Bechtle AG, Software Reselling, & White Label Food Delivery

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Bechtle AG & The Microsoft Partner Ecosystem

Bechtle AG is a German IT services business that sells products and services from technology manufacturers such as Microsoft or Autodesk. Beneath the surface, there are thousands of ‘value-added’ partners or resellers that effectively act as the enterprise fulfilment arm of technology OEM’s. In Germany, there are 84,000 such businesses with under 1m EUR annual revenue and only 190 companies that generate over 50m EUR per year. Bechtle is the leading German IT services player with 3.3bn EUR revenue and 3% market share.

Just as Watsco sells Carrier HVAC units or Pool sells Pentair pumps, Bechtle sells Microsoft 365 licenses to small and medium enterprises across Germany. One of the big risks for all value-added distributors is disintermediation. Why can’t the OEM just go direct to customers and capture the distributor’s margin? This is even more of a risk for distributors like Bechtle that are selling intangible products and services.  Also, the transition of IT spend to the cloud increases the risk of disintermediation for two main reasons:

  • Shorter value chains
  • Shorter product lifecycles

Technology companies like Microsoft now have greater direct access to end-user data which gives them more control over the value chain. IT resellers used to have the only major direct contact with end users and would relay insight and data about how the customer was using the product to the OEM for the designers to improve the product experience. Now the OEM’s get the data directly from the end-users usage patterns.

Product lifecycles are also much shorter. Products evolve much quicker which means resellers need to continually train and stay up to speed with new products entering the market so they can fit any solution into their customers’ tech stack.

As IT spend shifts to the cloud, OEM’s increase their bargaining power throughout the value chain. This has put pressure on reseller margins:

In the early days, the reseller model was quite simple in that you received a margin from everything you sold. If you sold high volumes, you could negotiate back-end margins where the total volume over the year could give you an extra kick back. In 2008 we moved from a product and service to a service only house, and cloud has lower margins. The model changed from a selling fee to a use or activation fee. Over a short period of time, I saw the falling margins on selling fees and the resellers who had built their business model on these reselling fees had a tough time.

Resellers can no longer earn high margins from selling on-prem licenses. They are selling access to cloud-based services rather than physical licenses or equipment. The IT reselling game has shifted from being volume-driven to value-driven. Resellers have to evolve to add more value to the customer. This means having the correct talent with the technical understanding of a wide range of products that you can stitch together to create the enterprise technology stack for customers.

So what is the benefit of scale today for resellers? If they are now selling more access and less products, does scale matter less? Bechtle believes that having a wide breadth of technical expertise internally enables them to architect any technology stack the customer wishes. This is a huge advantage over smaller vertical-specific IT resellers that may only sell Microsoft or Autodesk products for example.  IT products are not sold independently but are interdependent. Everything needs to integrate seamlessly. The value-add of resellers seems not so much to be in providing access to the service but in understanding how all the products and services work together. Bechtle’s roll-up strategy of buying smaller vertical-specific expertise enables them to offer a complete, holistic IT services solution for SMB’s. Given how fragmented the market is, the 3% market share of Bechtle provides a huge runway for growth.

As tech OEM’s have shifted from a lumpier on-premise to a smoother SaaS revenue model, IT services companies are also following. Bechtle’s recurring revenue from software sales has increased to 11% to 5% in the last 3 years. The company is focusing on managed cloud services which are longer 4-6 year contracts with recurring maintenance revenue. Bechtle is stitching together the IT stack and now managing it in the cloud for customers. IT reseller revenue is becoming more recurring and higher margin, just like the OEM’s.

So there is an interesting dynamic where value chains are shorter and product cycles are faster which reduces the bargaining power and potential value add for IT resellers. Yet for resellers that offer a wide breadth of technical expertise and service, the revenue becomes more recurring and higher margin. And this is usually worth more to investors!

Slerp & UK White Label Food Delivery

Slerp is a UK enterprise SaaS solution that helps restaurants manage online ordering and fulfillment. Slerp powers the restaurant website, allows customers to set and adapt menu prices across different sites, and integrates with independent, non-aggregator third-party couriers like Stuart to deliver food to end customers. Slerp is similar to Olo’s ordering and dispatch module but without the integration with aggregators like Uber, Deliveroo, or Just Eat in the UK.

We interviewed the Founder, who is also co-founder of Crosstown, a specialty coffee and doughnut chain in London, to explore how restaurants are approaching white label delivery in London.

Slerp has a range of reputable customers from Ottolenghi and Patty & Bun to high-end hotels like The Savoy and The Connaught, which helps explain how the average order value is over £40. Slerp then charges a 7.5% fee as a percentage of sales for operating the software. Because Slerp partners with smaller independent couriers like Stuart, the per order delivery cost is much higher than a scaled aggregator like Uber or DoorDash would offer. For example, Stuart’s delivery fee is £5.40 within 1.5 miles for max 12kg and up to £7 for 2.5 miles. The high delivery cost potentially explains why Slerp has many premium customers. The premium brands have more brand equity and higher margin in the £40 AoV so the restaurant can share some of the delivery cost with the customer.

If we assume a 25% COGS per order, the unit economics for a £40 order delivering directly would work as follows:

£40 AoV

minus £3 SaaS fee

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