Woolworths tools up with Masters plan

Wesfarmers has long dominated the estimated $40 billion home improvement and hardware segment with its successful brand Bunnings, so it’s no surprise rival retail giant Woolworths has packed its tools and entered the fray.

Woolworths has invested $100 million in Masters, its big-box rival to Bunnings, and launched the first of its Western Australian stores in Baldivis this week.

Other stores are set for Forrestdale, Ellenbrook, Joondalup and Bibra Lake.

Big box is an apt name, given each Masters store has 13,500 square metres of floor space. Woolworths has also struck a deal with fast-food chain, McDonald’s, to have an outlet in each store.

Woolworths said in 2009 is was teaming up with US mega-brand Lowes (which owned a third of Masters) to develop a presence in the Australian hardware market. They launched a successful takeover bid for hardware distribution company Danks to initially position the new operation.

Woolworths said at the time the expansion into the hardware and home improvement sector was a logical extension of its existing retail capabilities, technology and skills.  

Woolworths estimated in 2009 that Bunnings had a 20 per cent stake in the hardware market, with the rest shared between second-largest brand Mitre 10 (of which 50.01 per cent was bought by listed wholesale distribution company Metcash in 2010) and other independent retailers.

Masters has made its intentions clear, adopting the marketing catch cry “don’t you just love competition” on its website.

A Woolworths spokesperson told WA Business News there was ample opportunity to stake claim to some of the market and that Masters planned to differentiate its brand primarily with service, broader product offerings and greater value.

“It is about trying to find the products that are different, really good quality and that can deliver value as well,” the spokesperson said.

Having been one of the big supermarket retailers that had come under fire for the effects of price slashing on suppliers (see page 10), the Woolworths representative was keen to explain how value had been created.

“We have gone direct to suppliers to negotiate the best possible deals. At the end of the day, if it doesn’t make sense for a vendor, they are not going to supply to you, it is hardly like we have market dominance when we are a new player,” the spokesperson said.

Masters claims it has established exclusive supply deals with suppliers from the UK and US for items like paint brushes and barbecues and that the brand has worked to lower prices.

“Value is something we feel is critically important. We saw an opportunity to bring products to market at a substantially lower price than people had been paying,” the spokesperson said.

As far as competing with the market’s biggest player Bunnings, Woolworths is planning to roll out between 15 and 20 stores a year nationally and has set the goal to secure 150 big-box store sites within five years, but has not set targets for market share.

“It will certainly take us a long time to achieve substantial inroads. It will be a long time before we are anywhere near the level Bunnings is at, we are starting from scratch and it will take time,” the spokesperson said.

“We are only going to be building between 15 and 20 stores a year, that is still a lot of stores, but when you consider Bunnings have somewhere in the region of 300, it will take us some time to get to that kind of scale.”

In its 2011 financial year report, Bunnings said it had 296 stores across Australia and New Zealand (it has since closed two), 31,000 staff and its trading revenue was $6.8 billion.

That compares to Mitre 10, which recorded sales of $797.6 million and gross earnings of $20.7 million across its 420 stores.

Metcash has the right to acquire the remaining 49.9 per cent of the Mitre 10 group this year or in 2013.