Workplace360: Paul, you’ve been in the industry for many decades but I’m sure some people are not entirely familiar with your background. Please provide a quick synopsis of your journey to date.
Paul Musgrove: I’ve been in the trade for about 45 years, with periods at Rexel, Esselte Dymo and a few other companies, but subsequently started my own business, PS Office Supplies, in 1990.
In 2007, work commenced on Nectere which went live in 2010 and I have been doing it ever since. PS Office Supplies still runs as a Nectere dealer partner. However, it was renamed Pro Source a few years ago because the future wasn’t going to be in office supplies.
W360: Do you still run Pro Source?
PM: We have a sales director who runs it and reports to the Nectere board.
W360: Obviously a good test bed for the Nectere initiatives you want to launch with your partners.
PM: Yes, he’s the poor sod who’s the guinea pig for everything and must tolerate some of the silly ideas or things that go wrong. We test them through him and if they work, we roll them out.
W360: What prompted you to start Nectere and what do you deliver to the industry that is unique?
PM: In 2007, it was clear to me that the market was already in decline, and I started thinking about what dealers needed to survive – how do you take as much cost out as possible to enable them to compete while aggregating the purchasing to get the best deal?
It led to the creation of Nectere and that premise remains the same today. There’s no change in the structure of what we do, but we’re continually adding automation to keep costs down.
We’ve been into software robotics for a long time – we call them minions – and are now using AI robot software. At some point this year, we’ll start using machine learning software to help us in the process.
The idea is to get robots and software to do mundane tasks resulting in a lower-cost solution. Currently, the average cost to operate in the trade is probably about 17% and we deliver that to our partners for 7-8%.
What the Nectere model does require is somebody to drive sales. Our robots can create an account in nanoseconds without human intervention, but they can’t go out and sell. Our dealers undertake the sales element – the fairy dust – and it’s why the partnership works.
W360: In the early days, Nectere had an unjust tag of being called the home for failing dealers. I think you’ve probably got past that stigma, but now tend to get lumped into the same pot with organisations like Office Power. Is it a fair comparison?
PM: No, I don’t feel it is. Office Power is not the same – it’s a SaaS model with a wholesale deal attached. Its service offering is about 15-20% of ours and a slightly different model. Office Power has gained a few of our dealers that still want to do a bit of specials buying and we’ve acquired a few in return because they want the freedom to do more selling.
Both companies operate within each other’s sphere and because the market is in consolidation, we’re both effectively consolidators. Nectere is a ‘service driven, take all the cost out as much as possible, with everything including great supplier deals, so dealers can concentrate on sales’ model. Office Power is more about removing some of the cost and providing systems with a wholesale deal. There is room for both of us.
We also have a completely different vision in that we look at other marketplaces. To reach our target of 400 dealers, it won’t be only office supplies but coffee or workwear resellers too because we’re a service business, not just an office products one.
W360: Rounding off the introduction to the company, what’s the ownership structure?
PM: I still own Nectere 50/50 with my wife, but we would like to reach a management buyout (MBO). We’ve had several approaches for a venture buyout, but don’t want to head down this route as it doesn’t seem to work in our industry.
W360: You have a buyout plan though?
PM: We’ve been working towards it and hoping to get an MBO through this year. The strength of the company and management mean I’m already working far less.
W360: Who’s picked up the slack? A couple of big hitters have joined the business recently – Andrea Eli and Steve Harrop.
PM: Part of the problem we’ve had in the past year as a business is that the pandemic stopped us from being as much of a dealer as we should have been – we were in survival mode and this made us more inward-looking.
Now we’re looking outwards again and need to replace the skill sets that my wife and I have, so we brought in Steve as he’s got the contacts and knows everyone. Andrea used to be a dealer owner and has a good feel for the trade through her recent role at VOW Wholesale. Mike O’Reilly – who was Operations Director – is now Managing Director and Heema Naik is IT & Marketing Director.
W360: We’re all still talking about the pandemic. Are we at a point where we need to stop talking about it because we’re at the new normal?
PM: The environment has changed and I don’t think the impact of what happened in the pandemic is fully realised yet. The best example is Complete Business Solutions (CBS). He [CEO Richard Coulson] was trundling along very nicely.
W360: Was he, though?
PM: Well, while he could keep growing, the invoice discounting grew, which meant cash turn. My personal view is CBS didn’t get its operational costs right. While I don’t for one minute believe the company would ever have been a Nectere partner, it would have benefited from some of our integration skills. Our robotic software would have taken huge amounts of cost out.
I don’t think we’ve witnessed the final take yet and there are probably another two years of shakeout from the pandemic to endure. Some smaller dealers are still living off the government loan and have yet to pay it back. It’s getting harder and each month it’s another bit out of the cash flow.
If you’re an independent dealer, the maths has stopped adding up. Some small dealers have ceased to exist in the past few months because the figures didn’t work – they were squeezed on margin at one end, while operational costs headed towards 20% and delivery costs were over 10%. It was already at 30%, without sales cost.
W360: What’s the word among your dealer community regarding EVO buying Complete?
PM: I suspect they’re unhappy that the largest trade supplier is now the largest end user supplier. I’m personally not distraught by it and expect Andrew [Gale, EVO CEO] and the team to get it together.
W360: The fallout from the CBS situation – is it likely to create even more of a negative connotation around our industry in terms of
credit insurance and other organisations that might look to invest?
PM: I certainly imagine from the banking and credit insurance side, it will decimate their attitude towards the industry.
W360: Back to Nectere, you alluded earlier to a target of 400 partners. What’s the number trending at right now?
PM: We’re at 138, which is lower than it was pre-pandemic. We’ve just had one partner retire.
W360: What would be a typical profile of one of your partners?
PM: Our perfect partner is a dealer trading at £500,000-£1.5 million. Somebody that is sales driven and understands the future is about more than selling office products. Although the model does work for any independent dealer or startup as well. Our web store already has half a million products, with a goal to reach one million by summer.
W360: Let’s talk about this big, expanded universe of SKUs. How have you managed it so far and how are you going to complete the rest of the mission?
PM: It started by adding the products we could obtain rather than those we wanted, and some categories have been more complicated and required training. For example, we’ve had to learn the technical language associated with the catering industry.
At the other end of the spectrum, workwear has been easy to adapt to, with breakroom the easiest as we all drink coffee, tea etc.
Once the range of products is selected, it’s a case of adding something exclusive – our coffee pod machines are unique to us in the trade. Cleaning is another easy one and we’re looking to provide an environmentally friendly range. For instance, we have chosen dissolvable tabs which are cheap to transport and come with a sales story.
W360: It sounds as if you’re heading off in multiple directions. Will the likes of Spicers, VOW and Exertis Supplies be part of the journey?
PM: I would love them to be, but at the moment I’m not sure they possess the will to be there. As the marketplace declines even further for pure, traditional office products, will it force them to change direction, who knows?
But I think they have to do something because OP is declining at a hell of a rate. How many envelopes do we sell now?
W360: Do you maintain any particular allegiance to a specific wholesaler?
PM: We need to provide our dealers with the best supply deals possible and prefer to create strategic partner relationships with our suppliers. In OP, we have been very strategically aligned to VOW. We also have a relationship with Exertis Supplies and are currently building one with Spicers.
Spicers has had some turmoil, but it has now got its act together – with the power of Paragon behind it. It also has very interesting plans to quickly diversify into other product sectors, so naturally becomes a strategic alliance for us. The future is not just OP, and this sits perfectly with our current strategy in ensuring Nectere dealers remain future-proof.
W360: Any final thoughts for our readers?
PM: There is quite a famous saying “when the storm clouds are gathering, we need to learn to dance in the rain”. The only way to survive is either grab more market share or move into new markets.
By way of example, I’m currently engaged in meetings with a hairdressing wholesaler. If I can get a range of hair products, I can then sell coffee machines and breakroom items, along with hygiene and sanitising products to salons.
W360: So more of a vertical?
PM: Yes. At the last Nectere partner meeting, I was discussing the opportunities in catering when one dealer mentioned a fantastic customer – a fish and chip shop with two branches. The instant reaction is: Really? A fish and chip shop? Then you find out the customer is spending £100,000 a year on packaging. We need to grab the opportunities that are sitting on our doorstep and not be afraid to look at completely different marketplaces.
W360: I can’t believe we’re concluding this interview by talking about fish and chips!
PM: Yes – that’s the lunacy of it all, isn’t it?