OPI-Dick Gochnauer Interview - Ussco.com

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the big interview From McDonald’s to United Stationers, trust matters for CEO Dick Gochnauer. But can he help mend bridges in sometimes fraught OP relationships? OPI: Dick, if we can begin, it’s about 18 months since you joined the industry - do you still feel like the new kid on the block? DG: A little less so. But still, this is an industry with veterans who’ve been in it all of their lives, so I’ll probably always feel a bit like the new kid on the block. OPI: When you replaced Randy Larrimore as CEO did you have a radical vision, or was it fine tuning? DG: Fine tuning. United was a well run company, not a turnaround situation. Clearly, we had suffered like the industry but part was a self-inflicted wound because we’d moved off into a new 3PL venture that did not work. OPI: Have you found it very different from food? DG: I’ve been surprised at the parallels.The food industry had gone through a period of high growth, and so the focus was on how to service the customer. Then before this industry dip, it went into a period of very slow growth, particularly the fast food sector and costs and other factors became issues. The bar was raised, and those companies that were able to step up survived - those that didn’t, didn’t. Both industries rely on the independent entrepreneur to serve the customer fairly extensively. In fast food it’s franchisees, in our industry it’s independent dealers. OPI: And the corporations? DG: Having both gives an industry some strength and some unique challenges. In McDonald’s case it has about 80% of its restaurants run by franchisees. It has tried different ratios and it keeps coming back to something in that ballpark. Large corporations cannot service certain customer segments as well. They don’t run as good a restaurant. They’re not as clean. Customer satisfaction scores aren’t as good. The financial results and sales results aren’t as strong. That points to the spirit of free enterprise, of owning your own business and the kind of pride in ownership that goes with that. Ultimately, independent dealers and corporations have a role and it would be a shame if we lost that. OPI:What impression did you have of the industry before you came in? Was it black and white? DG: The less you know, the more it looks black and white and straightforward. As you get into it you realise how complex it is, and the unique challenges it faces. OPI: Talking of the dealers, issues raised in OPI recently by independent dealers, such as Al Lynden’s ‘trojan horse’ letter (see OPI September 2003, page 11) must have struck a chord with you. DG: It’s clearly a topic that needs to be on the agenda so that there is some clarity as to what is and isn’t happening, what the intentions are, and where people are going. OPI: Do you see more consolidation of the dealer base? DG: Well, we are seeing the bigger dealers get bigger. We hope dealers of all sizes remain viable and healthy, and Office Products International • December 2003
the big interview that is our expectation. And, of course, the independent dealer represents by far the largest share of our business, so it’s an important part of our customer base. OPI: Let’s move on to the US wholesale industry. Were you surprised at Daisytek’s fall from grace? DG: Not too surprised. It was a virtual rather than an asset-rich company. Once you lose your funding, can’t pay suppliers and don’t have inventory, it doesn’t take long for customers to switch. And so the flight was very rapid. “Companies who have drifted off purely in pursuit of greed, have got into big trouble, reinforcing the position that it’s dangerous territory” OPI: A flawed business model? DG: Clearly. What was not fully appreciated was the difficulty and the amount of capital required to enter into the full line supply of office products. This industry is built on speed, and the only way you’re going to get speed and low cost is to have inventory in local markets. That requires huge investments in physical facilities and inventory. A slightly lower price while giving up on service, is not a proposition that will sell, so it was an underestimation of what it required to get into that segment of the business. OPI: Ostensibly, that leaves you and SP Richards. Is that a good thing? DG: It was SP Richards and United before Daisytek as well, because it was not a full line supplier. It’s when it tried to become a full line supplier that it exacerbated its problems. So really the industry has been served for sometime by two national wholesalers. All customers need at least two choices. Whether you need three or four remains to be seen. Here you’ve got two good options - both well run, well financed and healthy. So each dealer has a choice. OPI: Do you expect the likes of Tech Data, Synnex, Ingram Micro to try and move into the market or will they stay niche orientated? DG: It would be a whole different service proposition for them and requires a different business model. I think they’ll continue to be active players in the segment that makes sense for them. OPI: You bought Daisytek Inc for a knock down price of $1 million. What does it offer you? DG: We were interested in the intellectual property. It has some software capabilities too and clearly we get the customer lists and suppliers and there is some information that I’m sure will be new to us. It had a software engine that allows you to do some product comparisons and which the industry had been using. We wanted to make sure the industry didn’t lose this, so we’ll try to keep that available. OPI: So some of the things Daisytek did were very impressive. DG: Yes. It didn’t get where it got to without delivering some good products and service to the industry. OPI: Will you keep that name - Daisytek Inc? DG: I don’t know - it wasn’t our primary focus. I don’t snapshot age: 53 job title: CEO and president of United Stationers lives: Winnetka, Illinois favourite food: hamburgers! favourite restaurant: McDonald’s favourite drink: iced tea loves: The City of Hope hates: dysfunction education: under graduate degree in engineering from North Western, and MBA from Harvard alternative career: in the nonprofit world favourite past time: volunteering holiday destination: Colorado skiing biggest fear: Not responding fast enough to customers biggest hope: the industry learns to collaborate better nickname: none know whether or not there is some future use for that name. OPI: We’ll move onto your results over the period you’ve been there. Sales of $923 million for Q4 2002; $970 million for Q1 2003; and $955 million for Q2 2003. Why the fluctuation? DG: That’s normal. January is a big month, so you get some extra pop in the first quarter. People cut off purchases but January is the new budget period so they’re replenishing inventories. Our sales for the first half of 2003 were up about 4%, heavily driven by growth on the computer consumables side. The good news is that furniture has gone from big negatives to closer to flat, so that’s moving in the right direction, but certainly not driving any sales growth. OPI: Are you happy with sales overall? DG: I’m concerned about the more traditional office products segment, because that hasn’t picked up. The brakes are still on in large companies in terms of spending, and the control of spending, even to the point where companies talk about how you get a choice of one pen or one pencil and if Office Products International • December 2003
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OPI-Dick Gochnauer Interview - Ussco.com

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