Packagers have two main assets – packaging agreements and technology platforms. Several packagers have spent hundreds of thousands of pounds on these over the last two years. But why on earth do any of them want to give away their competitive advantage to satellite packagers?
This leads on nicely to the most important question – what is a satellite packager? Does the packaging community have a set of criteria? Does the lender offer guidelines and have requirements, or can anyone become a satellite?
The answer is simply there are no rules. In the clamber for distribution, there have been a number of packagers dishing out agreements despite no policing or guide from the lenders, as in some cases the recipients are brokers operating smaller businesses, often producing as little as five cases per month.
You can’t blame brokers in this situation as they are doing what anyone would expect them to do. A packager is offering them more money for the same piece of business. I mean, how hard can it be to write a few references and instruct a valuation?
Well if it were that easy, then why weren’t these people given packaging agreements direct from the lender? The simple answer is they don’t deliver enough volume or they have poor quality packaging – in many cases, both.
Lenders have been talking about cutting the number of packagers they deal with for many years now – maybe they should start with reviewing and policing satellite packaging. They can no longer leave this responsibility to the main packaging partner, as too many of them are using desperate measures in these quiet times.
As with all wars there will be many innocent victims – namely the brokers and the end customer. Surely the lender has some responsibility to them, along with the packager.
At em- we have seen several brokers leave us to join a satellite packaging model. These were brokers that at times struggled to complete application forms in full themselves, so God knows how they could be expected to package cases for a panel of 25 lenders.
I know many packagers see volume as the ultimate goal, but surely it is better to process a smaller number of cases than produce a profit as opposed to a high volume that makes little or no money? My apologies for the basic business lesson.
Unfortunately there are too many packagers out there who are trying to operate the high-volume, low-margin model. The beauty parade days are now firmly in the past and are unlikely to return for at least 12 months with the market in its current state.
There will be more casualties of the distribution war before the year is out.
However on a more positive note, there are firms out there who operate this model well, as they select the right partners.
Currently the lenders expect the packager to police their satellite partners – but the harsh reality is none of the lenders have a clue what they do, as all they look at is the number of deals packagers put through the door. Why would they assign a resource to something that only makes them 0.1-0.3 per cent?
Action by the lenders is needed, and is needed now.
In desperate times, people take desperate actions and I have seen the evidence of some of the pay-aways, which leaves the main packager with 0.1 per cent on a deal. At that level of margin, no one can survive – surely the next casualty is only around the corner.
Simon Mouncher
em-
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