I saw a recently published white paper from an antitrust watchdog group arguing against the proposed merger of Staples and Office Depot. These types of arguments are published all the time, but this one is extremely relevant to procurement groups that nearly all have sourced office supplies multiple times and likely use one of these “Big 2” firms if they have large US operations.
For a large enterprise’s buying requirements, especially those with large numbers of facilities like retail, banking and hospitality, Staples and Office Depot are really the only game in town (no offense to my local home boys at WB Mason). Having them merge is like having SAP and Oracle merge. If that happened, you would argue that although the technology market is big and competitive, buyers would be competitively hampered. This is the crux of the argument facing the Federal Trade Commission and federal courts in its decision.
Anyway, as I was reading the report, I saw that it cites a research paper I wrote a few years ago when I was at The Hackett Group that analyzed the correlations between supplier rationalization and benefits such as price reductions from increased buying leverage as well as increased efficiencies from reduced transaction costs. Interestingly though, CPOs are not going to necessarily just roll over if the combined entity comes back with post-merger synergies that include a price increase, and the proposed merger could very well work against those benefits.
But, what options do they have?
We don’t have a dog in this fight, nor do we like to take sides on any such fight. We’ll let the courts and free markets settle this, but we can still comment on it, especially since there are some important learnings that practitioners might be able to take from it. But, before we get more into it, I’d recommend that you read the white paper. Although it’s obviously biased toward nixing the deal, it makes a very strong argument why the deal is anti-competitive in the large enterprise B2B segment where both of the Big 2 battle it out. And CPOs should indeed be wary of the implications and be prepared for countermeasures. I talked to a few CPO contacts of mine to solicit their input and got some interesting feedback, which I’ll share in future posts.
But, perhaps even more importantly, there are a lot of ramifications and learnings for a CPO that go beyond the deal, which I’ll also explain in more detail in the next parts of this series.