The big food fight

What do you do when your biggest competitor starts to encroach on your turf? Pick up your cudgel and take the fight to them.

That’s the strategy the 150-member co-op Office National has chosen against the larger Corporate Express in the tough market of office supplies.

For some time the two companies have co-existed quite happily. Corporate Express, a business-to-business specialist, owns the big end of town, with a customer list full of the Fortune 500.

Office National is a hybrid of B2B and retail, which is split 80-20. The pitch is that ON members are SMB owners selling to other SMB owners, and for this reason understand their needs that much better.

But times are tough, and margins not what they used to be. Corporate Express is moving downwards into SMB, which gave ON just the one choice, said CEO Andrew Boath – to go for the corporates.

“It started off as, ‘Boy, wouldn’t it be nice to get some really large business’. But as Corporate Express is coming down and squeezing us, now this is a stay-in-business proposition. We need to be able to compete at this level.”

Office National is relying on two weapons to beat off the intruder. The first is a genuine advantage that Corporate Express cannot match. Built on the remnants of the old Sharp photocopier dealer network, all ON members are able to service the business machines they sell.

This gives SMB owners a one-stop shop and service. Even better is that more often than not the member is local, thanks to the 170 stores scattered across the country.

Boath said he is hoping this will appeal to corporate customers too, most of which will be just around the corner, whether it’s the head office or a regional branch.

“The old, “I can drop it off on my way home”, or, “Yes I can get that to you this afternoon”, is all possible with the footprint that we’ve got.”

The second weapon is a new e-commerce platform to replace the tired, first-generation online shop, which requires rekeying data and manual processing.

Office National went all out and bought the model used by one of the world’s largest office suppliers, the US-based Staples, for just under a million dollars. Once installed, the site will provide customised “intranets” for each customer, with favourite items, downloadable receipts and invoices, and separate ordering and authorisation.

These are the bells and whistles that Corporate Express already provides, and Boath said that with the added services play, Office National will be well-placed to nab some low-hanging corporate accounts.

“I don’t think our business model is ever going to sustain the real top end of town, but we need to be more competitive at the upper end of our customer base so that we can not only defend our turf but also go and win some business.

“We need to get this system into place so we have 150 members behaving as one under the umbrella of an
e-commerce platform.”

The nationally distributed co-operative is a strange beast, sitting somewhere between pure retail (such as Officeworks) and B2B (Corporate Express).

The flexibility of a co-op helps drive costs down. Instead of 170 sites in key retail space, most are in light industrial areas near the SMB markets they serve. Rather than carrying a lot of stock, the co-op operates on a just-in-time basis, with inventory in and inventory out on a pre-order basis.

There is no state or national distribution infrastructure, and members deal directly with suppliers and distributors. “So we have 150 warehouses across Australia – little ones!” said Boath.

Just more than half of turnover comes from office supplies, which includes lucrative paper and toner sales.
A fifth comes from business machines, and 10 percent from servicing.

The service skills are mostly carried by the Sharp dealers, who set up high-end copier shops in regional areas away from Sharp Direct. Business machines being similar, most ON technicians are capable of servicing any machine ON sells, whether MFP, printer or computer.

The disadvantage is that they are not all authorised to carry out the work by the manufacturer. ON is carrying out an audit of the network to discover which are appointed agents for each brand for service and warranty.

“One of our challenges is that some of our members will be strong supporters of say a Brother or a Canon or even
a Sharp because of the way their business has evolved.

“When they’re asked for advice, they really stand behind their manufacturer. So a Sharp dealer will sell a Sharp printer, a Sharp copier, because that’s what they know they can service, can sell, can provide the full service for.”

The services side is crucial in an industry that sees continual erosion of hardware margins. ON members, whose backgrounds are mostly in print, know this more than most.

“There used to be money made in financing high-end photocopiers. I can remember a day when fax machines were so expensive people used to lease them.

“Now for a hundred dollars you have this thing that sits on your desk, it faxes, it scans, it prints, it photocopies, and when the toner runs out you throw it away and buy a new one because it’s cheaper than the toner replacement.”

The money now is in services and consumables, which dovetails neatly with the co-op’s model as a provider of
one-stop service and sales.

Boath said office workers become attached to machines that work, and will pay for more expensive toner rather than go through the hassle of getting another printer.

However, toner and its healthy margin is a heavily contested market, from within Australia and without. Grey imports can undercut official products by 30 percent or more, and then there are toner discount specialists.

Boath said ON members are protected to an extent by the relationship with customers happy to stay with the one reseller for all their needs rather than shop around each time.

But there are other ways of ensuring customer lock-in.

“We found ourselves being locked out of some customers because they had a print solution and said, ‘I don’t even know what I pay for my toner cartridge, I just pay cent[s] per page.’ So we had to get into this to be able to compete.”