BIG ASK - COUNTING THE COSTS

Counting the costs

Costs are rising for dealers across the board – from products, to fuel, to utilities. What effect is this having on their businesses’, their prices and their customers? People from across the sector tell us what they think

Nick Munton, managing director, DEOS Group

The biggest challenges currently, not surprisingly, are the ones that we cannot control - the price increases from the manufacturers who supply us and the forecourt prices for fuel for our fleet of drivers and technicians. We have implemented some additional practices to help reduce deliveries and some of our clients, particularly the SMBs, have been understanding and accommodating of our requests to provide weekly deliveries rather than ad hoc ones.

Unfortunately, we are a client-driven business, and those clients who will not consider weekly deliveries for office supplies, for example, can always find someone who will supply them tomorrow if needed.

Many of our clients are in similar positions, no matter their sector, so the increased cost conversation is not that difficult to have. If you are at the right level within the business, then the knowledge, understanding and personal experience from their own business means that pragmatic negotiations are achievable.

The hardware and consumable manufacturers continue to apply increases and when you combine this with the stock shortages – specifically on hardware – then there is a very clear market being created that will ultimately create financial challenges for the less robust dealers.

The managed print market has seen many trying to win that race to the bottom for a number of years in the hope of growing their mif sufficiently to the point that the sheer volume of devices allows them to become profitable. The impact of COVID, the repayment of CBILS, reduced print volumes and the low prices that they pitched at initially puts them in a predicament – they have to make profit to survive, but the very low margins they secured the business at initially are now completely eroded so, do they pitch the client with a 25% increase, or continue to lose money and hope that the tide turns?

It gives me no pleasure to say that I think we will undoubtedly see casualties this year. While the acquisitions market might be a way out for some – it is certainly buoyant at the moment with talks - some people are, understandably, still hoping to attract the kind of exit price that they saw their business valued at pre-COVID and, clearly, those values are no longer achievable for many.

We have been fortunate to secure the additional stock we need to fulfil the wins from those dealers who have none, which is a positive, but it also brings with it the challenge of manpower for fulfilment. We are lucky enough to have some good partners for hardware deliveries for our excess deliveries, but their costs are increasing as well, which results in further costs for us upon installation so even positives have to be managed for their true costs. I think the takeaway is that internal cost management and remaining profitable are even more key this year than they are normally.

Lawrence Savage, UK marketing manager, ExaClair

The past 12 months has seen some sharp price increases across several sectors, which have affected the costs of raw materials, manufacturing and transportation. The industry has also been experiencing shortages in virgin and recycled paper, as well as grey board, which has been influenced by elements such as the plastic tax and the growth of online retail and the subsequent demand generated for card and paper packaging. The war in Ukraine has also intensified these disruptions with the knock-on effect of energy costs significantly rising across Europe, particularly with gas being so heavily relied upon as one of the main sources of energy. As we possess our own paper mills, Exacompta Clairefontaine are the only group in Western Europe to produce and process paper at the same time, allowing us to benefit from localised production and distribution, as well as enhanced quality control. To an extent this has permitted us to explore alternative solutions in relation to product material innovations and minimalising production leadtimes where possible.

This means that although we’ve tried to mitigate the increases in costs wherever possible, with the amount of disturbance that’s been experienced across the manufacturing and distribution sectors we’ve been forced to pass on some increases to our customers.

In the wider industry, factors such as Brexit and the pandemic, alongside growing consumer trends relating to sustainability have been driving advances in innovation, as well as manufacturing operations for some time now. Growing costs and lead-times across the industry are continuing to steer dealers increasingly more towards sourcing from suppliers who have the advantage of localised manufacturing facilities. It’s very unpredictable, but we are hoping to see more price stability towards the end of 2022, although cost fluctuations may continue in some capacity as we move into 2023.With both energy and freight costs currently at unprecedented levels, continuing to find solutions to negotiate these is key. Once these begin to stabilise, we should start to see the pressure on pricing and lead-times disperse.

Sarah Laker, managing director, Stationery Supplies

Price rises are a reality for all of us in the sector – dealers and retail shop owners such as myself – but we are all trying to mitigate the effects of these rises. I won’t compromise on quality. You can buy cheap in the pound shops, or certain multiples, so I’m keeping with the quality eco products and brands my customers are used to and expect. I’m looking for alternative products, where I can maintain a good profit margin, and talking to customers, in person and on social media, about my products more. I’m also looking at other product ranges, and diversifying.

I can’t absorb the price increases; margin would be too squeezed and if the business isn’t profitable then I won’t survive, so there is no choice. We are also dealing with increased energy bills and the effect of the National Living Wage increase of 59p an hour in April. So, we need to be looking and analysing all areas of our business - not just stock costs - and constantly checking profit margins. There are more cost rises coming – we have been warned of paper price increasing again this month, for instance.

Customers are getting used to rising prices, to an extent. They are already seeing price increases everywhere, alongside empty spaces in supermarkets so, when we talk to them, they are generally being very understanding. However, it is affecting their choices, and where they once bought a box of paper at a time, they are often opting for one or two reams instead.

With the price rises, I have found it pays to be up front about them to customers and explain them. I’ve spent a lot of time explaining to customers - for example, the reasons why reams of paper have increased significantly. Also, all staff have been briefed on why prices are rising so that they can answer customers’ questions.

With these rising costs, I think we will see more businesses going to the wall, or selling out, unless they adapt and change with the times. We can’t continue selling as we’ve always done. Our strengths as independent businesses are our product knowledge and personal service so, as a retail shop, I’m looking at niche areas and experiences that aren’t price-competitive, and that can’t be got online.

For example, we are collaborating with a private occupational therapy service, offering handwriting assessments at our Wilmslow shop where families can come, be assessed, and buy the handwriting aids they need, all in one trip.