Like Craig Thompson I am being hounded by the press, although in my instance it’s neither painful nor (hopefully) career-destroying.
This article has some quotes/possible insights from an interview I did today regarding international joint ventures.
Enjoy.
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?
The very first post on this Blog was back in July, and discussed reports that Aussie supermarket giant Woolworths was contemplating an entry into the Indian grocery arena. It seems talks continue. Reports out of India earlier this week claimed that Woolies were:
“in talks with Kishore Biyani’s Future Group, which owns Pantaloons Retail, for an equal equity joint venture for food and grocery cash and carry business in India.”
Pantaloon is one of India’s largest retailers and spread across a similar range of retail lines as Woolworths (supermarket, variety, electrical). The firms also has a joint venture with US office supplies retail giant Staples. It will be intriguing to see if and how any partnership with Woolworths will play out.
As I said in the earlier post, India is certainly the next frontier for retailing with a huge population currently under serviced and almost unprecedented scope for consolidation and modernisation. The question is whether Woolworths have transferable advantages and capabilities for this environment, especially if they eventually go head-to-head against the recently finalised Bharti-Wal-Mart combo.
Interestingly, Woolworths already has a relationship with another Indian retail goliath, Tata, in the electronics retailing market. I wonder how they will partition these two arrangements.
International BS Blog 
