Paper merchants: suppliers or competitors?

by Janhein H Pieterse

VIEWPOINT

Supply chain analysts in the office paper sector have kept themselves fairly busy over the last few years trying to determine the future of office papers.

In the past, the supply route was fairly clear for household consumers - paper from the mill was sold on to the merchant, passed on again to a retail outlet and eventually wound up with the consumer. But the growing number of superstores may map out new routes away from this well-worn path, especially as supermarket giants start to order paper volumes that could justify direct delivery from the mill. The paper merchant will not be out of business just yet though, as a lack of storage space in most superstores limits the size of deliveries, leaving the paper merchant as the preferred supplier.

For medium and large office customers, the supply route is rather more complicated and still undergoing rapid change. While trends may vary from country to country, paper merchants supply an average of 40% of the total office paper volume to these customers, while the contract stationer controls 35% of sales and the OEM (original equipment manufacturer) is responsible for 15% of the market.

The strong position enjoyed by paper merchants is, to a large extent, based on the historical relationship with the paper mills. The mills are unable to deliver economically to the end-user and cannot provide a just-in-time service.

Old style

This traditional route is far too influenced by the mill and the reseller, though. Instead, the main driving force should be what the customer wants and what he or she is prepared to pay for the goods on offer. It is these larger consumers of office papers that provide potential areas of conflict between the paper merchant and its customer, the contract stationer.

Figures show that sales among contract stationers are already creeping up in the office paper sector. Some 41% of western European consumers bought their cut size office papers from merchants in 1997, but the figure was 2% higher in 1995. In the same period, contract stationers and direct mail sales crept up 2%, from 18% to 20% of sales.

This trend is already far more advanced in the USA. Paper merchants lost 10% of their sales to consumers of cut-size office papers between 1988 and 1997, dropping from 55% to 45%. This figure is forecast to fall by a further 7% in 2000. Meanwhile, contract supplier and direct mail will grab hold of an estimated 24% of the total sales, a significant surge from the mere 9% they held in 1988. Superstores, retail and computer stores have also built up their chunk of the market during the 1990s, rising from 18% in 1988 to an estimated 26% in 2000.

A number of questions are already being asked about the traditional relationships between the merchant, the contract stationer and, in turn, the mill. Is the paper merchant the mill's sales office or the mill's customer? Is the merchant a wholesaler or dealer? Should all paper resellers be able to buy direct from mill? But for contract stationers, the question boils down to one thing - is the paper merchant a friend or a foe?

Consolidation is taking place rapidly among contract stationers as well as in the mail order and superstore sectors. This merger and acquisition activity is creating large groups operating on a global level.

The result is that customers are turning toward centralized buying and cutting down on the number of suppliers they use. One-stop shopping is increasingly in demand as the customer aims to buy all his or her office requirements from one supplier, including stationery, office paper, IT consumables, janitorial, small furniture and machines. As consolidation progresses, customers are also boosting their buying power.

Hotting up

The battle to clinch the medium and large-sized customers is likely to heat up between the contract stationer and the merchant. On the one hand, the contract stationer's sophisticated logistic operation would be able to fulfill the needs of most customers. In addition, the contract stationer boasts a wide product range; a variety of ordering methods; desktop, stockless and rack jobbing services; as well as a customized catalogue. But on the other hand, the paper merchant has advantages up his sleeve. As the marketing outlet for most of the mills, the merchant has the scale, know-how, product knowledge and facilities to remain a major player in the medium to large-sized customer segment.

As a competitor, the contract stationer could buy direct from mill and set off a price war with the merchant. But as partners, the two parties could work together to cut costs in the supply chain. The contract stationer and paper merchant should get together to define the areas of cooperation so that both can provide added value for the customer and channel conflicts can be avoided.

Janhein Pieterse is the President of Buhrmann Office Products Europe based in the Netherlands. This article is based on a speech given at PPI's 9th Publication and Business Papers Conference