The Cannata Report
Burning Questions Video Series Transcripts
Ep. 1 of 6: Diversification
Launch Date: August 13, 2019
Exclusively presented by Clover Imaging Group
Today’s Burning Question is…why do dealers need to diversify?
Scott Cullen: There are plenty of reasons why dealers should be diversifying. Declining print volumes is a big one; as a matter of fact, in our 2018 Annual Dealer survey, 55% of dealers expressed that as a concern. [Additionally], hardware margins are getting a lot tighter. That’s another reason to diversify. It gives you an opportunity to go wider and deeper with existing customers, it gives you an opportunity to attract new customers, and it helps you position your dealership for success in the future.
CJ Cannata: Augmenting or complementing your core offerings is also going to put you in a better position to have a more consultative and value-oriented conversation with your customers and target customers. At the same time, it is more likely to help you have that conversation with someone more senior at the [target customer’s] company.
[For] those dealers that are more likely to continue to maintain for as long as they can prior to exiting the business in the near future, diversification is also important. OEMs, other dealers, as well as , particularly in the past year – have all made it quite clear that dealers who are more diversified, and have more to offer beyond the core business are in many cases going to be more attractive acquisition targets.
SC: Managed IT is a great way to diversify and I think what we are going to be seeing is more dealers getting into this as more products out there are connected to the network.
Another diversification opportunity is security. [It’s] one of the hottest trends in our industry. I mean, in our personal lives, in the entire business world globally – security is really where it’s at. Actually, every OEM is incorporating some kind of security component to their product. One of the other great things about security is there’s a recurring revenue stream attached to it as there should be with all diversification opportunities.
And the other thing we can’t ignore, especially as we look to the future here is smart office solutions. We’ve got Sharp, we’ve got Ricoh, [and] we’ve got Konica Minolta getting into this. I think we’re going to see more vendors provide products [like this]. A lot of this is Artificial Intelligence-based.
CJ: With all the emerging technologies, whether it is AI or VR – Virtual Reality – or something else, if it’s something that can help optimize an office environment and a dealer isn’t providing it, somebody else in your market will.
SC: Another area of diversification is printing services. I was just up at Premium Digital in Parsippany [NJ], a small dealer, and they acquired a printing company. And this is a company that does trade show banners, signage, printing on promotional items, business cards – basically anything that needs to be printed and it’s a great way for them to get their foot in the door and then introduce [clients] to all the other products they are selling. But printing services is a very big growth area for this small dealership.
CJ: Production and industrial print is another area that we feel really strongly is an excellent opportunity for dealers to explore. It may not be right for everybody, but it is certainly likely right for more dealers that have actually embraced it to date.
Production and Industrial print is not only for the large megadealer – the top five or 10 percent – the dealers over 30 million. There are plenty of ways to enter into the market: RISO makes some great products for doing that, Konica Minolta’s Muratec Precision Label machines are another way to get into that space, particularly that label segment. The potential for substantial annuity streams is a reality; it’s really, really there, and the five key annuity streams to think about – and talk to your vendors about – are ink, toner, services, software, and substrates – not necessarily paper, but virtually anything else you can think of.
The other thing that Scott and I, and all of us here at The Cannata Report would encourage all dealers to do is really take a look at where your OEMs are investing. When Scott, Frank and I were in Japan last year, the tier one manufacturers – in addition to Kyocera – made it very clear what they plan to continue investing in the upper end. So if that’s where they are spending their money, or they’re spending a significant amount of their R&D dollars, it would behoove all dealers to at least take a look at where [their OEM vendors] are going, so that you put yourself in a better position to make the best possible decision for the direction of your own dealership.