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29 Jun 2015

Bunnings vs Masters: Why old school still matters

How much money would you be prepared to spend to get a stake in a $45 billion market?

That’s not a trick question. It’s one the Woolworths board has considered and is probably constantly re-evaluating, as it burns through more and more cash trying to make its Masters hardware stores viable.

Never having been at the top level of a huge corporation like Woolworths – and only getting my information via the media – I have to admit that I don’t get it. There doesn’t seem to be sound short-term logic to their investment and I can’t see a big enough long-term upside either.

According to Credit Suisse, this venture into the hardware business is draining about $400 million from Woolworths’ bottom line each year. I fully understand that big businesses can plan for and accept losses for a strategic period during an initial set-up phase, but the figures still have to make sense.

Woolworths has revised its timeline for ‘break even’ to 2019 or 2020, which will mean about eight years of losses from the first store opening (in 2011) before shareholders see a cent of return.

The word ‘patience’ in its original Latin form means ‘long suffering’, and it seems Woolworths shareholders understand that meaning. And, by the way, according to ancient wisdom ‘love is patience’ … so there must be a lot of love in the Woollies enterprise too.

As the value of the company’s shares slide, due in no small part to the multiple profit downgrades associated with Masters, you would think many shareholders are getting impatient for an upside.

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But I’m afraid it doesn’t look like one is coming any time soon.

The scariest stat is that when Bunnings notches up its first billion dollars’ worth of annual sales its net profit will be about $100 million, but when Masters eventually reaches the same milestone it will be carrying a LOSS of $150 million. That makes my head spin!

To make my point, I went the extra mile and conducted a survey of sorts around my business network to try to establish the average consumer’s preferred supplier of hardware and home-improvement products. See the bottom of this post. While I won’t claim it was scientific, I don’t think anyone would be surprised to know that Bunnings is way ahead of the game.

I accept that there are a variety of factors at play, including the fact that the Bunnings business dates back to 1952, but if Masters wants to be competitive before it’s been around for 60-odd years, it needs to focus elsewhere.

To me (and no-one will be surprised to hear this) it’s a BRANDING problem.

Add to that old-school PRODUCT QUALITY as a key differentiator between these hardware rivals and you can see why Masters boss Matt Tyson has had his hands full since he came on board a year and a half ago.

This is getting interesting, because in one of my all-time favourite books on branding, War in the Boardroom by Al and Laura Ries, the authors make a strong point that successful business relies much more on smart branding and marketing then solely on product quality. This is mostly true, but in my opinion, Bunnings is strong branding majorly comes from product excellence, followed by traditionally marketing – they don’t even have a Facebook page!

They can only achieve this because Bunnings IS hardware. It is THE household name of the category, generationally ingrained in consumers’ brains. For most people, when it comes to building or home improvement or even gardening supplies, Bunnings is in their heads before they even have to think about where to go.

Is being first to market all it takes to win? You might say so, but consider Mitre 10, who entered into the hardware field in 1959, just seven years after Bunnings. After a 56-year battle, the two chains are just not even in the same discussion. Reason? That would be material for another blog.

Now let’s be fair. I’m a computer-savvy Gen Y who is (supposedly) drawn by the appeal of nice shopfronts, colourful finishes and pretty websites, and I’ll admit that the Masters brand image does appeal to my eyes. But when it comes to actually getting my hands on the tools it’s Bunnings hands down!

I’ll also admit that I believe Woolworths has what it takes to eventually establish Masters to become a significant player in the hardware and home-improvement space, thanks to its deep pockets and track record of proven (but declining) success with its supermarkets and department stores.

But it is extremely unlikely that Masters will take the lead from Bunnings under the current model. McDonald’s will forever be the word for fast food, not Burger King, the second biggest.

As long as Woolworths and its shareholders are aware and okay with it.

I wouldn’t be okay with it.

but maybe that’s just me.

These are the comments from my little online survey on Facebook:

Bunnings. Masters appeals more to the female. To me, Masters do soft furnishings and Bunnings do builders supplies
Bunnings – I assume staff know more and can help a dummy like me.
I like blue.
I like Masters as they are more helpful / also they offered me a trade discount card so I save money!! My husband said Masters as it’s closer
If they were side by side he said Bunnings as they have a better range across all categories
I would do Bunnings as there is no masters around. However I did go into Masters one time thinking they were the same as Bunnings and the stuff was crap. Picture hooks bent and had to return the hammock as it fell apart
I like Masters as they have cheaper accessories for Painters
Bunnings have always gone there no reason to check out Masters.
For a more informed and comprehensive analysis, please see Five reasons Woolworths is being hammered on hardware.

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