PBS - Holding ag

Building for the Future

PBS Holding CEO Richard Scharmann discusses the wholesaling situation in Germany

PBS Holding’s German subsidiary PBS Deutschland acquired leading regional wholesaler Georg Kugelmann in December 2013. As Group CEO Richard Scharmann explains, the integration process was not all plain sailing.

OPI: The Kugelmann acquisition in Germany attracted a lot of interest at the time. How did that integration process go?

Richard Scharmann: In the past ten years we’ve never had an integration in Germany that went really smoothly, and Kugelmann was no exception. There is always a level of customer attrition that you expect with these kinds of acquisitions – we know to expect about a 20% loss because not every customer likes the new situation. However, in this case we lost nearly 40% because about two-thirds of the Kugelmann field reps were dragged away to competitors. Actually, I think we did a pretty good job in securing more than 60% of sales with a much reduced sales force; and when you look at the figures behind this, they are very close to our plans so it’s not a significant impact, but it was a situation that required quite a lot of additional work.

OPI: Where did these reps go?

RS: Interestingly, we saw some field reps in their 30s and 40s joining small wholesalers with annual sales of, say, H4 million ($4.7 million). I don’t really believe that is the kind of structure they would be able to stay in for the next ten years or so – I think they were simply frightened of our ‘industrial’ model; we’re a very large, professional company and we do things differently to perhaps what the reps were used to in organisations like Kugelmann where there are very traditional relationships. So I think they were intimidated by our professional approach in terms of figures, structures, organisation, tools, etc, and some of them were simply not able to work in this environment. And to be honest, I don’t think all of them would have been the right people for us to deal with our systems and to provide the services to our customers.

“We’ve never had an integration in Germany that went really smoothly,
and Kugelmann was no exception”

OPI: You didn’t keep the Kugelmann name after the integration?

RS: No, we didn’t. That was absorbed into PBS Deutschland. We also have the Alka brand, but PBS and Alka are under one roof, so we have one management organisation in Germany and we have two, let’s say, marketing concepts: Alka, which covers the B2B side including the Büroprofi franchise network, and PBS Deutschland which covers all the traditional stationery dealers; these dealers are more focused on retail and the back-to school season and seasonal products so it’s full-range wholesaling in a traditional way.

OPI: How do you expect the German wholesaling channel to continue to evolve?

RS: I think it will be interesting over the next 2-3 years because many smaller wholesalers do have real issues with their profitability and they have no room to make investments. As we saw with Kugelmann, the only way to improve profitability is to find synergies by consolidating structures; when you stay within the old structures and keep a large number of sales people with very small sales per capita – and even add more reps into this model – you will never have a profitable business. So I think in the next 2-3 years we will see them even more troubled than they were before.

OPI: How many of these regional wholesalers still exist in the market?

RS: Well, it’s difficult to say. You could say 10-15 smaller ones, but if you just talk about those that are a bit more regional in Germany, then just a handful. It’s quite interesting in Germany right now because we see consolidation going on, and I think you can really talk about the ‘big five’ that are relevant players with a future and that are really focusing on their concepts and differentiation. So apart from us, there’s ADVEO, soft-carrier, Iden and Soennecken, ranging from about H60-H70 million to H150 million; we’re all doing a very good job, are profitable and all have our specific concepts. In my opinion, the more the market moves in this direction, the more interesting it gets because the customers can really choose between these different concepts. So it’s not just about where the cheapest product is; it’s about what you want to achieve in the market and which set-up could be the best for you as a dealer.

OPI: So what do you think will happen to these smaller players? They’ll go out of business or be bought?

RS: A combination of both probably. And we will just keep our eyes and ears open for opportunities that could be a good fit for us. But it will take time, so we are really looking at the next 3-5 years.

“Many smaller wholesalers do have real
issues with their profitability”

OPI: What about your relationship with cooperative Soennecken? Are you still partners?

RS: We still have a very successful partnership. With Soennecken’s LogServe facility focusing on the B2B side and mainly office products, as a broadline wholesaler we supply them with back-to-school items, seasonal products, social stationery, etc. We are growing in the double digits with Soennecken members and it’s exactly on plan. In addition, we have quite a close relationship when it comes to data sharing and things like that, where two big players in Germany can share their resources in those areas.

OPI: No sense that you’re helping out a competitor or a potential competitor? You mentioned them as one of the big five so they’re obviously competing with you.

RS: That’s true, but Soennecken is still very focused on its cooperative model and it’s very hard to drag dealers away from Soennecken to, say, Alka and vice versa, so we don’t have any fears about that. It’s still a win/win situation and as we’re not involved in the direct channel there is no issue there either with Soennecken now getting involved in that area following its recent vote .

OPI: How important is e-commerce as part of the overall mix if you look at the stationery and office channels in Germany?

RS: It’s very important on the B2B side and much more on the B2C side, of course, when it comes to back-to-school and other seasons. But there is not yet a system which is very competitive. You can buy all products from Amazon if you like to do so and if you have the time to spend hours picking the different products from the different suppliers you can find on Amazon and Amazon Marketplace. We are introducing an online solution for Skribo within the next 3-4 months in Germany and in Austria, so we have an end consumer B2C web shop which is the first one there with regards to that specific product portfolio.

OPI: How will that work – store pick-up, direct delivery, a choice?

RS: It will be a mixed solution. The important thing is we will have a very sophisticated service approach to this so that we can ensure a consistent level of service. So for example, regardless if customers decide to have items shipped to their home address or choose to collect the order from their nearest store, we will prepare orders within our logistics system and either deliver to the customer address or ship to the store.
It’s not about dealers picking products from the shelves and making the sale within their shop; it has to be much more advanced than that.

OPI: So who makes the sale, PBS or the dealer?

RS: This is PBS, but we have a system in place that will give certain parts of the profits back to the dealers.

 Quelle by Andy Braithwaite (andy.braithwaite@opi.net) OPI Magazine  | European Annual Review 2015