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On the same day that Weyerhaeuser's fine paper entity took 55 percent control of Montreal-based Domtar Inc., PrintAction magazine spoke with Carl Best, who is now the director of business development for PaperlinX Canada. Based in Australia, PaperlinX has become the world's largest paper merchant in six short years, primarily through acquisitions. This included the March 2006 purchase of Cascades Resources that is now added to PaperlinX's other Canadian assets, Coast Paper and LP Turgeon, under the name of Spicers.
Jon Robinson: Why did PaperlinX Canada need to sell Cascades Fine Paper Group's merchant business in Alberta and BC before acquiring Cascades Resources?
Carl Best: The straight answer is that the competition tribunal felt there would be a substantial lessening of competition in British Columbia, Alberta and Saskatchewan. So it became part of the transaction that they would have to dispose of what was Cascades・distribution in those three provinces.
How did this change the overall relationship with Coast Paper?
Coast Paper operates independently of Spicers ・it operates in the Western provinces. We do not have a presence in the paper business there, and we will not once this divesture takes place. In all of the other provinces, Coast Paper will operate in the same way that it always has, as Coast Paper. All we have done is change the name in the rest of the provinces from Cascades to Spicers, which is a name that has been associated with PaperlinX going back to Australia. It is also the name they use for their paper merchanting business in the U.S.
Will PaperlinX Canada run independent of U.S. operations?
PaperlinX Canada is a completely separate organization and responsible only for the Canadian business. Typically, that is the way that PaperlinX operates. They make acquisitions and let the companies run independently.
Because Cascades Resources brings so much hardware with it, does Canada suddenly present a unique model for PaperlinX?
One of their acquisitions in the United States, a company called Kelly Paper, has a paper distribution business plus graphic arts. In the UK they have a major presence in sign and display, which is part of their paper merchanting business. Throughout Europe they also have a significant presence in sign and display.
Cascades Resources is their first major involvement in the graphics business, which obviously includes a lot of hardware. The desire to be an integrated supplier to the printing community, or the communications business if you want to call it that, means offering more than just sheets that ink gets spread on.
While at McCutcheon, how did you develop the concept of bundling consumables with hardware, which is so omnipresent today?
If I admitted to that I might have to go to jail. I think the concept was in place in the early days of McCutcheon Graphics and I happened to be there at the same time. I am not sure that I was personally responsible for it, but it grew out of film processors, being required to develop film. Much like in the propane dispensing business, you need to have a tank to hold the propane that you dispense. That is how the whole concept began in the late 1970s. The difference today [with CTP systems acting as the propane tanks] is obviously cost, which prohibits most people in the distribution business from providing CTP systems in the same way that we were able to provide film processors.
Will delivering CTP systems remain a strong focus of PaperlinX? Absolutely. We are into delivering any technology that makes the printer more efficient.
Since Kodak bought Creo in 2004, many questions have been raised about the future of distribution in Canada, with only Fuji selling direct. Do you expect the other big plate/engine manufacturers to go direct?
Distribution is our business. That is what we do. We think we are as good as, if not the lowest cost and best, distributor in Canada. And we have to be. Anybody whose main function in life is manufacturing has a tough time acting as a distributor. I think more and more companies are finding that the cost of distribution is a hell of a lot higher than they thought; and, certainly, the cost of maintaining a direct sales force is prohibitive today.
How prohibitive have fuel and energy price increases been to the distribution business?
Like everybody else who is faced with increased costs, you must find as many ways as possible to decrease your costs ・to absorb the change. When you can't squeeze any more blood out of that turnip, you basically have to increase your costs to your customers. We were unable to absorb all of the increases that have come, particularly in fuel costs. We have had to put a cost increase across the board to all of our customers.
How are printers reacting?
The difficulty is that there is a limited amount of cost in a printer's business directly associated with consumables, whether it is paper or ink or printing plates. It is somewhere in the range of 30 percent of his costs. I think a lot of savvy printers are looking at the other 70 percent of their cost structure and trying to find ways of reducing that.
Is that not an expensive, capital-intensive option for most?
It is really more of a re-investment. Consider the introduction of CTP, which allowed printers to substantially reduce their overhead. In retrospect, it was a tremendous asset for the Canadian printing industry. The next round of improvements will come from other digital technologies.
As more processing steps are eliminated, which means lost revenue for distributors, how does Spicers move forward?
We are going where the technology takes us and we hope that printers do the same thing. You can cry in your beer over it, but there is plenty of market. Every time you put a customer on new technology [like CTP], you lost two-thirds of your volume and that was very difficult. You have to get over it.
Are too many printers today running on too much suppliers credit?
I have been at this for 25 years, and I think that it is the same situation today in the printing industry as it was 25 years ago. The bad-debt performance of the printing industry in Canada is still one of the best compared to different sectors in manufacturing or banking, retail, real estate. If you took all of the printing companies in Canada over the last 25 years and looked at how much bad debt there was, how many guys go out of business and stick people with bad debts and so on ・which is a measure of the industry's financial credibility ・you would probably find every year that the printing industry performs extremely well.
Why do you think that is?
A lot of it is culture. Once you get past the sophisticated companies like Quebecor or Transcon or PLM, everyone else is running privately owned businesses. The perception is that someone who used to be a craftsperson cannot be a good businessperson, and therefore we should never loan any money. But it is all perception. We just don't loan money to people because they ask for it. It is not an issue. Our performance is great, and I think everybody else I know in this business would tell you the same thing.
Would bankers or investors say the same thing?
Well, that is a problem that the bankers and investors have.
How does Spicers become more than a distribution partnership if you notice an undervalued printing firm? Our future depends on the customer being healthy for many years to come. It is really in our best interest to make sure that they are as technically savvy as they can be, so that they can keep customers from going somewhere else. That is what we do.
How will Spicers be restructured, assuming the PaperlinX acquisition caused facility overlap?
As a distributor, our main job is to keep our costs as low as we possibly can and get the product to the customers as efficiently as possible ・manage our inventors. That is not going to stop.
How far is RFID pluged into your supply chain?
It has been running almost a year now. It is very efficient.
Will smaller distribution companies survive?
Look at how Home Depot changed its marketplace: your friendly hardware store doesn't exist anymore. It is all big-box stuff. But there is room in this industry for niche players. There are things that big companies don't want to do, because it may be a small piece of business with a lot of inventory and a lot of technical support required.
As printers move into more niche apps, how can big distributors afford not to accommodate as many niches as possible?
Well, it is a complex industry. There are a lot of ways of doing things and the country itself is fairly extensive. You can do a lot of things between [Ontario highways] the 404 and the 427, south of the 401, that become quite difficult when you are in northern New Brunswick.
Where will Spicers grow market share?
Digital inkjet technologies will open up a lot more work for commercial printers, such as sign and display business, POP, that kind of stuff which is pretty easy to do. The other big opportunity comes from looking inside the packaging industry where technology hasn't moved very fast. I think the technology will move very quickly once it starts in the packaging industry. Maybe one of the biggest opportunities for commercial printing and packaging comes from the introduction of soft packaging versus hard packaging. That lends itself to short-run printing and brings a whole new marketplace into play.
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