Germany’s dealer groups – and their members – may face some stiff challenges, but they still occupy an important niche in the OP market
At the risk of sounding like a broken record, there’s no getting away from it: Germany is not a great place to be at present for those in the OP industry, especially for dealers.
Since the glory days of the 1980s and early 1990s, years of consolidation, intense competition and, at best, a sluggish economy, have taken their toll. Total dealer numbers are estimated at about 3,200 now, down more than 60 per cent from 1996.
So what of the famed Genossenschaften, the buying groups that were once the powerful backbone of these dealers? The two main groups are Branion and BÃ¼roring and approximately 40 per cent of commercial dealers in the country are members of one or the other.
Certainly a little leaner and meaner than they once were, both groups are struggling to retain their membership numbers – around 370 for BÃ¼roring and 900 for Branion – for a number of reasons. The state of the economy and low consumer confidence are contributory factors, says Friedrich Becker-Birck, senior partner at Becker-Birck Consulting, but the real reason lies elsewhere.
He says: "Buying groups are losing members because so many are going out of business. This is happening for several reasons, including bad business development and financial struggles. But mainly, it’s because dealers haven’t got any properly laid succession plans. I’m mostly talking about dealers with revenues of between 11 million-15 million, but several of the country’s large, family-owned businesses are also affected. With no succession plans and in a bad business climate, dealers simply give up."
In the light of such gloom, dealer groups are actually not faring too badly. They are trying to compensate for lost members by acquiring new ones and, in 2004, both Branion and BÃ¼roring have fairly successfully maintained their total tally. That said, overall combined revenues are declining.
The pool from which to draw these members is getting ever more shallow, however. In that sense, BÃ¼roring is perhaps having the easier job, as the very small independent dealer – its traditional target audience – is still more abundant than the medium-sized dealer, which has been more the domain of Branion.
That said, BÃ¼roring is currently fighting another battle, ironically the same one that some of its members are facing – succession. The group’s managing director Klaus Kemper decided last spring to enter early retirement. A successor was lined up, but didn’t work out. The group is now back to square one, with no imminent announcement expected. Kemper has re-emerged from semi retirement and is back on a part-time basis, but clearly, this is a situation that the group could well do without in such challenging times.
But on the whole, says Becker-Birck, dealer groups will survive because there’s still enough volume of business around. At the same time, the groups are improving their services to members, including a growing level of personalisation. Most dealers are buying solely through their group, accepting the assortments chosen, the online solutions provided, and of course the more competitive prices.
Then there’s delivery, an area where both groups are doing well. Branion has its own standalone warehouse business, LogServe. Becker-Birck says: "LogServe is doing well now, especially with new product categories such as EOS and computer supplies. Its whole function is very similar to that of a wholesaler with the exception that only Branion members can purchase through LogServe."
BÃ¼roring meanwhile works in close collaboration with Spicers and this appears to be working equally well. But while Spicers has introduced the concept of stockless dealers in Germany, there’s little uptake on the offer. It’s a mentality thing, says Becker-Birck. "A dealer’s understanding of its role is to buy and to sell, and in between those functions there must be a warehouse, even if it’s a small one, so that delivery to customers can be assured at any time."
Last and by no means least, Germany’s manufacturers like dealing with the buying groups because of the groups’ so-called central billing function. In essence, manufacturers are guaranteed payment within a certain number of days, as a result of which dealers get a cash discount that ranges between 2-3 per cent at present.
The picture may look gloomy, but between them, dealer groups and their members still make too much of a good team to be written off.