The upheaval caused by the pandemic and lockdowns has merely added to the transition that Antalis, Europe’s largest paper merchanting group, has been under going.
The company this year changed hands when Japanese company Kokusai Pulp & Paper completed its purchase of the business, and so ended a long period of uncertainty. At the same time in the UK Antalis is part way through consolidation of two warehouses into one, bringing large format substrates and packaging materials alongside the pallets of sheeted paper that are the mainstay of the business. And then there’s Covid.
“The paper market is tough,” says David Hunter, Antalis UK & Ireland managing director, “and it will continue to be tough. We will have to adjust to what is going to be a smaller market. But it’s a road we started going down many years ago.”
The strategy to cope with the decline in commercial print volumes has led to broadening of the range that Antalis carries, so reducing dependence and exposure to this segment of the market. “We now have the broadest offer in the industry,” he says. This is not protection in itself, hence the continuing strategy of managing costs without damaging customer service. And the importance of the new shareholders’ ability to take a long term view.
KPP has grown to a dominant market position in Japan, expanding into neighbouring companies in South East Asia, achieving sales of ¥366.7 billion in the 12 months to March 2019 and handling 2.2 million tonnes of paper a year. To facilitate further growth the group floated on the Tokyo stock exchange in 2018 and followed up acquiring Spicers in Australia last year.
The long term view is expansion in India and Africa where paper consumption per head is around 10kg a year, well below the 80kg a head in China and even further behind the 150kg per capita for paper in Europe, the US and Japan. It anticipates a settle down average of 50kg a year. The strategy, says CEO Maduka Tanabe, in the company’s annual report, is “to acquire paper distributors strong in those regions and entirely remake the map of the industry,” adding: “To enter the African market, we are considering having a base in Europe that would be turned into a beachhead.”
KPP is a little late in this regard as Antalis has sold its sub Saharan interests as part of a focus on more core activities. And any resumption of business on that continent lies well into the future. For now, Antalis UK and Ireland is grappling with challenges closer to home, albeit with the knowledge that KPP is expansionist, not intent on asset stripping.
“We have been reshaping the business to cope with what the future might look like,” says Hunter. “We have been realistic and enthusiastic about the future.” It had driven that early move into the visual communications sector and packaging materials even as demand for graphic papers has decreased. This has reached the point that is no longer viable to operate two distribution centres close to each other as Antalis has in Coalville.
These are now being combined, something that requires changes to racking to accommodate the different materials, and changes to offices and product handling areas. Investment in a packaging design centre and a Kolbus Autobox has opened up the ability to provide bespoke box sizes for customers.
It has also led to changes in responsibilities for senior staff. National sales director Bruce Munro is now commercial director, responsible not only for sales, but also for purchasing.
“There is no longer a gap between the buying and selling roles, it’s a joined up process,” says Hunter. “We have the same end to end approach to logistics. It accelerates decision making and brings us closer to market as the same person is talking to our customer and to the supplier.”
The old complaint that “we would be able to sell more if the price we bought at was right” no longer holds water. “I’ve lost my last excuse,” Munro laughs. “Covid-19 has accelerated the changes that were already happening. To a large extent the breadth of the product and the customer mix we have been developing over the last five to seven years has helped protect us from full exposure to the impact.
“But we do have challenges in coping with smaller orders.”
The company has considered changes to drop frequency as well as size, encouraging customers to think beyond requiring next day delivery. “We are trying to takes costs out of the supply chain, persuading customers to reduce their order frequency or else to order more from one merchant,” he says.
Antalis has achieved efficiencies through a partnership with a third party on its regional warehouse network and shipping paper along with unrelated products to make full use of its assets. “The regional network is essential to us,” says Hunter. “You cannot run a national distribution from a single distribution hub; you must be close to end user markets.
“In the nine years since I joined, the industry has changed. We have to cope with tighter supply slots and smaller orders, we are constantly looking at drop management. It’s about understanding that not everything is needed for next day delivery, but supply is needed when you want it.”
What is delivered will not change. The company has deep and long standing relationships with its suppliers and this will not change with the new owner. There will surely be access to new suppliers, though nothing immediately. It will be more a case of filling gaps in the range, which given the rate that paper makers are announcing mill and machine closures, may become necessary quite quickly.
“We are not reliant on the commodity lines,” says Munro. “We see this sector, B2 in particular, is under pressure while those in trade printing seem to be doing better.” Antalis will remain in the volume side of papers, fighting to retain and expand market share, says Hunter. “We are not shy to say that market share matters. We will not shrink from our aim to increase market share.”
And with the industry getting unsteadily to its feet having been flattened by lockdown, the next challenge will be the final rupture with the EU. Last year many printers had planned for a Brexit disruption that did not occur by laying in extra supplies of paper. It proved to be completely unnecessary. “Many of those printers that did decide to stock up came to regret it because of the effect on their cash flow,” says Munro. “This time we anticipate that they may build a small buffer of stock but we don’t foresee any large impact as before.”
That after all is the core function of the paper merchant: to select and hold stocks so that printers do not have to. “We will prepare for the worst and hope for the best,” Hunter explains. “We have drawn up pretty robust plans, but we will not be going crazy – how much stock do you really need?”
Contingency planning instead will look at the potential of using smaller ports should the major entry points like Dover or Harwich become grid locked and unable to function. The paper will get through.
Antalis has been purchased by Kokusai Pulp & Paper, a Japanese giant that has ambitious plans to dominate the paper merchanting sector.
