Nov 18, 2013
Many readers know that two of the biggest paper merchants in the U.S. (xpedx & Unisource) are planning to merge. The combination of xpedx (about $6 billion in revenue) and Unisource (about $4 billion in annual revenue) would create a giant in the U.S. distribution business. Whatever you think you know about Xpedx and Unisource, they are definitely not JUST paper merchants, those days are way over. Both companies have important initiatives in packaging, digital printing and yes, wide format.
As the big paper merchants come together we see other companies organizing to compete. One that has been very aggressive is Central National-Gottesman (CNG). CNG has been in business for more than 125 years and has made multiple large acquisitions over the past few years, including Spicers and Kelly Paper (locations in Western United States), and the U.S. operations of Ariva. Stay with me now, CNG then sold the Midwest operations of Ariva to Millcraft. Just the other day CNG announced that it has acquired the distribution business of Bradner Central, a 160-year old paper merchant headquartered outside of Chicago. So, CNG now owns Spicers on the West Coast, Bradner Central’s distribution business in the Midwest, and the combined operations of Ariva and its Lindenmeyr Munroe division on the East Coast.
CNG Companies Cover Major Regions of the U.S.
Just as we’re seeing consolidation on the printer side with the likes of R.R. Donnelly and Consolidated Graphics, this consolidation in the distribution business has some important implications for manufacturers. As CNG pulls all of its assets together it will create another national distributor which is very attractive for manufacturers who want to be able to offer next day availability for print products anywhere in the country. In the commercial printing business the idea of getting pallets of paper or huge rolls of paper too where they need to be is enough of a challenge, but in the wide format business there is a much greater range of media, ink and finishing products required that represents a big challenge for these distributors because distributors are typically not interested in carrying a large number of SKUs, they want select products that sell at high volume. This gets to one of the critical issues that we’re dealing with in the wide format business; how do manufacturers get dealers/distributors to carry their products? How do they get dealers/distributors to SELL their products as opposed to merely taking orders? In short, all of this represents supply chain challenges to manufacturers who count on paper merchants to take their products to market.
Manufacturers have to develop strategies to deal with today’s distribution challenges. For example, just last week, HP extended its agreement with Brand Management Group (BMG) to let BMG distribute all of its inkjet media products worldwide. This agreement will make HP media products more widely and readily available, which is the key in a market where more than 60% of wide format print jobs need to be fulfilled within 48 hours. This demand isn’t going away. HP’s approach to supply chain management is to partner with BMG to facilitate availability, but there is only one BMG out there, so other manufacturers are going to deal with other channels such as paper merchants. In fact we’re confident that paper merchants are going to increase in importance in the wide format business as more commercial printers invest in wide format digital printing systems.
Another way to deal with the supply chain is to work with master distribution. Some people may think that in a market where margins are thin already there is no room for master distribution, but master distributors like Synnex have warehousing, call centers, technical support, relationships with thousands of dealers, and other assets that can accelerate time to market and facilitate availability. Not only that, but because all of these things are in place, master distributors can improve margins because they are able to bring products to market at a lower cost than if a supplier were to do it all themselves.
Manufacturers have lots of strategic options to go to market. Consolidation among these channels will make successful navigation of these options more difficult and more important. InfoTrends is developing a multi-client study called Disruptive Supply Chain Strategies to look at how companies in the graphics business as well as other industries are dealing with supply chain challenges and over the next couple of months we’ll be sharing some of the case studies developed as part of that multi-client study. Contact me if you are interested at email@example.com
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