Sales spillage

The consumables channel has found the past year a slog as recession-hit customers have taken stock of their outlay on peripheral products. Channel Middle East gathered a selection of influential printer vendors, distributors and consumers to canvass their opinions on price, parallel imports and the growing threat of third party remanufacturers.
Sales spillage
George Saliba, Medmark.
By Andrew Seymour
Fri 12 Feb 2010 04:00 AM

The consumables channel has found the past year a slog as recession-hit customers have taken stock of their outlay on peripheral products. Channel Middle East gathered a selection of influential printer vendors, distributors and consumers to canvass their opinions on price, parallel imports and the growing threat of third party remanufacturers.

We spoke to: Ali Nemati, sales manager at HP Middle East’s Imaging and Printing Group; Sidney Pereira, inkjet product manager at Canon Middle East; Dan Smith, general manager for integrated marketing for the Middle East and Africa region of Xerox’s developing markets operations; Faisal Jamal, COO at Despec MERA; George Saliba, sales manager at Medmark; and Ketan Kumar, business development manager at Al Suwaidi Computer.

IDC figures show that the market for consumables in countries such as the UAE and Egypt declined significantly during various quarters of last year. How long will this volatility continue for and what impact is it having on the channel supply chain?

Ali Nemati:We have seen a very strong performance in our consumables business in the second half of 2009 and our forecasts for the first quarter of 2010 are quite positive. In the first half of 2009 — and I have seen those IDC figures — the main issue was of course the global economic situation and the downturn in business activity. People were not really working as much, so they were not printing as much, and that was a major factor. The subsequent credit issues in our channel for all businesses was another factor, so partners were not doing the typical level of activity that we are used to seeing from them.

Sidney Pereira:The slowdown in sales of consumables during the last year was an outcome of the recession as companies were more conscious of their expenses and made every effort to cut costs. There are signs that this decline will halt during 2010 and the market is expected to grow in single digits over the next two to three years. The channel has had to adapt to this change in scenario and has moved into a more cautious approach in terms of reduced inventory and more back-to-back ordering from the distributors.

George Saliba:During 2009, almost all the main vendors increased the prices for the consumables by up to 10%, especially in the first quarter. This led to a sales drop in the Middle East and opened the doors to parallel imports from the Far East — Singapore — where all the prices were still fixed. In Egypt, the market is always in favour of refill and remanufactured products, where the prices can reach up to 50% less than the OEM price.

Faisal Jamal:I think we saw a few signs of recovery in November and December — they were much better months than the rest of the year. January is looking a little bit more positive as well. It seems some of the big end-user contracts and tenders are now being awarded and released. But this is also expected in the Q4-Q1 period because it is meant to be a good period. The real test is going to be from April and May onwards and whether we are at least going to start seeing stable growth compared to last year or whether we are going to see another dip again. What is your strategy for driving consumables demand in the next 12 months and how will it differ to your strategy last year?

Ketan Kumar:The Al Suwaidi Group has consistently advocated the importance of the quality of service rendered to its customers. We believe that our success so far is a testimony to that very philosophy, towards which we intend on staying committed in the year ahead. Unlike 2008 and 2009, where a lot of our emphasis was placed on operational issues like procurement, logistics and warehousing to facilitate the HP consumables trade, 2010 shall see the ‘customer–service’ aspect of our business become prominent.

Ali Nemati:IPG significantly revamped its channel strategy and programmes in 2009. Of course, with the disbanding of the SPO organisation we have the IPG channel sales team which is led by myself within the IPG business unit. So, first of all, we integrated our supplies business with our hardware business and this was a pretty big move. Secondly, our channel programmes were also integrated to support the partners on both the hardware and supplies portfolio. We wanted to have a greater focus on the overall IPG business with our partners. We no longer have separate specialisations for each of the businesses, so we have partners today that can offer the full IPG portfolio. We also increased our investment in our channel team and today I manage the largest IPG specialised channel sales team in the history of IPG Middle East.

George Saliba:During 2010, Medmark’s strategy to drive consumables demand will be based on increasing the availability of the fast-moving models and bundling hardware plus supplies to guarantee the sales of consumables. We will also increase the number of dealers per country. Sidney Pereira:The demand for consumables is poised to grow as companies and business in general emerge from the downturn. Factors like ‘cost per copy’ and ‘total cost of ownership’ now gain more significance than ever before as consumers look for the way to control costs. Canon is one of the first vendors to implement ISO standards for measuring print yields, thus advocating a transparent and common benchmark for measuring the output of each cartridge and, subsequently, the cost per copy.

Is the consumables market purely a pricing game or is there more to it than that? If so, what differentiates a successful consumables channel player from somebody that simply just trades in the product?

Dan Smith:No, consumables are not just about pricing. Availability and customer service is paramount. There is an after-sales service to be offered. This can take many forms, from cost per page to outright purchase to full service maintenance. What makes a successful channel player is knowing which offering the customer wants, needs and can best be serviced with — and then supplying it to them with a level of customer satisfaction that is unbeatable.

Faisal Jamal:Two years ago we were a market driven by pricing. I think last year, in the economic downturn, pricing was key but you also started to see other issues — stock availability, customer service, credit. These are all value added services that make a difference on pricing. Pricing is an issue that may contribute to 30% or 40% of the reason why somebody buys from you, but there is a lot more that is contributing to that. It is about the range you carry, the ability to give credit, your RMA process. We opened duty paid stock in 2009 and we saw business grow to US$300,000 or US$400,000. These are small customers that need delivery and bigger accounts which need the stock instantly because they have got to deliver to an end-user, but that little value add is making a difference.

George Saliba:There is no doubt that price is the main factor in the consumables business, but it is not the only factor. A successful distributor should invest heavily in product availability, product knowledge, having an excellent sales team and managing minimum days of stock.

Sidney Pereira:The margins in the consumables business are very slim, so playing the price game is definitely not a long-term strategy. The clear message from the crisis last year was that price was not the only factor; the decline in demand was a larger issue. So the traders were indeed the most affected compared to the other channel players that carried a portfolio of products which included the range of consumables and focused on catering directly to consumers in various segments like retail and SMB.

What skills does the channel need to sell consumables and are these skills likely to change over time?

Faisal Jamal:I think the skillset is still the same, but you are also going to need to start looking at having people focusing on customer service and the whole supply chain; calling up the customer and advising where its products are — almost a track and trace service. Beforehand we were just in the business of taking orders, getting the product and delivering it whenever we had it. Now customers want much more detailed information, so I think that side of the business is going to change. Selling supplies has never been a market where you focus on marketing or demand generation activities. Vendors have been doing it, but it is also a fact that distributors need to generate demand and find new customers as well, so there is more focus on those sorts of programmes, which was not the case several years ago.

Ketan Kumar:Certain skill requisites of the channel trade shall remain constant. For instance, improving demand satiation timeframes, ensuring consistency of pre- and after-sales service and understanding existing market trends. These skills are unlikely to change as they represent the cornerstone of a well-functioning business model.

Ali Nemati:There are some core principles that have always been there but they are evolving and I think the end-user market today is demanding that our partners also change the way they do business. Our partners really need to differentiate themselves and they need to do that by selling the value of HP original supplies. It is quality and peace of mind that is associated with our original supplies. They also need to focus on the whole printing infrastructure and the portfolio of IPG, rather than fixating on just hardware or just supplies or certain SKUs from either.

Dan Smith:The channel in the IT sector needs to go through regular training to ensure that it is up to speed with the latest technology developments, features, USPs and how best to communicate those to customers. In conjunction with ongoing training, the channel needs to keep its fingers on the pulse and closely monitor the evolving trends and demands of individuals and businesses alike — not only on a regional basis but market-by-market specifics and how best to cater to them. Remanufacturers and ink re-fillers appear to be enjoying strong growth at the moment. Are such companies an opportunity or threat for the Middle East channel?

Sidney Pereira:Sales of re-filled inks or remanufactured toners do impact sales of genuine consumables, but at the end of the day it is the choice of the consumers. The size of this segment has been steadily growing in some markets, such as Iran, Saudi Arabia and Egypt, but remains small across the Gulf. However, this segment is relatively small since the majority of customers are particular about the print quality and therefore insist on buying the original cartridges manufactured by the vendor. Moreover, our focus is on educating consumers on the difference between using re-filled versus genuine consumables so that the consumer can make an informed decision.

Dan Smith:Xerox offers a range of compatible cartridges to meet the needs of customers. This range is based on extending the offering of traditional Xerox value to other equipment in customers’ fleets. The key is that the product is reliable and offers best value. If other channels are offering Xerox customers inferior products which don’t offer value then this is a threat. Xerox channels are well trained to counter that threat and communicate our value proposition to customers to keep them purchasing genuine consumables.

Ketan Kumar:Owing to the over-zealous drive among businesses and end-users to curtail expenses, there are certainly a few segments in the market that have started seeing the incentive in refilling cartridges. This is a short-term issue and doesn’t represent a substantial threat to the original consumables trade since there are quite tangible and perceptive advantages in using the genuine factory-produced stock. Benefits such as product warranties, incentive programmes, after-sales service and performance guarantees are some of the encouraging factors for consumers to weigh up before making their purchase decision.

Ali Nemati:I don’t see them as either a threat or an opportunity. Customers might try the remanufactures or the refills once or twice, but once they realise the difference between HP original supplies and experience sub-standard print quality, reduced printing yields or severe printer downtime — and we have seen countless examples of these — they will realise that original supplies are the best and most cost-effective solution for them.

Parallel universe

Like it or not, the Middle East is often used as a dumping ground by suppliers from other parts of the world that want to divest excess stock. Fast-moving, high-volume products such as printer cartridges are just the sort of goods that are known to move easily from one region to another, more so when markets come under intense pressure. Bearing that in mind, have Middle East channel players witnessed an upsurge in parallel imports during the past year?

Not at all, according to vendors such as Canon and HP, which both deny they have observed any noticeable change in the level of outside stock entering the regional supply chain. “The cases that we have seen have been very opportunistic and there has been a gap between them, so it is not something that is consistent,” said HP’s Ali Nemati. “If grey is coming in consistently then you have a problem, but we are not facing that so we are comfortable with it.”

Canon’s Sidney Pereira suggests that parallel imports have suffered from the general fall in demand as much as any other ‘market’, which could explain why the problem doesn’t appear to have been exacerbated by the downturn.

Channel players agree that the majority of surplus consumables which find their way into the Middle East channel originate from Asia, but it is also common for goods to come from other markets if local sales promotions create discrepancies in pricing between regions.

Unlike the vendors, Faisal Jamal at distributor Despec believes the downturn has “made the scenario a little bit tougher” for the channel, particularly as the Middle East acts as a gateway to Africa.

“There have been quarters when product that is 10% to 15% cheaper from the Far East or the US has come into the market and really hurt us, and that takes away the investments we are putting into in-country distribution and everything,” he lamented. “At the same time though, if in-country distribution works well then you would hope that it will slow down grey imports — so I would say it is something of a balance.”

For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.