Big Kid on the Block
Positioned as a do-everything firm, FedEx Kinko's aims to take business from distributors. But the powerhouse may bring opportunities to independents.
Make it. Print it. Pack it. Ship it. Sound like what your company and its business partners offer? It's also the motto of FedEx Kinko's Office and Print Services, which now is a major, direct-selling player in the printing industry.
On Dec. 30, 2003, FedEx Corp., primarily known for its overnight deliveries, announced its plans to acquire Kinko's, a "go-to" resource for small- and medium-sized businesses. The deal, valued at $2.4 billion, officially closed on Feb. 12, 2004. The result: 1,200 FedEx Kinko's locations operating globally (more than 400 stores are open 24/7) with more than 20,000 employees. The company positions itself as a complete business services and document management provider, and its resources are vast. The firm has more than 500 salespeople on the street, aiming to take business away from print providers nationwide.
The industry's independent segment continues to succeed, as distributors and manufacturers battle the major, direct-selling firms with roots in traditional forms--RR Donnelley (which owns Moore Wallace), Standard Register and Relizon. FedEx Kinko's brings a new dimension to the mix--a huge company focused on shipping and quick printing, able to attract end users of all sizes.
What's behind the acquisition? What are the threats and opportunities for independents?
Why FedEx Bought Kinko's
Over the years, FedEx has experienced a decline in its primary line of business. Between 1998 and 2003, FedEx Express (overnight delivery) saw its shares of overall company revenues fall from 84 percent to 73 percent. The unit's operating income fell from $837 million in 1998 to $783 million in 2003. In 1998, the Express unit provided 83 percent of the company's operating profits, but in 2003, it accounted for only 53 percent. The Ground unit's sales rose from $2 billion in 1998, or 12 percent of total sales, to $3.58 billion in 2003, or 16 percent. The Freight segment reported $2.44 billion in sales in 2003.
For the past few decades, FedEx dominated the air while its Atlanta-based competitor, UPS, ruled the ground, where FedEx ranked second. In 2001, UPS purchased 3,000 Mail Boxes Etc. franchises and converted them into UPS Stores. (Today, there's a worldwide network of 5,000 locations comprising The UPS Store and Mail Boxes Etc.® brands, making the company one of the largest and fastest-growing shipping and business services outlets.)
FedEx felt a growing threat from the UPS Stores, and it wanted a chunk of UPS' ground business. How could it do that? The answer was Kinko's. FedEx viewed Kinko's as a "go-to" resource for business solutions and a magnet for small- and medium-sized businesses, which it considers a key area for market growth.
Frank Romano, professor emeritus at Rochester Institute of Technology, N.Y., says FedEx's acquisition of Kinko's was well-timed and spurred by the long-term threat UPS posed. "FedEx was looking five years ahead," he says. "UPS was rebranding Mail Boxes, which would have been formidable competition to FedEx." At the same time, New York-based private equity investment firm Clayton, Dubilier & Rice wanted to opt out of Kinko's ownership, Romano says. The timing for both FedEx and Kinko's was ideal.
The move benefits both companies, says Charles A. Pesko, CEO of CAP Ventures, a strategic consulting market research company in Weymouth, Mass. "Kinko's provides FedEx with retail presence for higher-margin shipping work. FedEx provides Kinko's with access to corporate clients," he says. "It allows FedEx to effectively move to retail and Kinko's to effectively move to corporate while leveraging the synergy between document services and shipping services."
The acquisition enables FedEx to become a big player in various segments of the printing industry. "FedEx saw a tremendous opportunity to link its services to the growing short run, on-demand document management market," says Harris M. DeWese, chairman and CEO of Compass Capital Partners Ltd., an investment banking, financial advisory services and management consulting company in Radnor, Pa. The deal also provided FedEx with revenue and earnings growth opportunities; more visibility through Kinko's storefronts; more drop-off locations for small businesses and individuals; and a chance to enter the print-on-demand, digital printing, variable imaging and fulfillment markets, DeWese says.
Almost one year after the merger, FedEx Kinko's has more than 1,200 locations globally and more than 400 stores are open 24/7. The company plans to expand the number of international stores within five years in Japan, Korea, China, United Kingdom, Canada and Mexico.
"With the backing of FedEx, Kinko's now can ship the products to the corporations anywhere, anytime."
Frank Romano, Professor Emeritus
Rochester Institute of Technology, N.Y.
Timeline: Two Big Players Combine
When FedEx bought Kinko's in February for $2.4 billion, the result was more than 1,200 locations operating globally
(more than 400 stores are open 24/7). FedEx Kinko's Office and Print Services has more than 20,000 employees. The firm, which operates as a business unit of FedEx, positions itself as a complete business services and document management provider. Here's a glance at how the two companies grew:
Printing Firms, Watch Out
Johnny Rockets has received accolades as a top restaurant chain, including its ranking as the No. 1 full-service hamburger eatery on Entrepreneur magazine's Franchise 500 list. In March, the company signed a juicy national printing deal with FedEx Kinko's. The agreement is for the printing and delivery of Johnny Rockets' menus, signs and point-of-sale items for its stores, which are located in 29 states.
Johnny Rockets is taking advantage of Kinko's DocStore 4.0, a customized online catalog and ordering tool that enables firms to reduce waste and cut costs. The system gives the restaurant chain a greater ability to monitor the branding and standardization of materials at each store. Centralizing all of the client's documents online provides a scalable printing operation, says Mimi Schiffer, senior vice president of marketing at Johnny Rockets Group Inc. The solution "streamlines printing" for the company, and FedEx Kinko's digitally connected network of locations provides local market access for the restaurant chain, she says.
FedEx Kinko's offers customers a suite of services that can be customized to fit clients' needs. (See "What the Company Offers" on page 59.) Companies impressed with the firm's ability to combine print services, technology and shipping are giving FedEx Kinko's contract business. That's one reason industry experts say FedEx Kinko's poses a threat to independent quick printers, small commercial printers, offset lithographers with annual sales of less than $5 million and printing companies with annual sales between $2 million and $10 million. Experts also point out that FedEx Kinko's poses competition to superstores such as OfficeMax, Office Depot Inc. and Staples Inc. for document services business, as well as suppliers such as Xerox Corp. IKON Office Solutions, Pitney Bowes Inc. and Océ North America Inc. for document outsourcing business.
Northwestern University recently chose FedEx Kinko's because of the company's innovative technology, says Bill Johnston, executive director of the university's Norris Center, who led the university's evaluation and selection process. Northwestern now can support its evolving needs for printing, copying and storing documents "without the added pressure of managing vendor contracts and obsolete equipment," Johnston says. Professors turn to digitally connected FedEx Kinko's locations for services such as digital printing, presentation support, high-speed wireless internet access and transportation services.
FedEx Kinko's has a "strong brand, many resources and the ability to play globally, online, retail and in person," Pesko says. "It also will facilitate more industry consolidation, initially in the United States, then on a global basis. The acquisition will drive down margins as bigger players will leverage buying power. And it will drive out companies that can't compete, resulting in fewer printing establishments."
