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A merging of minds

07.03.08 Graeme Neill

Usually when a c.e.o. or m.d. is asked to characterise their business, they talk in slightly trite terms about being a "market leader" or "the fastest-growing company".

But Michael Neil, Bertram Group m.d., takes tongue-in-cheek inspiration from a cult 1960s science fiction show. "There's a slightly bizarre principle to how wholesalers work," he says. "[Former Bertrams m.d.] Terry Reilly used to say it was like 'Star Trek'—we would boldly go where no-one has gone before and then publishers would come in and try to steal the business opportunities."

The wholesaling landscape has changed considerably in the last 18 months. Firstly, Woolworths spent £20m purchasing Total Home Entertainment (THE) from 3i in September 2006, making it part of its Entertainment UK division.

Then, in January 2007, Entertainment UK announced that it was taking over Bertrams — which came with a £29m price tag. The protracted takeover, which required the approval of the Competition Commission, was finally given the green light in September last year, and Bertrams/THE was born. Very little of THE is still functioning, just the IT staff stripping out cables. However, THE staff moved from their previous home in Newcastle under Lyme in November and all supply has been fulfilled from Bertram’s warehouse in Norwich from that point onwards.

The merger means there are now only two major wholesalers in the UK—Bertrams/THE and Gardners. But while the number of players may have decreased, Neil insists that competition between wholesalers is as fierce as ever. He estimates that, as publishers have started to supply direct to booksellers more frequently, the main market share is evenly split between Bertrams/THE, Gardners and publishers. "In many instances, booksellers were happy to deal just with wholesalers, but as we have been prospering, publishers have wanted to get involved," he says.

Graham Rand, who was general manager for books at THE and is now Bertrams/THE commercial director, says consolidation was "inevitable" given the wider acquisitional appetite of the book industry.

"Wholesalers have got better because bigger organisations can offer better services and systems," he says. "We can do a lot more for bookshops than [if they deal] with individual publishers."

Despite criticism from some independent booksellers that the merger would lead to a weakening of competition and, consequently, a worse deal for them, Rand insists that booksellers are better off now that there are two strong wholesalers operating in the market. "The possible implications of the merger were scrutinised thoroughly by the Competition Commission, and there is a real competitive spirit between wholesalers and the publishers," Rand says. "We can only afford to spend money on developing our systems if we are a bigger company. Smaller organisations can’t afford that kind of investment and consequently can't keep up."

Many industry observers were surprised that the merger went as smoothly as it did. It had originally been planned for March 2007, but ended up going ahead just before Christmas. Despite happening at the busiest time of the year, Neil reports that there were only two minor problems.

The first was that some booksellers in the south west of the UK experienced fulfilment issues owing to distribution problems at the DHL warehouse in Bristol. Secondly, some customers had difficulties switching their online accounts from one wholesaler to another. "Considering they were the only two problems we experienced, we did ridiculously well," Neil says.

Despite announcing the intended merger in January 2007, Bertrams and THE were unable to discuss the future with one another until it had been approved by the Competition Commission in September. As a result, it has only recently been able to start making plans. "As soon as we heard the Competition Commission ruling, we were into our peak period," Neil explains. "Once we recovered from the exhaustion of Christmas, we were halfway through January. It’s only really recently that we have been thinking about where we are going as a business."

The wholesaler's immediate priority is—in Neil's words—to "bed down" the new entity. Once it is more settled, the plans include making the company’s warehouses bigger.

No longer cooped up

Bertram Books started out almost 40 years ago in what was a former chicken shed. It relocated to a purpose-built distribution centre in May 2004, which is based on the outskirts of Norwich. At its centre is a 130,000 sq ft warehouse and, at 11 metres high, there is scope for building its  stock-holding space upwards. The wholesaler also has first refusal on 3.5 acres of land nearby.

Neil is guarded about longer-term plans for expansion, but among the items on the agenda is developing an inbound stock-sorting machine. At the moment, around 70% of out­going orders are sent through a partially automated system, and doing the same for inbound books would bring the company greater efficiency. 

With the stock-sorting system for out-bound books items are picked and scanned and then the right box is found through a conveyor belt system. Because it is automated, it is much faster than conventional packing—essential for a company that typically processes 100 pallets of books per day. 

Also in the pipeline are two new strategic digital developments. While Gardners has made strides with its Digital Warehouse service—which provides a range of e-commerce services for booksellers and publishers­—Bertrams has so far kept its powder dry.

Neil remains tight-lipped on the details, but says that both of the planned digital initiatives should be revealed around the time of the London Book Fair.

The growing demand for digital products has prompted the move, and Neil believes that, even with the publishing industry thus far lacking its "iPod moment", it shouldn’t be fearful of the implications of new technology. "The big danger is that digitisation is seen as a threat," he says. "The history of the introduction of new technology is that it complements, not [replaces] existing technology. The book is still excellent technology that will not be replaced by digital developments."

However, Neil feels that some publishers are not doing enough to co-operate with wholesalers in developing digital products. "The publishers we have been working with are very helpful, but it would be easier if there was more open-mindedness about the opportunities of working with wholesalers. We are not a threat, but an opportunity."

Rand says he is fascinated by the debate surrounding a possible e-book reader that would cross over into the mass market. But he thinks those who are expecting a device with iPod-like appeal for books are probably missing the point. "With every other product, the key thing is [to] get smaller . . . But with reading, you need something very visible."

However, while the digital market remains tantalisingly on the horizon, the state of the independent bookselling market is also of importance to Bertrams. The wholesaler’s business is surprisingly wide-ranging—from offering customer service to Waterstones.com, through to call handling for newspaper book orderlines and supplying W H Smith with branded stationery.

But its independent customers are “the bread and butter”, as Rand describes it, and they are seen as key. “Keeping independent retailers in business in a very hostile market [is our greatest challenge],” Rand says. “This year has started badly. Some great shops have closed already. It’s almost missionary work—we want them to continue trading so we can.”

Both Rand and Neil insist that the main benefit from the Bertrams/THE merger is that they are in a better position to offer more to indies. Existing customers’ rates stayed the same following the merger, and Rand points to the likes of the Independent Buying Group as a service that offers competitive promotions to the sector. "With independents, we are enabling them to function more effectively,” Rand says. “It’s by no means altruistic—if they thrive, then so do we.”

Environmental agenda

Along with the state of indies and the digital future, environmental issues are starting to come higher up the agenda for the entire book industry. "[The industry] can't be adding to the good of a greener planet," Neil says. But he still has a cool reaction when Hachette Livre’s plans to go firm sale on backlist titles for environmental reasons are mentioned. "If it's a genuine offer, we will support it, but if it's a cynical way of changing terms, then we won't," he says. "The details are hazy and there's no meat on the bones at the moment. We need to hear more information."

However, when it comes to its own business, Neil says that the wholesaler is "part of the green solution, not the problem". Rand agrees: "Fundamentally, wholesalers reduce the number of transactions. We make the supply chain easier."

The wholesaler has returns of around 11% across its entire customer base, and gives better rates to customers that send back fewer products. "We are also [situated] on an out-of-town, purpose-built site, so we don’t have the environmental  inefficiencies that older buildings would have," Neil adds.

The industry will certainly be looking forward to seeing what Bertrams/THE does next.

Retail Bertrams THE Flagship Graeme Neill

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