Competition isn’t always black (and decker) and white (goods)

As more rumours spread about what exactly Woolworths’ new hardware business will look like, we can see that perhaps it isn’t just Bunnings (and therefore Coles’ parent Wesfarmers) who should be worried about a shift in their competitive environment.

According to this story, the new entrant (which might be called Masters) –  a joint venture between Woolies and US giant Lowes – may not just be selling the usual hardware merchandise.  Also on the cards are whitegoods (i.e. fridges, washing machines, dishwashers etc).  That would certainly be a challenge to some of the big players in that retail segment, such as Harvey Norman and The Good Guys.

This isn’t just a random diversification choice either, as Lowes has extensive experience with this market, and presumably can suitably integrate the offerings into the retail mix.  It will be intriguing to see whether this upsets the likely co-located store mix for the firm, as some homemaker-type centres may find this new challenger upsets their tenant mix.

Another interesting titbit in the story is the possibility that WooliesWareHouse (I’ve decided to grant them that brandname) will go down an explicit ‘Do It For You’ path, which would be a neat differentiation position in the hardware space.

This case in progress serves to demonstrate the blurry lines between markets and the scope for competitors to slip across from adjacent markets (among many other strategic lessons).

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More mutual forbearance

Hot on the heels of Woolworth’s announced entrance into the Australian hardware retailing space, it would seem that fellow grocery player Metcash wants to follow suit.

Metcash, who run all the back-office (and sales and marketing) for the independent supermarkets group IGA has launched a bid for Mitre 10, a cooperative group of over 400 hardware stores.

This would mean the three largest supermarket brands, Coles, Woolworths and IGA would now be the dominant players in the Australian hardware market.

In a strategic sense, this opens a significant likelihood of an outcome referred to as mutual forbearance. This has been defined as

“tacit collusion as a consequence of firms competing in many markets and the resulting increase in their interdependence” (Jayachandran, Gimeno & Varadarajan, 1999: 51 as cited here)

Put simply, operating in to parallel competitive spaces means these firms may well realise the futility of excessive competition and seek some stable détente (a.k.a. a Mexican standoff).

It will be interesting to what the Australian Competition and Consumer Commission have to say about this one (although it is hard once the horse has bolted).

Danks a lot Woolworths

The executives at Wesfarmers, the parent company of Australia’s largest hardware retailer Bunnings, have a new headache as of today.

A favourite of this blog – Woolworths – has announced its long awaited move into the hardware market. It is all a little complicated, and demonstrates various options in a firm’s strategic arsenal. The strategic choice here was an acquisition, via international joint venture, of a significant local player.

The acquisition is of Danks, the nation’s second biggest hardware distributor. Now that last term is important. The firm doesn’t own hardware stores, it just provides all the back office support, including branding and advertising. This has lead to a network of over 1000 independently-owned “buyers” of their services, including several hundred who have adopted common branding such as Home Timber & Hardware, Thrifty-Link Hardware and Plants Plus Garden Centres.

So what will Woolworths do with them? They’ll tap into all of the supply relationships Danks has in place (with producers of ladders, paint, nails etc), and presumably all of the sales data and broader knowledge of Danks staff.

The current claim is that they’ll retain the existing brands and continue to support Danks’ “customers” (i.e. the existing stores). At the same time, they are aiming to launch new (company-owned?) stores to go head to head with Bunnings (and their own “buyers”).

That’s where the joint venture comes into the mix. Woollies are taken 2/3 ownership of Danks, with the rest going to the world’s 15th largest retailer, US hardware chain Lowe’s. This is a pretty conventional model for expansion in Australia. The old Coles and Myer grounds (some of which are now owned by Wesfarmers) undertook similar hook ups to launch K-Mart, Target (amongst other) marques in the 1970s.

It remains to be seen with Lowe’s brand will be adopted (as it has been in Canada). What is most significant is Lowe’s experience in competition with the firm of which Bunnings is an unashamed copy – Home Depot. These capabilities will be crucial in transitioning Woolworths into this new space. Alongside that will no doubt come access to Lowe’s extensive range of private branded products, and huge buying power (Lowe’s annual revenues are around 6 times larger than Bunnings – that adds up to some serious bargaining power with suppliers).

So, what’s the upshot?

1. Australia adds a very large foreign retailer to the mix (although one with little international experience). Costco and Aldi are the only larger retailers operating down under.
2. Bunnings will finally have a competitor with (potentially) similar buying power, resources and capabilities. The major hurdle to high rivalry may be access to real estate, but big-box hardware stores are more “destination” than most retailing (i.e. folks will bear a journey), and also Woolworths carries some serious clout.
3. Consumers will get lower prices and more choice.
4. Smaller scale hardware chains will face even more competition and more pressure to adapt or die…