4 Sep 08
Sainsbury's, the UK's #3  supermarket chain,  is stepping up its effort to persuade shoppers to switch to its own-brand products as the battle for depleted consumer spending intensifies. Justin King, CEO (also a non executive director of Staples), said the price "gap between brand and own label is as wide as it's ever been". He added: "We're going to give them [large brands] more of a fight."

Sainsbury-sponsored research found that 62% of shoppers said they were more likely to buy supermarket own-brand products than a year ago. The grocer's "switch & save" campaign is likely to add to tension with big suppliers.

Other research from Asda, the UK's #2 supermarket chain (part of Wal-Mart), last Monday found more evidence of low confidence in the economy. Out of 10,000 Asda shoppers surveyed by TNS, the market research company, 58% said they had reduced shopping for clothing and other non-essential items, while almost 50% said they had cut back on eating in restaurants.

Although both pieces of research are self-serving, they are supported by growing evidence elsewhere that shoppers are changing their behaviour significantly in anticipation of more straitened economic circumstances.Both Carrefour, the French supermarket group, and Ahold, its Dutch peer, last week said they were focusing more on own-brand goods, which are typically cheaper for consumers but carry higher profit margins for retailers.

He said previous product lines that used to be bastions of big brands, such as pet foods and cleaning products – "products that had real technical advantages" – were now changing as customers switched to own-brand versions as they improved in quality. "Often, of course, it is the brand house themselves that supply us with the products," he added. The UK consumer buys a higher proportion of own label than pretty much anywhere in the world."

Asda is to publish the index of its consumers' sentiment every quarter.

Power has shifted inexorably to bigbox resellers who are obsessed with private brand development as they boost their buying teams to source directly from China at low cost. Manufacturers appear to be helpless as their biggest customers sidestep them and become their biggest competitors. This shift  is nothing new. The process has just become more cost effective and widespread. As a result manufactures margins have been squeezed and innovation funds have been severely reduced, in order to create the market differentials that give original brands the edge.

Time to Rethink the innovation process.
Nevertheless, manufacturers must fight back strongly and revitalise and rethink the innovation process. We are not just talking about new colours, shapes, sizes, packaging and green versions. Manufacturers need to think about pricing and aiding resellers who commit long term to becoming original brand champions. We are talking about competitive pricing and user marketing support. We are talking about the power of personalised emarketing, video demos of productivity benefits and 24/7 open webstore links.  

Unfortunately, manufacturers best marketing partners in the past have been the bigbox players e.g Staples and Viking. Independent dealers marketing efforts have been boring, vanilla, me-too type flyers which have been uninspiring. These 'spray and pray' efforts have failed to capture the imagination of users and in many cases reached the 'prevention buyer' type aka. Gary Gatekeeper only. Now these 'original' marketing partners are competitors with their 'private' brands.

The power of emarketing and open webstores means that these objections are being removed…rapidly. Now manufacturers with an inspiring productivity message can reach Lucy, the typical user chooser (and bypass Gary, the prevention buyer) with an integrated personalised emarketing campaign.  linked to open webstores. This means that they can get their message across to Lucy in a pure, undiluted and interactive way. Moreover, all with the cooperation of independent resellers.

Fortunately, there is a new trend emerging where leading dealers are starting to move away from own brand, to enthusiastically support original brands. A great example of this is W.B.Mason the $750m megadealer from Boston.

There has never been a better time to support the resurgent reseller channel. The original way is the best way. Be brave…Go to it!

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Manufacturers were helpless. Their top sellers were replicated, leaving them with lower margins and less funds to invest in innovation and differentials to maintain premium status.

The future looked bleak especially for traditional paper based manufacturers, filemakers, book and pad makers etc. Yes, leading companies like Esselte, Acco, Avery, Jet , JD's , Settens have either withdrawn, shut down or closed manufacturing facilities.

Lessons from food retailers
The same 'private label' pressures have applied here, particularly in the UK. Continuous innovation has enabled Coca Cola, Kelloggs, Cadbury, Nescafe, Beechams, Dove, Nivea, Flash, Evian, Boddingtons, Tropicana and Colgate to maintain leadership. These trusted household brands have been upgraded, improved, undergone makeovers based on 'touchpoint' reviews with consumers.

Complacent manufacturers have been marginalised or ousted from the shelves e.g Walls, Lux, J-Cloth, Bird's Eye, Robinson's  and McVities. Their rate of innovation slowed allowing the house brands Tesco, Wal-Mart to replicate a sitting target.

Tesco's in the UK the #1 food store with 30%+ of the market has intensified its private label presence in stores. It now provides a 'good, better, best' choice…introducing the Finest range to match the quality leader M&S. The effect has been to boost sales and profits, probably at the expense of complacent manufacturers brands.

Meanwhile, Waitrose (Trader Joe in the US is similar) the upscale grocery store group has focused on manufacturers brands only…organic, ethical, local produce. This has provided tremendous opportunities for national and regional brands providing the key ingredients of great quality and innovative/differential thinking is applied.

Innovation has to be real not an illusion.

The innovation challenge for OP manufacturers.
Given all the negative pressure on margins and watching your best customers effectively killing your core brands is not a comfortable position. It's very much a 'like it or lump it' and 'grit your teeth' situation. Meanwhile innovate …innovate…innovate!

There are many participants in the industry who believe that brands are not important and users don't care. Try switch selling an alternative to Post It Notes to a businesswoman. There is no such thing as a commodity.

To compensate for lower gross profits, a new and big advantage for manufacturers today is that for the first time they can communicate directly with users via the web at a much lower cost than traditional and existing marketing method i.e. heavy duty printed catalogs.

Manufacturers who are succeeding in brand innovation and communicating directly with users for the whole channels benefit include:

·         3M with their Post-It Supersticky notes in funky colours

·         Fellowes shredders…magazine, airport display panels, radio

·         HP wireless printers, colourful laptops

·         Logitech sleek sexy mice, remotes

·         Safco seating

·         Green Mountain Coffee Roasters – Fairtade ethical K-cup

·         Pilot Pen and Pentel…new shapes, new designs, new writing experience

These manufactures are true marketers continuously studying and listening to users. They are not sitting on their laurels relying on a strong brand name with little differentiation to house brands. They create edges: make things easy; productivity gains...saving time, money or space; make touchpoints simple; make packaging transparent and minimalistic; make accessibility, applications, and functionality powerful benefits.

This is real innovation…not an illusion.

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Wholesalers and manufacturers' challenge
The dangers of duopoly
Invest and inspire the independents.

3 Sep 08

In witnessing the absorption of the US #3 wholesaler Action Emco within SPRichards and United Stationers, Mike Gentile (see pic below), the CEO of is.group, the US #2 dealer group, warns of the risk of a wholesale duopoly.  

Gentile said "I believe that it is in the wholesalers' best interests and I would also like to add the manufacturing community, to begin to truly focus their attention on the independent dealers within our industry. These same dealers have demonstrated time and time again, that they know how to create and sustain demand in the SMB space (70%+ of market).  The independent dealer wakes up every day and gets "orders" while the big boxes churn and burn customers."

Dealers the strategic partners
"Our wholesalers and manufacturers both have stated that our channel is their strategic customer.  They really need to look at what the future will bring, and start to make serious headway in working even more closely with independent dealers and dealer groups.  Now is their best opportunity to demonstrate to us that they truly do want to be our partner." urged Gentile

"There are numerous mutually beneficial synergistic opportunities that must be explored amongst the buying groups, wholesalers and manufacturers that would result in increased independent dealer market share. The wholesalers no longer need to be concerned about creating conflicts with their Big Box customers." reasoned Gentile 

Gentile emphasised "Now is the time to put aside egos, disagreements regarding disparate business models and local independent dealer competition, and for ALL to realize that there is an opportunity for all parties and stake holders of our channel to work together during this unique period in our industry's history."

Editor's Comment

Gentile's comments are highly relevant given the Staples Express merger. It will focus the minds of the wholesalers as they get less volumes from the power channel. I'm not sure there will be a merger between Max/Depot…that really would be a disastrous prospect for the industry and their shareholders.

Regardless of further consolidation, the leading wholesalers in the US and the UK, also a duopoly in the traditional OP space (Spicers/VOW exc. Kingfield), need to review their strategic partnership plans with the independent dealers.

On the positive side, we feel wholesalers need to faclitate differential marketing plans and not necessarily try and drive uniform 'spray and pray' mailings across the spectrum. It seems to us that all US/UK wholesale marketing materials are similar and vanilla. One size doesn't fit all in the marketplace and wholesalers should try and facilitate 'personalisation' by working with groups and each dealer. Manufacturers need to make sure their original brands are prominently positioned and not just seen as a teaser for private brands e.g 'original' priced at $5 and 'private' priced at $4 adjacent. The differentials need to obvious e.g accessibility, application, packaging etc.

Manufacturers and wholesalers face a big test which could become a major issue over the next 12 months: the conflict between the big-box drive for increased sales of private label…now averaging 30%+  of office supplies sales and original brands. Surely this is where manufacturers, wholesalers can work together more closely?

Why not provide competitively lower product pricing for resellers, and invest more in direct marketing to users tailored to the target audience, so that dealers can piggy back these marketing campaigns with their brand of personal, local, fast and flexible service. An irresistible combination…providing original brands at private brand prices. That really would set the right agenda and put original and private label in direct conflict. Surely, a better scenario than any false brand sincerity shown by big-box players now?

This would mean of course that dealers would have to genuinely support manufacturers in marketing and selling of original brands where applicable and not get dragged back into the habitual focus on commodities.

Strategic partnerships need trust and energy to make the above programmes work in favour of original brand manufacturers, OP wholesalers and dealers. Wholesalers hold the key to an exciting future providing they do not try and dominate or control the marketing agenda for manufacturers and resellers. If they can facilitate differential marketing programmes the OP independent channel will become a resurgent powerhouse movement…not dissimilar to the IT supply marketplace

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Depot denials
drag on
Weak, "not compensation" whitewash, explanation for 
California $2.5M overcharges

30 Aug 08
The South Florida Business Journal yesterday reported that Office Depot had agreed to repay California State $2.5 million for what state officials said were overpayments made to the office supply company.

"In the spirit of cooperation and customer satisfaction, OD agreed to provide $2.5m to the state as an additional discount on these items," the company noted in its statement. "OD consistently priced these particular items for the duration of the contract, which OD considered 'off-contract' purchases."

OD and DGS agreed to an additional discount of approximately $2.5 million, which, the company said was not compensation for overcharges.

Editor's Comment
We've read the auditor's report and the Mercury News report from Thursday. Reading the above statements from Depot you'd think the overcharges were accidental and a rare occurrence.

Witness these contrived statements: "In the spirit of cooperation and customer satisfaction" ..."consistently priced"…"additional discount" …"was not compensation for overcharges"…"the state saved 30% over the rates OD charges retail customers for the same items". Finally, giving unsuspecting observers the impression that all is cosy and forgiven "the contract…has been extended until Feb 2009".

Well that's alright then, thumbs up for Depot. Let's all forget about Depot's dodgy behaviour in NC, Georgia, Nebraska, California, Florida, HCA and the US Communities. Oh and not to mention the scams with small dealers in California, cheating superstore customers in California and double counting contract sales via superstores. Oh, we nearly forgot, giving customers the impression they were saving money by moving from List-price based discounts to web-price based discounts, when on average they were 3% higher and varied at least weekly.

Most of Depot's response is dismissive generalisations. Two questions need to be challenged and require further explanation: Why pay $2.5m as a goodwill gesture if it wasn't related to overcharges? The state saved 30% on what retail customers would pay? We don't believe this for a second…show the comparison price chart.

The whole response above smacks of whitewash propaganda…again. Depot in denial…again. How can shareholders, employees, customers, the states and local government employees, trust this deceitfully managed company?

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Call Centres are Stall Centres

Automated tel-hell

Don't copycat the corporates…stay human

28 Aug 08

How familiar are these empty phrases when contacting any major corporation e.g. bank, insurance or utility company today:

• Your call is important to us
• All our agents are busy assisting other customers

The reason we raise these issues is not to remind you of the tel-hell that you've all experienced at some point. We have noted the increased incidence of independent OP dealers copying the automation process.  Even the big banks realise the error of their ways and Washington Mutual, LloydsTSB and NatWest are moving back to personalised banking and human contact.

Our advice is don't under any circumstances copy the corporates, avoid automation with customer contact, don't use robotic voice systems which substitute for the live human voice. Personal human contact is your edge…don't dilute the experience.

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Channel Info issues: Pricing and Groups
Herding cats or headless chickens
Resellers ready on cost reduction,
not so hot at price-increase seduction

28 Aug 08

I just read the August edition of the excellent Channel Info magazine after being away for a few weeks. There were 3 issues raised, on which I'd like to comment:

Price Increases?
Esselte's MD Chris Exner suggested that the OP industry has its 'head in the sand' and raised the question "Why is no-one talking about this? He continued "It is imperative that dealers pass these price increases on in full".

Exner urged dealers to look at their business models and take cost out at every level in order to survive. He said there would be a lot fewer players in the market and only the smartest will survive. Exner suggested that smart dealers will pass on the costs and focus on selling added value and tap into user trends.

I agree that dealers should pass on the costs in full. See 'The BIG Squeeeze' articles below. Buyer and user sentiment is ready, so don't disappoint them. The problem is the powerhouse wholesalers and resellers are pushing back hard in order to maximise short term profitability and setting a bad example.

Amazingly, all the big retailers inc. Tesco, Woolworth's and the big boxes are behaving in a crazy way and intensifying the price war rather than behaving responsibly.

This makes it doubly difficult for dealers. However, the main problem is dealers' lack of confidence in passing on price increases. They lack match practice. Serious inflation has not happened for 20 years or more and they lack the skills to present the case to buyers, even though higher energy and euro costs seem blatantly obvious.

Exner is correct the cost increases must be passed on in full, but he seems out of touch on dealer operating cost levels. The advent of stockless dealers back in the mid-90's means that their rapidly growing ranks have already addressed cost reduction issues. Cost reduction has never been an issue for dealers, it's the selling and marketing bit, the  price increase seduction process, where they need the help.

Finally, because of the growing population of office/IT dealers and their low cost models, there are going to be far more dealers not less in the future. Low cost, easy entry stockless models facilitated by wholesalers means the return of a golden age for  independent dealers, matching the glorious 80's.

Fertile fragmentation is the hot trend in the UK and the US.

Group leadership?

'Is it really not possible to have a dealer group run by dealers for  dealers' asks CI editor Caron Bentley (see pic right).

The short answer is no. The origin of groups was as a buying co-operative, a timeless phenomenon. In the 80's dealers wanted to aggregate purchasing power to defend against the emerging big-box players.

In the 90's, the agenda moved on to marketing groups, as brilliant marketers emerged like Viking, Eastman, Lyreco and Staples. They demonstrated that buying power was only one ingredient of their success. Dealer groups like Basicnet, OfficeSMART and OfficeTeam emerged with user friendly catalogs and single source selling and marketing programmes, including training and dealer development to enable dealers to compete effectively up front.

Professional sales, marketing and leadership skills were not commonplace in most dealers and that was the core ingredient that the new dealer group leaders added. When this is absent the dealer group reverts to type and tends to copy what they interpret as the core strength of the power players…buy low and sell low.

I suppose it is possible to run a dealer group successfully without a professional leader…but I've never seen one in 30 years. We know that trying to motivate and lead a group of entrepreneurial dealers is like herding cats, but it can work.

In the case of the United dealer group, their original plan was to stay loose on leadership and aggregate guidance by committee. We suspect that this was an expedient move, to maximise rebates. Well sooner or later the chickens come home to roost…especially the headless variety.

In United's case it was sooner and now they will get the leadership they need in Advantia…providing of course that real marketing programmes to reach the user choosers are provided: office productivity systems delivered in a personalised and eco-friendly way.

Contract Stationer experience?

I knew a while back about Integra's appointment of an ex-Corporate Express sales person as sales director. I noted the addition of another with contract stationery experience in April.

Integra and dealers beware. It is very difficult for an ex-power channel Goliath type, to adapt and teach an independent dealer David type, how to go to market. There are few examples where a corporate selling type can adapt to the dynamic environment of smaller dealers.

Ex-bigbox sellers are so used to selling from strength that they go in with low price contract prices and rarely have to talk about personalised and value added services. In short they don't understand the dealer's mentality. Enterprising ex-manufacturer and wholesaler types understand much better that harnessing the skills of the top strikers, farmers and emerging sales people within the independent dealer community may be a better route.;

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The BIG Squeeeze – Part 2

Distributors are agents not super-customers
Lessons for OP resellers from the IT market

26 Aug 08

The inbox was jammed in response to last week's Frost Bites article entitled 'The BIG Squeeeze'. It seems that there are plenty of manufacturers out there who are suffering severe suppression in silence.

Manufacturers never want to mention names for obvious reasons, but the sentiment is clear. "There is so much scope to improve the co-operation between manufacturers and distributors". "Let's learn from the IT business" and "How can we divert marketing funds used as wholesaler support allowances into true user marketing investment?" These were typical of the huge dilemma facing manufacturers and brand marketers.

Since the power channels gathered strength in 80's via wholesaling, via the publicly quoted superstores and contract sationers of the 90's the manufacturers have taken a back seat in the traditional OP marketplace. Perhaps only 3M, Avery, Esselte and Avery have resisted the power and managed to divert funds into direct marketing. Others like Fellowes, Really Useful, Safco have done their marketing thing regardless.

The new and correct model surely is in the IT space where HP, Brother, Logitech, Canon, Dell, Belkin, Microsoft, Sony etc. market directly to the user with the distribution support of wholesalers and the selling support of resellers. Wholesalers get a margin and rebates; dealers get a margin and marketing allowances if they commit and get results.

Accountabilities are clear, whereas in the traditional OP space they are fuzzy and favour the power players. It is going to be difficult to shift funds away from wholesalers and bigbox resellers now that the structure has been set.

The silver lining behind the cloud, is that traditional direct marketing has been expensive and print/mail based and new direct marketing is email based. Emarketing to users means that that partnerships must be formed with progressive dealers who personalize their marketing approach.

Currently, all emarketing efforts I've seen from Staples and Viking; HP, Acco and Esselte are all spam equivalents e.g. today's offer to anyone breathing is 50% Staples Brand products.

I can recall the time, when Avery were investing in their new consumer marketing programme 10 years ago. They faced the distributors and groups head on and explained they were switching their marketing spend from trade support to direct marketing. We protested vehemently, but they carried on and invested. They were right even though it was painful.

The priority should be more to do with partner and category selection, not product. Once the category has been chosen, distributors should support the range to the maximum.

I can recall all the product selection meetings when we as wholesalers or resellers sat in judgement of new product proposals before they were catalogued. What did we know? The manufacturer often had invested serious money in research and development, design and production and we would pass opinion on whether we liked it or not…rather than whether it would sell. Hey, don't you think manufacturers may have considered that before producing the prototype?

We were exercising our power. The question is how that power is used…positively or negatively…with the user's benefit in mind or to maximise short term profitability? The new message must be to co-operate not squeeze the lifeblood out of manufacturers.

Our joint goal must be to reach users more efficiently. Currently the squeeze is on manufacturers' cost recovery. This means that Innovation, R&D, design, development projects, marketing and technology investment will be squeezed too.

It is in all channel partners interests to listen, analyse and make sure that in inflationary times we co-operate and encourage innovation to inspire the flow of new office productivity ideas from the original brand manufacturers
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US and UK economic gloom

Resilience to resist
recession risks

European downward trends far worse