Historically, if you wanted to buy a printing press you would go to a printing press manufacturer or licensed dealer; if you wanted to purchase consumables for that same press then you would strike a deal with the company who sold you the machine or alternatively you would set up an account with a consumables specialist; and if you wanted to buy paper then you would go to a paper merchant.
You could drill down even further into these sectors and separate digital press dealers from litho, ink sellers from blanket manufacturers and magazine paper merchants from corrugated board exponents. Each niche would have its own market leaders who excelled at what they did, and the reason they excelled was because they had built up a track record of expertise over a number of years.
However, in recent years, these clearly defined boundaries have become blurred as companies fight toshore up dwindling margins by becoming all things to all men – one-stop shops that sell goods outside of their core product range.
Paper merchants are no different from press manufacturers or consumables suppliers and, as a result, many of them are now offering a wide variety of products. Their need to diversify and increase their existing product range is understandable. Over recent years, margins have been increasingly squeezed, so moving away from more traditional sources of profit and offering a one-stop shop for printers is an obvious response to the situation.
But what about that old adage about focusing on what you do well because taking your eye off the ball and diversifying into other areas may potentially weaken the integrity of your manufacturing base and your brand equity?
Moving away from core strengths into unfamiliar territory “involves some risk” to any business, acknowledges Dave Jones, a director at Beswick Paper. “It diverts both attention and resources,” he says. Another issue regarding moving into an unknown market is that it is likely to be highly competitive and full of people who know the sector inside out, which reduces the survival prospects of new entrants.
However, if diversification does appeal, the big question to ask is will it help make the printer more profitable because “without that, customers will buy elsewhere,” cautions Jones.
Transferable skills
Generally speaking, merchants are in a good position to add value. The merchanting business model relies on companies using their market knowledge to source different products from specialist mills around the world, and then using logistic solutions to give customers access to a wider choice of papers. So surely these core skills and resources can be applied to a different range of products?
Robert Horne and PaperCo are two paper merchants that have increasingly diversified over the years and set themselves up as ‘one-stop shops’. Robert Horne stocks every sort of paper, sourcing products from all four corners of the world. Managing director Dave Allen says that the firm is not a “two mill company”.
“We’re constantly looking around the globe for the best value,” explains Allen. “Our job is to be the supermarket for the printer and we aim to offer customers the ability to be more efficient.”
PaperCo has also recently expanded its product range with the acquisition of Lincolnshire-based Donington Packaging. The industrial packaging merchant supplies packaging materials into the food processing and produce industries in the east of England. PaperCo group managing director Alistair Gough says the move “continues our objective of developing a market-leading position that will enable us to add significant value to our customers’ business”.
Packaging push
The Donington deal follows a string of other acquisitions by PaperCo, which were part of an overall strategy to expand the firm’s product range. In 2006, it acquired Northampton-based 1st Class Packaging, a £4m-turnover industrial packaging materials firm and this was followed in July last year by the purchase of Parkside Packaging, a £7m-turnover merchant specialising in cartons and industrial packaging, making PaperCo a genuine single source option.
Consultants have been advocating single source purchasing for some time in a bid to reduce the administration costs associated with dealing with several different suppliers and the switch also helps to leverage companies’ purchasing power, according to Antalis’ marketing director James Jarvis. However, he adds that “printers have proved reluctant to put all of their ‘eggs in one basket’, mainly for credit reasons”.
While many merchants are no doubt gearing up to offer one-stop solutions, PricewaterhouseCoopers’ recent report, 2008 CEO Perspectives survey for forest, paper and packaging, found that many of the chief executives interviewed were eager to get back to basics. This was to ensure “they are capable of delivering a standard, quality product, on time and as economically as possible”. According to the report, it is their belief that the industry is becoming increasingly commoditised and they do not see extra services or better quality as generating higher margins. Simpler business models, the report says, can also provide more flexibility and this has a number of advantages, including creating a more active approach.
Terrye Teverson, managing director of KCS Trade Print agrees with this viewpoint. She feels that diversification will probably be detrimental to the industry in the long run. “The focus will go from being a master of one trade,” she warns. “I think the merchant does need to be able to offer a range of products but allied to the core business.” If businesses are told to continually diversify, this will weaken the integrity of the manufacturing base, she adds.
However, another source says that anything that results in more competition in the marketplace has got to be good news for printers. “Especially as it looks as though we will have another tough year.” Another industry insider agrees, adding that the more choice there is as a purchaser the better. “This is one of the problems we are currently facing – there is so much consolidation in the industry that the choice of lines of supply is getting more and more limited.”
Whether merchants decide to diversify or not, the one certainty is that the industry looks set to face further hardship over the coming months, so those that gear up to offer a one-stop shop now may in the long run enjoy a prosperous future.
