uphill battle, downhill prices

At nearly 70, Peach’s founder may be ready to hand over the CEO reins to Alfred Wirch, but what he stands for will reverberate around the industry for many years to come
OPI: Dr Wolfensberger, you recently received the Industry Achievement accolade at the European Office Products Awards. During a lifetime in the OP industry, what do you personally feel has been your most outstanding – and perhaps industry-changing – achievement?
UW: Half a century ago, I went on a seven-month business training trip to the US. During those seven months, I learnt just about everything there is to know about binding machines. And when I returned to Switzerland, I immediately applied all this knowledge and started selling binding machines to all kinds of companies in the country. At the time, in 1955, the price of a binding machine equalled the monthly salary of a typical secretary.

Later this year, a certain German food giant intends to sell a binding machine for Euro 19 ($25) to end users. To put that into some kind of context, Euro 19 is exactly what we pay a babysitter for an hour. I know that price so well, because we often hire babysitters for our grandchildren, so that the family can go out for dinner together!

The point I’m making here is the incredibly good value of this binding machine and I think I can take some of the credit for that. As most people will know, I have always been a strong advocate of ‘sensible prices’, and I am proud and happy that in 2005 the equivalent of one hour babysitting can buy a binding machine. I have also mentioned in previous interviews that my dream is to see each user of a printer also becoming the owner of a binding and/or laminating machine.

OPI: Quite poignant that this price tag of 319 is offered by a non OP company, isn’t it?
UW: Well, perhaps it’s coincidental that a major distributor of food products should be the one to help me achieve my goal of bringing down prices. That said, the community of OP distributors tends to stick to the ‘milking strategy’, as it obviously feels it needs the extra profits. This ‘sticking too long to the milking strategy’ by OP vendors was aptly demonstrated several years ago by Tom Stemberg and Dave Fuente. Their superstore concept became such a success so quickly because customers realised that they could save a lot of money by shopping at Staples or Office Depot. The traditional OP resellers at the time just didn’t react fast enough.

OPI: Discount retailers such as Lidl or Aldi frequently sell tech products and their consumables at very low prices. Mr Wirch, is it merely a volume issue? Do they actually make any money out of these products or is it more of a ploy to get the consumer through the door?
AW: Volume, cost of distribution and service play a role in every market. A real high volume consumer product will always have a lower price than the ‘nice’ branded.

UW: All Peach customers can achieve good margins with our products, be they laminating and binding machines, shredders or inkjet supplies, as long as they stick to our DIS rules.

OPI: What does that mean?
UW: It stands for direct import system. If you buy in huge volumes, as the likes of Aldi would, these retailers can have a mark-up of 100 per cent – providing they abide by our DIS advice. And a very small margin is acceptable for Peach in this case. The two most important rules are that product is shipped directly from the vendor to the retailer and that the former gets paid promptly. Any warranty issues, for example, will already have been incorporated in the initial purchase negotiations and there shouldn’t be any further comeback later on.

AW: It’s not all about lower prices though. We see for different markets different needs with different prices. Naturally, a laminating machine for the home user is not going to be used as frequently as one in an office. Consequently, a home user would not be happy to pay the same price for it.

OPI: In addition to producing shredders and binding/laminating machines at cut down prices, Peach’s core mission right from its inception six years ago has been to bring down prices in the hugely inflated inkjet supplies market and rattle the supremacy of the OEMs involved.
AW: It’s all about choice. And of course, this is especially the case if a product, in the opinion of the user, is too expensive and the patent holder is generating unusually high profits with that product. This is precisely what’s been happening in the ink market and that is what we are trying to change, for the benefit of the consumer.

OPI: This specific market is sometimes likened to the pharmaceutical industry, where OEMs also put considerable mark-ups on their branded products and get away with it. Swiss pharma and consumer healthcare giant Novartis recently bought a number of generic drug companies in Germany and the US. So from formerly being a brand-focused manufacturer, Novartis has now also become a world leader in the generic drug industry. Is this a marriage made in heaven or hell – what’s your view?
AW: First of all, you’re right. The pharmaceutical and inkjet markets have several things in common. Most importantly, there are a lot of patents that protect the market – meaning that ‘compatibles’ in some areas are simply not allowed – and products are also very high-priced. But at some stage this is going to change. The market for generic drugs is getting ever bigger and has grown massively in the last five years. As I said before, it’s all a matter of choice. And basically, as long as the quality is the same, there is no need in the view of the user to pay more for products that essentially achieve the same result.

OPI: In a reverse situation, do you foresee that Peach could ever be the acquired party in a multibillion dollar deal with one of the OP industry’s OEM manufacturers? Would that be a desirable development?
AW: This type of thing has always happened in the market and as long as it is to the advantage of the end user, I can’t see anything wrong with it.

UW: If Peach succeeds in becoming a world leader in inkjet compatibles, then yes, I could imagine becoming an interesting prospect for an OEM that wants to expand and grow. There are many firms out there now that, rather than just keeping to their branded product line, also want to offer a good range in a lower price bracket. And I believe the Peach brand would make for a very attractive alternative.

OPI: But has this shift in market share from OEMs to manufacturers of compatibles already begun?
AW: It most certainly has. According to market research in Germany, Pelikan Hardcopy already has a higher market share than Epson in the Epson supplies market. So we are seeing for the first time that what’s happened in every other market already is now beginning to happen in the ink market. Pelikan is basically in the same boat as Peach. If offers users high-quality alternatives to OEM products at competitive prices.

OPI: Where does Peach’s biggest potential lie from a customer point of view and geographically speaking?
UW: We have devised the so-called Peach Plan whereby we are working on setting up production plants for Peach inkjet cartridges in large countries. Emerging countries are particularly attractive for us from a margin point of view, as good production margins are complemented by good trade margins. Combining the two gives us a good position in the market and makes it easier for us to become the most important manufacturer of compatibles in any one market.

AW: But no matter where we choose to produce Peach compatibles, we see the same trends all over the world as far as consumers are concerned. Inks are global products with global pricing.

OPI: I don’t know if there is a simple answer to this question, but where does Peach’s future (and profit) lie – with inkjet compatibles or reasonably priced binding and laminating machines?
AW: Peach is a very lean organisation with worldwide production places, so we can offer our customers products wherever they are, using currency and labour advantages.

UW: Geographic considerations aside though, the future ‘money machine’ for Peach is certainly in compatibles. Out of every dollar that is spent by the average company on office products, about 35-40 per cent are spent on hardcopy supplies. And that figure is growing. Binding, laminating and shredding equipment, on the other hand, only make up about 4-6 per cent of the total, a much more negligible percentage.

OPI: Finally Dr Wolfensberger, how much of a hands-on role will you maintain once you’ve handed over the CEO reins to Mr Wirch?
UW: The handover will only officially take place when the merger between Peach International and 3T is complete. Then, my hands-on activities will be limited to product and acquisition strategies of shredders, binding and laminating machines. My wife and I will continue to represent Peach all over the world. And we will always invite our customers and distributors to our various activities, especially here in Switzerland.

OPI: Dr Wolfensberger and Mr Wirch, it’s been a pleasure talking to you.