This article is “required reading” for financial analysts, institutional investors, mutual fund managers and other “non-reprographers” who are interested in the reprographics business and industry. For blog visitors who are reprographers, please don’t bother reading this post; you already know the points we’re going to make in this post.
Several years ago, not long after ARC went public, ARC developed its concept for selling to “national” (and, I would guess “international”) accounts, and, in conjunction with that, ARC established a team of business development/sales people and called those ARC team members the “Premier Accounts” sales team. Today, when I looked on Linkedin.com, I noticed that several of ARC’s team members use the term “Global Solutions” to describe their positions with ARC, instead of using the term “Premier Accounts”. (However, note that at least one person’s tag line – in an e-mail I received – still uses this title, “Executive Director, Premier Accounts.” Others use these titles, “Global Solutions Executive” and “Director, Global Solutions” and “Senior VP, Global Solutions.”) Collectively, people within ARC who refer to themselves as “Premier Accounts” or “Global Solutions” are members of the ARC sales team that pursues “national” and “international” accounts. For example, in the most recent “earnings call,” Suri mentioned that AECOM became a “Global Solutions” account during 2010. (I will make a comment about this later on in this post.) AECOM is a huge A/E firm. AECOM conducts operations out of offices in and around the country (and internationally as well.)
During ARC's most recent earnings call, Suri talked about ARC' s five main initiatives for 2011: He said, "The second initiative is our core business aimed squarely at gaining market share from competitors who are floundering or failing. Most of these competitors are 5 million to 10 million companies. In many cases, they are struggling with the loss of more than half their revenues. Armed with new tools, technology and buying power, we are reenergizing our local sales teams to target this market share."
I've pointed out in previous posts that ReproMAX and RSA are both “national” in scope, but I also pointed out that those organizations are “associations” comprised of individual member (reprographics) companies. For that reason, the possibility of “ReproMAX” or “RSA” competing for large “national” accounts relies totally on ReproMAX’s ability and RSA’s ability (the management teams and boards of both of those associations) to bring together all of their respective individual member companies to agree on what’s offered in “national” proposals and, in conjunction with those proposals, to agree on “national” standards for service delivery and pricing. If I’m recalling these statistics correctly, ReproMAX and RSA both have over 100 individual member (reprographics) companies. Just a guess, but I would imagine that it is not an easy task, by any stretch of the imagination, to get 100 (or more) individual companies to agree on what’s going to be offered in a proposal to a large, national account. (Reportedly, the “collective annual sales” of all ReproMAX members combined exceeds ARC’s annual sales. I am not at liberty to reveal the exact number.)
Unlike RSA and ReproMAX, ABC Imaging is not an association; it is an “individual” company with its own locations across the U.S. (and a couple of locations outside of the U.S.). ABC’s national footprint is considerably smaller than ARC’s, but ABC has, even during the “Great Recession,” shown a willingness to expand to wherever its larger-account opportunities require it to go.
But, when you consider the sheer size of ARC and the extensive national footprint ARC created by rolling-up over 100 formerly independent reprographics companies in the U.S., ARC has a 1) size advantage (over ReproMAX , RSA and ABC Imaging), 2) a geographic advantage (over RSA and ABC Imaging, but not over ReproMAX), 3) a “national” sales team (I don’t recall hearing that RSA and ReproMAX have “national” sales team members; ABC Imaging might), and 4) the advantage of being able to come up with a definitive “account strategy” for a large, national prospect (or customer) without having to resort to negotiating a definitive account strategy with a whole host of different member companies, which would be the case with ReproMAX or RSA. This would not be a problem for ABC Imaging. This would also not be a problem for Service Point Solutions, but SPS’s geographic footprint in the U.S. is much smaller than ABC Imaging’s footprint.
While ARC does have certain advantages when competing for business (I mean, “deals”) with large, national accounts, ARC does not, in my opinion, have an advantage over the others when it comes to developing relationships with customers in individual market areas, nor does ARC, in my opinion, have an advantage over the others when it comes to service delivery. Many, many of the individual companies who belong to ReproMAX and RSA, and this would also be the case with ABC Imaging, are tenacious and relentless when it comes to developing (and maintaining) customer relationships, and when it comes to servicing the needs and requirements of their customers. Within each individual market area, “size does not matter” as much as “performance” matters. In this sense, independent reprographers may actually have an advantage over ARC-operations in their markets, simply because the owners of each independent company are at risk for their “net worths”, whereas ARC’s local managers do not have that risk. When everything is on the line, don’t (ever) underestimate the resilience and competitiveness of an, or any, independent reprographer.
All of the above relates to ARC’s stated objective to grow its “market share”; this implies that ARC, in order to move forward with this objective, will have to increase its market share in each and every “market area” in which ARC operates. Growth in “market share” is not easy, nor is it assured. Market share growth comes by taking away customers from independent reprographers ARC competes with. Independent reprographers aren’t going to make it easy for ARC to take away their customers, and, as I said earlier, independent reprographers may, in my opinion, have an advantage over ARC (see previous comment about that), individual market areas considered. Thomas Reprographics, NRI, ABC Imaging, C2 Reprographics, Duncan Parnell, Lynn Imaging, Service Point Solutions, CyberCopy, Gilmour Reproductions,, Astley-Gilbert, and Universal Reprographics, just to name a few, are formidable competitors in their respective markets.
Based on what I've read, so far, in reports issued by financial analysts who follow the reprographics industry (because of their interest in ARC and/or Service Point, the two publicly-held companies who are considered players in the reprographics industry), I’m not positive that “investors” and “financial analysts” have a good understanding of the issue of “price” in the reprographics industry. In the reprographics business (in the U.S.), “price is not the only factor” that customers consider when choosing which reprographer to do business with. Many A/E firms are “reimbursed” for a good portion of the reprographics services they purchase from reprographers. (ARC pointed that out in its IPO prospectus.) A/E firms who are reimbursed are less sensitive to price. (Any reprographer who sells “price” to an A/E firm that it is reimbursed for much, if not all, of the expenses that A/E firm incurs, should have his/her head examined! Doing so would be flat out dumb.) My very first customer, the senior partner of a large Architecture firm, told me that, my first year in the business (1970.) Construction companies and sub-contractors are concerned about “price”, but they will not accept poor quality or poor performance. So, even for them, price is not the only factor they consider. Non-A/E/C customers who buy color services (large-format or otherwise) are certainly concerned about price, but they, too, will not go with low price or lowest price if performance and/or poor quality is the trade-off.
All of the blah-blah-blah above was put forth in an effort to shed a bit more light – for the benefit of financial analysts, institutional investors, mutual fund managers and other “non-reprographers” who are interested in the reprographics business and industry – as to the issue of “market share” and the difficulty that any company, whether it be ARC, Service Point, ABC Imaging, Thomas, NRI, etc., faces in its efforts to grow by “increasing market share” (taking away business from competitors.) Short and sweet, “it ain’t easy.”