The BusinessCar Interview: Richard Schooling, Alphabet
08 July 2015
While the core business will return moderate growth, Alphabet's new initiatives around brokers, light commercial vehicles, car sharing and electric vehicles, as well as an enhanced focus on customer satisfaction, are designed to propel the company forward, as chief executive Richard Schooling explains to Paul Barker
With the integration of ING Car Lease well and truly completed following its 2011 acquisition, Alphabet, which was propelled from the middle of the top 10 lease firms in the UK to become a top-three player overnight, is now settled into its larger frame and has been establishing its next steps.
That involves developing the range of initiatives instigated in recent times, including everything from car sharing and electric vehicle adoption to light commercials and the company's new broker channel.
"In terms of the last three or four years, we've been into acquisition and integration. All those challenges are now behind us and we're about looking to the future and ensuring the business is more efficient and more able for the future," Alphabet's UK chief executive tells BusinessCar. "Everyone is putting a flag on a particular number or growth, but in our opinion it's about sustainable and organic growth."
Alphabet passed 130,000 vehicles on fleet last year, and is looking for around 5000 incremental units this year from its new broker channel alone, having achieved 1000 sales in 2014 following launch in late September, and 2500 in the first half of 2015.
"The important thing for us was that we didn't just want a me-too [channel] and say we'll go and do some broker business," explains Schooling. "If we wanted to go into that segment, we wanted to be different in the way we worked with partners - to be more exclusive and have a value proposition for the partner and end user."
According to Schooling, that meant a development period of more than 12 months to get the right people and, vitally, he says, having the right IT platform in place. The Icon system the firm has developed is "market leading", he claims, and was "key to getting something off the ground".
The company says the volume will all be incremental because the customers are people Alphabet wouldn't have addressed with its previous offerings. Schooling predicts "three or four years of steady growth" before a levelling off as customers get into replacement cycles: "We won't overcook it. I wouldn't want to do many more than we have as a run rate and there will be good steady growth. Everything so far says it has been a real success."
The majority of business is with SMEs, an area Schooling admits Alphabet didn't have an offering dedicated to before, and the company is working with 37 broker partners that employ around 100 sales people in total. "We don't have the volume resource ourselves, and a smaller business is getting a more local service than they could have done from a major national," he says.
There's no ambition to grow the number of broker partners Alphabet is working with. "Our partners have been in the business for a long time, and have an established customer base," says Schooling. "We've been very selective on the broker partner channel and it might grow by a couple, but we won't be looking to get to 100-plus."
The reputation of the broker channel as a whole has historically been mixed, but Schooling feels most of the less-reputable companies fell by the wayside during the recession.
The brokers all have access to Alphabet's portfolio of products, including rental solutions, servicing, car sharing and the Alphaelectric EV programme: "Some of our brokers are EV specialist or have amazing retention rates. It's a real partnership business."
Schooling says the channel also allows Alphabet to implement special offers on certain vehicles. "With major corporates, they have a firm policy and need consistent pricing for choice lists, but the broker environment is more of a one-car deal, so it's more appropriate to make special offers on a particular product," explains Schooling. "We do it in relatively low volume - a short run of vehicles with one, two or three broker partners so there's no saturation."
Light commercial vehicles is another area where Alphabet is looking for growth, with Schooling listing three reasons why the area is being targeted. "We feel we are underrepresented in the portfolio mix versus our competitive set, so we feel there is an opportunity. Leasing is becoming more prevalent in the sector, and there has been significant growth in registrations," he says. "That means there is an opportunity to capture new business as opposed to fighting for the same business.
"The competition is showing an interest in the sector, so it's not a walk in the park - it's about having a sensible and credible offer of value to our customers."
Prior to the acquisition of ING Car Lease's business, Alphabet was, according to its chief executive, active in the LCV market via a few bigger customers, but ING had a larger book of smaller customers and public sector fleets.
The company reassessed its LCV offering, relaunching at the back end of last year. "We needed more capacity from an LCV perspective, it was something we always did but not as good as it should have been," admits Schooling. "We had partners come to us by way of the acquisition and it was all there and happening, but the rigour wasn't there."
Alphabet went through a retendering process with all its conversion partners, ensuring they were all fit to undertake the work and that the performance levels were "robust".
"It's not a case of talking up what we had - we used it as a base and established expectations," says Schooling.
Award-winning EV plan
Alphabet's Alphaelectric programme won the Editor's Choice Award in the 2014 BusinessCar Techies, and the massive growth in EVs has seen the 700 ultra-low vehicles delivered during 2014 matched in the first quarter of 2015 alone. Schooling describes Alphabet as "the leader in mobility solutions", and says the industry is now past the early adopter phase and at the point the vehicles have to make business sense.
The leasing giant's other similarly named initiative - Alphacity - is also gaining momentum. The car-sharing scheme isn't an easy one to pitch to customers because, according to Schooling, the best
sales pitch is getting customers into cars and using them, but he says fleets that have taken on Alphacity have replaced a combination of pool cars, grey fleets, taxis and rental vehicles.
"It's obviously not the majority of our business, but it's very much about getting people who show an interest to understand how it would work for their business," he explains. The Mini Countryman and hatch, as well as BMW's 1-series, are all offered with the scheme, while the BMW 2-series Active Tourer model has recently been added, and the first plug-in model - BMW's i3 - should follow in the UK before the end of the year, with 25 cars already operational in Germany with the Black Forest Tourist Association.
But as well as the new initiatives, Alphabet is putting more emphasis on ensuring good customer service.
"We are always focused on giving good service, but now we are in a position to make it a major programme and covers the whole business - sales, engaging with new and existing customers and operationally," explains chief executive Schooling. "It's not a big bang approach.
It's been going on for many months and there are many still to go; in some areas, it's instigated and in others we're in the initial stages."
One thing Schooling says that Alphabet is not in the market for is another acquisition. "Our size enables us to service most customers and I would look more at market expansion rather than needing to grow in every market we are in," he declares. "Never say never - if the right opportunity came in we would look at it - but all our growth plans centre purely around organic growth."
He continues: "Acquiring a business with a few thousand vehicles is not different to a month's worth of vehicles for us, and the customers have chosen to go to them when one of the top five would have been more competitive on price. So with that comes the spectre of retention, buy a 5000 fleet and then half leave because they don't want to be with a big company in the first place." He does, though, predict more widespread consolidation within the leasing industry.
"For us the real focus is the customer. Yes, we'll grow and continue to grow the mobility side, but it's all for nought if you haven't got the customer on side," concludes Schooling.
"The 1.9% predicted growth fits in with our long-range planning. We would like to outperform that, and more focus on customers to give better value gives an ability to outperform the market. It's about being able as an organisation to adapt and deliver the right solution for customers."