(From Yesterday) Continuing coverage of the quick print market is particularly relevant during our coverage of On Demand. With a broad range of new products and services being announced at the show, it is a good opportunity for quick and commercial printers to take the time to re-evaluate their business strategies and their portfolio of offerings to assure that they are meeting customer needs in the most proactive manner possible. The printing industry has been hard hit during a particularly difficult economic period, but as Dr. Joe Webb advised readers recently, “Navigate the economy -- don't fear it, don't blame it. Act! There are some companies doing quite well right now because they know this instinctively, and look at these situations as opportunities.”

WhatTheyThink is pleased to bring you an in-depth discussion with Mike Witte, President & CEO of AlphaGraphics. In this thought-provoking piece, Witte shares his views about why AlphaGraphics is well positioned for continued success, and emphasizes the importance of disciplined strategic, financial and operation planning – and relentless execution against those plans.

This is part 2 of this interview. Part one is here is you missed it!

WTT: You’ve stressed the corporate customer throughout our discussion today. Do you do much walk-in retail?

MW: There is a big difference in my mind between walk-in and retail. Kinko’s has lots of retail customers. They are in the business of enabling the technologically disenfranchised to do things for themselves. At AlphaGraphics, we are in the business of helping customers who don’t want to do it themselves.

We think it is very important to maintain locations that are visible, convenient and professional because the nature of the marketplace is fundamentally different than it was 25 years ago. There is enormous buyer turnover, with mergers, layoffs and position changes within companies. There is also enormous buyer proliferation – as customers downsize, decentralize and empower people at the P&L level, lots more people do print buying. You can never build a sales force large enough to even track the buyer turnover and buyer proliferation, much less service it. While a fundamental tenet of our network is strong outside sales, it is critical that we make ourselves available through a convenient and visible local presence as well as through the Web and other means. We frequently have folks like presidents of small companies, marketing directors and administrative assistants who have a project and want to work with us over the counter, but it is pure business-to-business activity.

WTT: How has year-over-year growth been affected by the economic downturn?

MW: For the whole industry, I think complacency came home to roost these last couple of years. When times were good prior to the economic meltdown, it was easy to structure your business around handful of customers that were providing most of your work, and you didn’t even have to be that good. Our franchisees have taken the pledge and said, “We will never do that again.” There are really two dangers: consolidating your business with too few customers, and concentrating your business on too few vertical markets. Without adequate diversification, the risks are high. This is a key part of the planning process with our franchisees – making sure they are actively prospecting for new customers and that they maintain a diversified customer base.

WTT: What tends to be the revenue allocation in your stores among the various profit centers you have described?

MW: An average store generates anywhere from 70 to 80% of its revenues from the two core profit centers, offset and toner-based printing. And the revenues are generally equally split between those two areas. Some stores have a stronger offset market, some are stronger digitally. Gross margins continue to be stronger in short-run multicolor and four-color offset, as much as five to ten points higher. We see an increasing customer demand for quick turn, short-run, pleasing color. High speed digital color is also strong. Prices have fallen dramatically on digital color printing, but so have our costs, and the gross margins remain strong there.

In terms of the rest of the business, we continue to look for ways to add value around those two core offerings, including mailing and variable data printing. One-third or less of our stores have developed a wide format business on their own, and we are now pushing this capability through out the network -- not engineering copies, but what we call “big color.” There is a growing customer awareness of that as a marketing tool, and it is cheap from an investment perspective. Although it should be noted that while the machine itself doesn’t take up much space, if you are going to do it right you also need to assure that you have space and equipment to do laminating, foam core mounting and other ancillary services. We predict that in the next two years, all of our stores will add wide format.

WTT: You recently added industry veteran David Dobkin to your staff as Vice President of Internet Development and E-Business. What have you tasked David with, and how does he interact with franchisees?

MW: We have tasked David with developing what we categorize as “Strategic Sourcing” programs. That’s a handle that we put on our national account activities, and it is meant to be customer-centric and focused on large customers. The large customer wants to reorganize its sourcing activities to create some form of competitive advantage for the business, managing the vendor base downward and eliminating cost in the procurement cycle inside companies, while trying to improve time to market and service to both their internal and external customers. We have been looking at the opportunity from that perspective: How can we help those customers achieve those objectives?

The question we are addressing is, how can we put our network to work for multi-location customers who have sophisticated needs and multiple objectives they are trying to achieve? Our answer is, you have to use Web-based technologies. With these technologies, we can report on what is being purchased, or how frequently materials are being purchased and distributed; we can assure the maintenance of consistent corporate graphic standards, and make materials available for sales people to order on demand, sales call by sales call, week by week. We can make sure that everyone has business cards the day they show up for work!

It’s great to have a strong network in place, but at some point you have to add tools that build on that network without adding unnecessary cost for the customer, for us, or for our franchisees. The Web is the way to do that. We have been working very hard on an approach to national accounts that speaks to those issues for the customer in a way that will allow an average store owner to handle these larger accounts.

WTT: What’s the latest on your implementation of Adobe’s PDF Transit?

MW: We have great success stories using our PDF Transit implementation with customers. We still remain the only organization in the world that is successfully using PDF Transit on a large scale. It took an enormous amount of programming -- Adobe doesn’t sell you a product, they give you code. We had to explain the value of PDF Transit to customers and to our stores, and it has been a slower than expected roll-out process, but we have gained a tremendous learning advantage.

If you think about the principle of the software, it allows customers to create an Adobe-certified PDF file on any desktop with a click of a button without having to learn special software. With one click, they can download the software they need from our store’s web site onto their desktop, and with a simple process, create an Adobe PDF file and send it to any of our stores. We have seen a huge benefit to customers and to us in terms of improving workflow and creating files that are far more likely to run correctly the first time. Customers develop confidence that what they send will print, and they are delighted.

WTT: What type of objections do you get from IT departments relative to adding this software to user PCs?

MW: Not much, really. We send fact sheets to IT departments, letting them know this is no different than downloading Acrobat Reader -- who is not going to let employees download Reader? Once they understand it, it is a no-brainer. It is not a security, network or support issue at all.

WTT: Do your shops use CTP?

MW: One of our system standards is that all of our stores have some form of CTP. We have standardized on RIP-IT as a system. Virtually all of our stores go direct to polyester – the quality and consistency has improved unbelievably. Going back to our recurring theme of consistency, if you are working with cameras, how do you guarantee consistency across locations? With CTP, since we are all using the same unit with the same software, you get more consistency even in offset output.

WTT: What other strategic initiatives are in the works?

MW: Our whole philosophy going forward is to innovate in small ways around our core profit centers. Beyond the national accounts program, we are continuing to improve our e-commerce capabilities. We think that the future is in adding more value around what we already do. That means moving to applications like variable data printing, which takes advantage of existing core competencies and capital investments. If you are going to be in the variable data printing game, though, you’d better be able to do mailing services for the customer, and you need to have capabilities that are flexible and scaleable. We are investing in those rapidly.

Customers are showing renewed interest in scanning to disk or scanning to archive. All of the major high speed printers are capable -- without a click charge – of doing relatively high speed, high quality scanning, and the indexing programs now available are adequate for most customer needs. This means we have the ability with existing staffing and technology, with a little learning and sales and marketing, to add another layer of value for customers who are doing business with us.

Large format, which is a relatively inexpensive investment, also helps draw business in. And we still have a huge untapped market in short-run, pleasing-quality offset printing.

These are all key markets we are capitalizing on. This is not to say that digital black & white and color aren’t important. Digital color is growing like crazy, and the cross-over point between digital and offset changes every day. It’s all very exciting -- it means we can do more and more for customers.

I don’t see anything coming that is earth-shattering, but rather integrating the best of the technology that allows us to do more with the staff and equipment we already have.

WTT: Mike, thanks for your time today. Before we close, are there any words of wisdom or other thoughts you would like to share with our readers?

MW: We look at the franchise relationship and say it is the ideal business model for our industry. What we are doing is custom manufacturing in a retail environment. It embodies enormous demands for understanding technology integration and for developing people. Having a common vision of where you are heading, shared by franchisees who are willing to invest, and bolstered by strong standards and the support of a franchisor willing to invest in providing support commensurate with expectations of its franchisees, is the best of all worlds. If you are correctly positioned strategically, and you are investing consistent with your strategic position, there is a payoff. This strategy has really worked for us.

Missed part one? It's right here!