint exhibition was a logical follow-on from that.
It’s going to take cost out of the suppliers’ support for our exhibitions and it’s also going to enable the four groups to get together with a single bigger opportunity for all of their dealers. Hopefully we’ll be talking about over 500 dealer companies and 800 or 900 representatives from those companies over a two-day period. So it really will be the biggest office supplies exhibition since the days of Statindex.
We’ll see how it works out. It’s very much an experiment but, as ever, if you don’t try new things you go backwards.
OPI: In the US there’s a lot of discussion about the fact there are too many events and some of them are struggling to get people in. Do you think a form of merging or consolidation might happen elsewhere for these kinds of events?
RN: I’m not that knowledgeable about the various exhibitions which take place in the US, but that is spot on in terms of why we decided to do it over here. Having lots of different dealer group exhibitions and events dilutes supplier returns and it’s far more cost effective to put them all together into one key occasion.
OPI: We’re going to finish off with a few questions about the situation at BOSS Federation because I know that you were recently named as Ron Wotherspoon’s replacement as Chairman. BOSS seems to have redoubled its efforts after having a tricky period. How do you see BOSS at the moment, and what do you see as being your key aims in your role there?
RN: You’re right. If you go back two or three years, BOSS did go through a difficult period and saw some members leave. Certainly now we’ve put in place a very aggressive strategy, and the whole objective of that is to provide tangible benefits back to the members, regardless of whether they’re manufacturers, wholesalers, dealers or resellers, and I think that is now really coming to fruition.
I’ve been very pleased this year with the number of members that have rejoined, particularly in the dealer group community. I’m confident in saying that it’s never been as strong as it is now. Just this year we’ve had Superstat, Advantia, Office Club and, more recently, Officepoint all rejoining after resigning in the recent past. And they’ve done that, I think, because they actually are now recognising that BOSS’s activities are relevant to them and relevant to their dealers.
As far as BOSS is concerned, a lot of what it does was unknown to the dealer community. Dealers didn’t really know the amount of hard work that went into all of the activities in terms of establishing industry standards, for example, which ultimately affect the profitability of everybody in the business. It takes cost out of the supply chain and improves efficiencies.
Dealers are now seeing it happen and through the dealer groups and the reseller and manufacturer forums all these things are being focused on and are coming together.
OPI: Do you think BOSS needed a bit of a rocket to get it going again?
RN: I think there’s no question that it did. Basically, and this is going back quite a long time in history, it was far too bureaucratic. It was a committee-run organisation, and still is to varying degrees, but we’ve now got an executive team that gets on and does things after receiving guidance from key players in the industry. I think it’s freeing up talent to actually get on and do the job, rather than just wallow in administration and endless rounds of meetings.
I think that certainly the relocation of the premises has injected new life into the organisation and there has been a renewed commitment from key players in the industry. If you look at the make-up of the BOSS board now, it’s got the chief executives of both the main wholesalers, Spicers and Kingfield Heath, it’s got three or four key manufacturers sitting on the board, and I think the direction that it’s now going in is far more focused.
OPI: Rick, that’s great and best of luck in the future.