RT Tanner & Co Ltd
RT Tanner & Co Ltd
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Financial summary
Business Plan
Market & Marketing
Present
3.01 Synopsis of Markets
Tanners are firmly based in the paper industry. The paper industry in recent years in both the U.K. and worldwide has undergone major changes in ownership and it can now truly be classed as being dominated by major groupings which have global ramifications. During the past fifteen years paper makers have striven to have both horizontal and vertical expansion. This has led in the UK to the paper merchanting companies which were in the main independents being acquired by Mills to secure the distribution for their own products. To a lesser extent this is also the case for envelope manufacture with the four main players being mill backed.
For Tanners who are wholly independent of any mill connection this gives our company tremendous opportunities which will become apparent in this section of the Business Plan.
3.02 Current Position of Tanners
During the past fifteen years Tanners have concentrated on the direct consumer market which offers the advantages of being able to service one market with two product areas (Envelopes and Office Papers) with the Company being one of the few paper companies structured to look after this market. The concept is that to supply a printer would only necessitate paper supplies, for a stationer only envelopes, but with the stationery buyer of a direct consumer the need arises for both paper and envelopes, thereby maximising potential for Tanners representatives and distribution/transport.
The Direct Consumer market for Tanners is defined as those companies who use paper and envelopes to run their business rather than make a profit from buying and selling paper and envelopes.
In addition to Direct Consumer accounts, Tanners, because of its independence, has developed high value luxury envelope ranges to support branded papers of independent mills which are sold primarily to direct consumers and paper merchants/stationers. This is a growing market and features in our plans for the future, along with giving a better return than other product areas.
Appendix 3A on breakdown of customer size and type will show the wide spread of clients and no one customer exceeds 5% of total turnover.
3.03 Market Size
Envelopes
With a combination of Royal Mail statistics and from our trade association EMMSA the total market in the UK is running at about 18 billion envelopes and pockets per annum 4-1/2 billion of which never see a mail box (internal mail, business reply not used by recipient and social/greeting card stationary).
It is assumed that imports equal about 10%, and exports from UK at 2-1/2% means a net loss to UK manufactures of 7-1/2%.
The Royal Mail, based on latest trend figures for letter traffic on 13-1/2 billion In 1990/91 (up 2-1/2% on previous year), can give a breakdown of type of mail as follows:
| Financial (Bills, cheque payment etc) | 46.5% |
| Commercial (orders, newspapers/books) | 29.7% |
| Direct mail | 13.1% |
| Social (greeting cards) | 9.9% |
| Unknown | 0.8% |
Factors that distort these figures as far as Tanners products are concerned are:
1. Tanners do not produce envelopes for the Social Stationary sector.
2. In the case of Direct Mail, here Tanners involvement is very small as production of envelopes for mass direct mail companies are produced by specialist envelope manufacturers or in house operations within mailing houses and should therefore be discounted.
3. The Royal Mail calculates that 7% of all envelope traffic is plastic wrapped magazines, report and accounts, holiday brochures.
This therefore means a recalculation on the 18 billion quoted earlier
1. 7-1/2% reduction due to import/export factor
2. 23% reduction for Social and Direct Mail
3. 7% for plastic wrap
New Total for paper envelopes per annum 11.92 billion.
Tanners current sales and output is 18.7 million per month (216 million per annum) which equals 1.8% of total UK market needs.
Anticipated growth in envelope sales is linked to Royal Mail calculation which was 6.7% per annum but it is now downrated to 2.5%.
Paper
Total consumption of paper and board in the UK during 1990 amounted to 9.65 million tons made up of 5.05 million tons produced in the UK plus 5.73 million tons exported.
The area of most importance to Tanners was printing papers, uncoated woodfree which equalled 1.123 million tons consumption. As printing papers is a wide catchment for many types of paper (letterhead, stationary, leaflets and general print) there regretfully is no detailed breakdown for such an assortment of varying grade of papers and users (printers or direct consumers). With information gained from our major suppliers of copier paper, UK consumption is put at 300,000 tons with a possible 100,000 tons of other office papers duplicator, letterhead, boards and general offset paper in cut sizes.
This gives a total annual tonnage for office environment papers of 400,000 tons, at Tanners we calculate our monthly tonnage of all paper sales to be in the region of 300 tons = 3,600 tons per annum = 1% of UK market for office papers.
With demand for paper more than adequately met by supply, especially in the newsprint and coated areas due to dramatic fall in advertising revenue, etc, it is heartening to see copier paper still set for growth; not the 10% we have seen in recent years but most of our suppliers expect to see the UK market for cut size papers grow between 3 and 4% during 1991/92. This is expected to take business from conventional print areas (offset litho) along with increased demand for laser printers which is at the expense of computer listing and impact printers.
3.04 Competition
Envelopes
In the UK the four main manufacturers for business envelopes, grouped in descending order of size who produce 70% of UK output are:
1. John Dickinson - two manufacturing sites
2. Wiggins Teaper two manufacturing sites
3. Spicers - three manufacturing sites
4. Chapmans - four manufacturing sites
These companies are volume producers and do not offer the flexibility and service to the direct consumer or independent mill that Tanners can offer. Other envelope manufacturers tend to specialise in specific markets stock envelopes to stationers, direct mail, greeting card suppliers, bespoke manufacturing only.
Also a threat is the emergence of envelope factors who buy direct from envelope manufacturers in U.K and Europe, usually in large volume and attack the envelope stock market, which undermines margins and is part of the reason Tanners do not see contract and high volume lines as a long term future.
Paper
Competition for Tanners comes from primarily national paper merchants who are mill backed and invariably store in a central UK depot, with trunking overnight to multiple delivery centres. This gives a wider product range for merchants to offer compared with the likes of Tanners who only have limited stock holding. Our strength is independence and potentially a wider range of products to choose, which can be achieved by our involvement with Network Paper Stockists.
The major paper merchants in recent years have moved away from direct sales operations towards telesales and stronger marketing presence with detailed support promotion material.
With the increased competition in paper merchanting, delivery service from placement of order is guaranteed within 24 hours and many merchants offering two deliveries per day.
Most paper merchants have printers as their main market, and the direct consumer customer is an adjunct, whereas at Tanners our prime market is the office user and stock range is dedicated for their product profile cut size papers.
For the future Tanners see their involvement as paper merchants being secondary to envelope manufacture and as the direct consumers do not require the immediate delivery service as printers expect, we shall continue to aim at next day delivery in our important trading areas.
3.05 Current Sales and distribution Operation
We operate two sales and distribution operations.
Sales
Crayford sales office with distribution from Dartford Warehouse accounts for 70% of total sales. Leeds sales office and warehouse accounts for 30% of sales.
Both locations offer indentical product portfolios, and apart from major paper lines all stock sold at Leeds is supplied from Dartford on a regular trunking service.
With our new company wide computer system, orders can be processed by sales at either location and as we have many customers who require nation wide delivery this is a successful marketing opportunity.
Distribution
Crayford/Dartford location services London the South East, part of Central England and West, plus Scotland and Northern Ireland.
Leeds location services East Midlands and North of England. The vast majority of Leeds business is dependent on quick response and fast turn round. This would be impossible to achieve without a local base.
All export supplies are sent from Dartford.
Delivery to customers is made in vehicles in own livery, supplemented by carriers to those parts of the UK where it is not viable to send our own lorry.
At Crayford/Dartford we have 4 Ford Cargoes each with 7 ton carrying capacity plus 1 Mercedes 4 ton lorry these vehicles are supplied under contract from Beck & Pollitzer, who are part of Transport Development Group plc with their drivers. At Dartford we have a small Mercedes Van which is used primarily for panic deliveries, as and when required, driven by one of our warehouse personnel.
At Leeds the complement of vehicles is 1 Mercedes lorry with 8 ton carrying capacity; 2 Ford Cargoes (7 & 4 ton payload), 1 Mercedes van 1.75 ton capacity plus 1 Maestro Van for panic deliveries. Leeds vehicles, apart from Maestro Van, are supplied under contract hire arrangements from Transfleet, with Tanners employing the drivers.
3.06 Breakdown of sales and product areas
Current sales activity gives annual sales of £7,731,000 equating to average monthly sales of £644,250.
59% of sales is envelopes manufactured by Tanners
41% of sales is paper and bought in envelopes
Envelopes
We have three main areas of envelope sales
1. Contract Grades 15% of turnover. High volume lines with low margins
2. Tanner Branded items 52% of turnover. Commercial envelope range that competes with other manufacturers
3. High value (luxury envelopes) 33% of turnover. These envelopes differ from commercial envelopes in that they match and support luxury business stationary papers
See Appendix 3B for detailed information on envelope product and range.
Bought in envelopes
To augment own manufactured envelopes we buy in a restricted number of lines that we can not produce or qualities where the buying price is substantially lower than our cost of manufacture. This later criteria will be adopted for certain lines that are no longer economic to produce in our future plans.
Paper
All paper sales and stock are targeted at the Direct Consumer market which requires predominantly cut sizes A4 and A3.
Our largest sales is for copier paper where we stock nine grades which encompass one of the widest ranges of papers available from one source, see Appendix 3C.
3.07 Tanners/Network Paper Stockists Ltd
As an independent paper merchant and with the growing concern of takeovers and amalgamations of paper merchants, we at Tanners were concerned that our buying power was not able to secure long term buying relationships with paper mills to ensure we were buying at the most advantageous rates. These thoughts were similar to other independent paper merchants and from this Network Paper Stockists Ltd is primarily a buying consortium of eleven independent paper merchants based in London and the South East of England with a buying power of £60 million approximately. Contractual arrangements are made with a number of UK and overseas mills, which enable members to purchase direct from these mills at extremely favourable rates and rebates which would not have been available to an individual member based on their own.
In addition to purchasing from mills, Tanners are able to buy some of their slow moving lines from other Network members in smaller quantities than the mills would supply, at competitive prices, thereby allowing us to still offer a wide range of products but with minimum stock holding.
With the establishment of Network branded lines we have marketing support in the way of sample sets, promotional help and information guides to assist the Tanners representatives to sell these grades.
3.08 Environmental Issues
With the emergence of the Environment being a major issue in our lives and the threat to not only the paper industry but business in general we at Tanners have taken the matter seriously and can show that we use and sell paper products that do not harm the environment we live in.
At a very early stage in the development of recycled paper products we issued a statement to our customers and the trade explaining how we perceived the aspect of recycled papers along with being one of the first envelope manufacturers and paper merchants to establish no quality was to be classed recycled unless it contained a minimum of 75% recycled fibre.
As many of our Direct Consumer customers are large companies Banks, Insurance Companies, Local Authorities, major Public Companies who wish to show a caring and responsible attitude in the marketplace, many wished to use recycled products to show their concern and were supportive of the help that Tanners could offer in this most delicate area.
3.09 Future
Despite the forecast of a paperless office the growth for envelopes and paper in reality has increased in the office environment year on year. The types of and blend of products will change, along with lines of distribution and that is why Tanners need to invest in new plant and products that the market will need.
Our methods of selling servicing customers will alter so as to contain overheads, with smaller accounts and those with latent potential no longer assigned to a representatives geographical territory. These accounts will be serviced by regular telephone contact along with direct mail support.
Existing Products
Apart from a minor cosmetic changes to product groups Tanners currently see no major alterations anticipated for the foreseeable future. The growth will come as follows:
High value luxury envelopes Room to expand sales when increased capacity comes on stream to supply existing product range and new items we are presently unable to manufacture.
Tanners branded envelopes for the future we can see some of our stock lines being manufactured by other producers at contractual prices below our costs, which will free capacity to promote more speciality envelopes at higher returns.
Paper we shall maintain a presence and grow the business in line with overall growth to the direct consumer market.
Contract envelope grades the most susceptible area of envelope sales to market price constraints. Tanners will maintain a small presence but only to supplement capacity on an irregular basis.
New Products
a) Increased growth in our capacity for mechanised mailing envelopes with promotion of our Deltamail range.
b) Continued expansion of the high value, luxury envelope range by taking on further contracts and supply arrangements for primarily overseas mills- anticipated to be mainly from North America, who require envelope conversion facilities in Europe to support letterhead paper grades.
c) Development of laser compatible envelopes for the emerging need of Desk Top Laser printers replacing typewriters and impact printers.
d) The need to have C4 Wallet production facilities, which will be at the expense of C4 Pockets as customers switch preference to large wallets for flat A4 mailings. This change already noticeable in Scandinavia.
e) Implementation of BS5750 Quality Assurance which is a necessity as a result of pressure from a number of our major Direct Consumers and for those mills we currently produce luxury/matching envelopes to support their Letterhead grades, where they have successfully applied for BS5750. f) Development in self seal envelopes and pockets with the introduction of peel-n-stick flaps, which allows longer shelf life for the product along with higher initial tack, is an area Tanners must consider production facilities to meet growing demand.
g) Increasing export business. Currently running at £350,000 per annum mainly aligned to high value (Luxury) envelopes and opportunities will arise with the involvement Tanners have with their mill connections.
3.10 Pricing Policy
Envelopes
High value luxury market for demand and current pricing holding up well, future price increases will depend on paper price rises along with intentions of market leader Conqueror from Wiggins Teape.
Tanners branded under pressure from Stationers/Distributors own brands, along with aggressive pricing and marketing/promotion support from major UK envelope manufacturers. It is anticipated that demand will rise late 91/early 92 and a small increase of approximately 3% would hopefully be introduced in the Spring of 1992.
Contract grades entirely market led, current pricing extremely low and barely covering material cost base.
Paper
With tumbling prices on commodity grades in the past twelve months, we have seen base price fall from £680 per ton to £570 per ton as at today 16% reduction, caused by worldwide over capacity in paper manufacture and slump in woodpulp prices. The benefit of this fall in buying prices has seen Tanners able to recover margins on Copier business and selling prices on average have fallen overall by less than 10%. This situation should continue well into 1992 when supply and demand equalize worldwide. After this period it is possible that commodity grades such as copier could accelerate in price by as much as 12% per annum till parity with 1989/90 is reached. We have reflected a 10% rise in prices in the year ending 31 March 1993 and only 5% in the year ending 31 March 1994, reflecting the stablizing of the market.
Branded paper prices Letterhead grades etc have remained static for sixteen months but pressure on discounting by national merchants has intensified.
The Network Paper Stockists connection should ensure paper price margins will hold for the foreseeable future.
3.11 Marketing and promotion plans for the future
Tanners in the past have not promoted or advertised themselves to any prepared plan, working purely on an adhoc basis, as most of the business developed has been by recommendation, salesmen prospecting and limited trade advertising.
For the future, marketing support will be given to
1) Trade advertising continued support for paper aligned publications:-
Paper focus, Paper Europe, and British Printer
Where Tanners supply at favourable prices printed pockets which promote the magazine and have mention of Tanners on the front.
This gives credibility to Tanners by showing the recipient what Tanners can offer in the way of printed envelopes.
Increased advertising in Directories, Reference Books for paper and stationary industry.
2) Press Releases Tanners have and will use every opportunity to get press coverage for new lines, new production facilities or anything that is newsworthy and gets good press coverage for the Company.
3) Company Profile Brochure Last such publication was some seven years ago, well received and helped salesmen to sell the Company. An up date is long overdue and will be helpful to tell our clients and potential more of what Tanners are about.
4) Support Literature Always needed Price Lists, Sample Swatches, Information Sheets etc.
5) Direct Mail To seek out new prospects in the direct consumer market it is proposed to use selective direct mail lists, supported by quality presentation linked to Company Profile Brochure.
It is proposed that all marketing and advertising support for Tanners will be on the basis of not just selling a product, but selling a concept quality Paper and Envelopes from one source Tanners.
3.12 Strengths
We believe there are clear reasons why customers should deal with Tanners.
1) Independence of any Paper Group
2) Dual products to maximise potential with direct consumers envelope and paper
3) Wide product range in specialised areas
4) Distribution throughout UK from two sites, rather than multiple despatch points
5) Flexibility for special manufacture of envelopes
6) Many years trading experience (132 years)
7) Stock holding facility for customers special envelope needs
8) Statistical information on customers usage of envelope or paper by way of Tanners new company wide computer system