Ruth Cohen interviews David Rounsevell about what’s new in the office supplies industry. David, Managing Director of Expense Reduction Analysts, spent over ten years managing a national office supplies company.
David – what is happening – there seems to be a contraction in the number of suppliers with one take-over after another?
I get asked a bit about my take on the changes in the industry. This one is the perfect storm. Staples Australia & New Zealand, the dominant player in the market, has been on the market for a while and has now been purchased by private equity firm Platinum Equity, which has been rebranded Winc. Platinum has since purchased the number two contract office products company, Office Max.
The name Winc, a creative take on ‘work incorporated’, has been described by Staples as a “fun and deliberate breakaway from traditional competitors and represents the company’s focus beyond office products and intention to meet the changing needs of both workers and learners”. Staples CEO Darren Fullerton said, “This brand is designed to bring a breath of fresh air to an industry that has been historically quite traditional and predictable”.
It seems to me that Complete Office Supplies (COS) has shored up its share of business in a defensive move with the acquisition of Lyreco. The market talk is that Lyreco has been losing $10 million a year for the last 3 years have never really made a success of the business since entering this market.
So with four players now reducing to two, what will this mean to the industry?
Winc now has a job to get costs down and margins up for private equity. Neither of the previous owners was getting the return on investment, and with sophisticated distribution systems, further reductions after the merger will be limited, so if history tells us anything, that will mean price increases to customers. The move by COS is a defensive play. By quickly taking up market share, they can profit the customer base through a number of means and also have a competitive volume.
Who else is emerging as a competitor now?
Firstly there is Amazon, a recent supplier to the Australian market, which has built a market share quickly in other markets. While we have yet to see any penetration into this market, most market watchers believe it will occur.
We still have Officeworks eating out the corporate contracts with high volume, high margin convenience purchases. They are also the largest product supplier but use the retail and online direct to the market strategy at this stage.
Quick Corporate is becoming a major supplier, has acquired a national presence over recent years, and it will be interesting to see how they react to the appearance of two massive competitors who have taken over most of the smaller players in Australia. And lastly, it will create an opportunity for the buying groups. A consolidation of this size will have a major impact on the industry, even the companies that supply the industry will experience a shake-up, with winners and losers in product supply.
With these changes, it would seem there are less competition and less opportunity to save on costs in this area?
You would think so, but having spent many years watching the industry, consolidation is always followed by fragmentation, and the desire for market share is in their DNA. Couple growth with the need for greater margin requirement to make the purchase pay, the opportunity for savings may be as good as ever.
What are the biggest risks for companies trying to control their OPS costs?
It is a very difficult category to manage. The sheer volume of items purchased, and low value makes it hard to track purchases. Even if the top items like paper don’t change much, the rest will. The basket changes, and in most companies, 40% of the products purchased last year won’t be purchased next year, which means uncontrolled pricing.
Where are the biggest opportunities?
The biggest opportunities will be those businesses that purchased from Office Max or Lyreco, as they will have significant range changes, but with the rush to make the acquisitions pay, most buyers will experience price creep.
Why would buyers benefit from using an organisation like Expense Reduction Analysts to reduce their OPS costs?
Office supplies are one of those cost categories which are difficult to keep track of. Because there are so many line items, it is difficult to compare like for like – a cheap product may have to be replaced more often than a better but well-priced product.
Expense Reduction Analysts can compare quality as well as price. It is also a tremendous job to monitor contracted costs to ensure there are no price fluctuations and to ensure that staff are buying as much as possible off the contracted list.
Expense Reduction Analysts will monitor expenditure on a monthly basis to ensure compliance both by the supplier and by the purchaser. These are just a few of the benefits of using an external analyst like ERA, who have the time, expertise and knowledge of the market to ensure savings and achieved and retained.