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The Great Office Supplies Caper

Resellers, Local Markets & Revenue Growth Strategies

by Ian M. Elliott | 9/21/16 7:57 AM

Local_Business_Banner_Image.jpgAs readers of my blog will know, I'm a strong advocate for information technology and its role in helping achieve profitable sales growth in a local market. I'm an advocate because I don't think it's realistic for an independent office products or equipment reseller to improve its value proposition or develop web traffic volume necessary to build sufficient awareness without the use of information technology.

Over the last 10-15 years there have been many, many failures by small to medium size resellers as they've tried to develop online traffic and e-commerce. Despite this, many continue to try, apparently thinking random e-commerce is the path to growth and success when, the real opportunity, their local market, is sitting on the doorstep!

My objective in this blog is to explain the local market as a viable growth opportunity by developing the following concepts:

  1. The office products and supplies market is plenty big enough for a small to medium size reseller to achieve growth in a local market without running up against unrealistic market share barriers.
  2. Leveraging a local presence in a local market, alongside the use of information technology, to win new customers and achieve profitable revenue growth and gradually expanding the footprint of the local market covered.

The first step I need to explain is the size and distribution of the overall market and then to divide up the overall market into three separate categories of "local" markets; high density urban, average urban and rural.

The overall market in the United States for office supplies (ink and toner) is $25B in terms of retail spend per year. I will now deconstruct some of the key data in the table below.

Breakdown of the overall market into a typical "average urban" local market
  Start + 4 years Change
Market size ($M/Mth.) $2,100,000 $1,852,000 -12%
Total US Population 323,996,000 334,503,000 +3%
Avg. per capita spend per month $6.43 $5.54 -15%
Avg. Local Market Size Pop 350,000 560,000 +60%
Local Market Size ($) $2,250,000 $3,100,000 +38%
Sales Target per Mth. $55,000 $90,000 +63%
Projected Market Share 2.4% 2.9% +20%

 

The average monthly spend on ink and toner in the United States is $2.1 billion and the current US population is just over 320 million. This means the average per capita monthly spend on ink and toner is $6.43. Assuming a local market of 350,000 then that "local" market has an average spend of $2.25M per month. For an office products reseller having sales of $55,000 per month then its share of that local market is 2.4%.

Now, let's look out four years into the future. We know the overall market is shrinking, so the forecast spend is going to drop to $1.85 billion per month. It should be obvious, in order for a reseller to avoid shrinking at least at the same rate as the overall market then, either it's market has to be expanded or, it's share of it's existing market increased. Of course, a combination of both would be ideal!

The U.S. population is forecast to increase to around 335 million over the next four years, which means the per capita spend will decrease nearly 15% to $5.54 per month. However, in our example, we're showing the reseller to have expanded it's footprint, from the initial 350,000 population coverage to 560,000 - representing a 60% increase in "territory" size. This may sound ambitious but, keep in mind our assumptions that all the other requirements and capabilities required for expansion are already in place, a strong value proposition, a world-class website, and sophisticated digital marketing. Suddenly, the notion of a 60% territory expansion becomes more realistic and, infinitely more viable than an unrealistic ambition to expand successfully into the national "territory" of 335 million persons. Keep it local!

So, with this expansion in the targeted territory, you can see, that despite the overall shrink in market, the relevant local market has, in fact, grown from $2.25 million to $3.1 million per month - a nearly 40% increase. Our plan is to increase sales from $55,000 to $90,000 per month which equates to a projected 2.9% share of the expanded market.

If a reseller doesn't expand it's local market then, to achieve the revenue goal of $90,000 per month, it will have to develop a 4.6% share of it's existing market - more than a 90% increase from it's current share! While this may be possible, I think it should be clear that it's desirable to expand the footprint in order to achieve significant revenue growth in a shrinking market.

Now let's look at the theoretical size of a territory that's required to achieve these sales targets based on the average business density in the United States. 

Business Density in the United States
Business Segment by Density Per Sq. Mile Territory Size Square Miles # of Firms
Maximum U.S. Business Density 80 15 x 15 225 18,000
Average U.S. Urban Business Density 25 25 x 25 625 15,625
Average U.S. Business Density 7 50 x 50 2,500 17,500

 

Overall the average population density in the United Sates is 90 persons per square mile. Of course, the density varies greatly depending on whether the local area includes a large city - i.e. Los Angeles, New York, etc, a medium size city, or if it's a rural area.

High density areas such as Los Angeles have over 7,000 residents per square mile. The total urban population of the United States is 80% or 250 million, with an average density of around 2,500 per square mile. For the 20% (or 64 million) living in rural areas, the average density is only 17 persons per square mile.

Focusing on the average urban business density in the table above, we can see there would be over 15,000 businesses in a 625 (25 x 25) square mile territory. That same urban area, at 2,500 persons per square mile, would include a total population of 1.5 million. The total market size in retail dollars, assuming an average per capita spend of $6.43 per month, would be just over $10 million per month.

The take-away here is that, for the typical average urban density environment, there's easily a large enough market in terms of demand, and in terms of the number of potential business prospects, to support multiple office products and supplies resellers.

If we stay with this example, then we've determined the market is $10M per month or $120M per year. We know the OEMs have an 80% share, or $96M, we know high-end remanufactured cartridges (through big-box distribution such as Staples & DepotMax) have at least 10% or $12M, we know the mid-level aftermarket products already sold by the typical small to medium size independent resellers, probably have around 5% or $6M, and the 5% balance (also $6M annually) is made up of Amazon and other internet resellers.

We've blogged previously about market pricing for office supplies, typically an OEM cartridge sold at $100 would result in a high-end aftermarket cartridge through big-box distribution at $75 - $80, a mid-level aftermarket cartridge at $50 - $60, and then a low-end Amazon cartridge at $10 - $20.

Typical Imaging Supplies Pricing Structure
  OEM Cartridge Big-Box A/M Mid-Tier A/M Internet
Price $100 $75-80 $50-60 $10-20
Share 80% 10% 5% 5%
Retail $ $8,000,000 $1,000,000 $500,000 $500,000

 

So, where's the market segment for a reseller to focus on? The low-end internet sale at $20, or the high-end OEM and aftermarket products sold through big-box retailers? It should be obvious - in a $10 million per month local market, 80% or $8 million is at $100 per cartridge, 10% or $1 million is at $75 per cartridge. Forget about the 5% at $20, and focus on the $9 million per month growth opportunity! For a small to medium size reseller offering an average sell price of $60, the consumer saves between 40% (on an OEM conversion) and 20% on a high-end aftermarket conversion.

Now, in order for a small to medium size reseller to successfully convert customers from OEM and high-end aftermarket cartridges to the same (or equivalent) high-quality aftermarket cartridges, thereby enabling consumers to bypass the big-box retailers and the fat margins they keep on their aftermarket cartridge sales, the reseller must be able to build trust and confidence in his proposition, as well as to effectively communicate the incredible value he's able to provide to his targeted audience.

Achieving this goal is what underlies the intent of a sophisticated inbound digital marketing and social media engagement strategy. To build the trust and confidence of an increasingly large audience, create more leads, and convert higher percentages of those leads into customers. Effective use of these strategies over time, means the independent reseller will expand its territory and profitably increase its sales by taking market share from the high-end, not the low-end, of the market.

For additional reading on the state of the office products and supplies industry, please click on the button below to download a free copy of our e-book containing valuable information on the industry and how to take advantage of the conditions for profitable sales growth.

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Topics: Web Traffic, E-commerce, Small Business, Business Transformation

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