Bunnings: prepare for the paradigm shift

What does the St Albans pilot reveal about Australian retailer's game plan?

Bunnings Warehouse: newly opened store in St Albans set to be followed by another three before the end of June - image: HW
Bunnings Warehouse: newly opened store in St Albans set to be followed by another three before the end of June - image: HW

Stripped out management costs, a broader range and products that drive volume are just three of the ways the newly rebranded Bunnings Warehouse DIY/garden centres plan to take on both big box and garden centre retailers.

Bunnings is the big new name in UK DIY/garden centres, with the Australian retail giant having bought Homebase for £340m in January 2016 and having now opened its first UK store, at St Albans in Hertfordshire. Changes for the gardening customer at the pilot store, which has a design that could roll out to all 260 UK Homebase stores over the next five years in a £500m rebrand, include a bigger selection of plants and a more practical range of DIY and gardening goods on offer at the 6,500sq m centre.

UK managing director Peter "PJ" Davis says no one has more than 15% of the £38bn UK market, unlike in Australia, where Bunnings dominates, and Homebase was "underinvested". Another St Albans Homebase, Hemel Hempstead and another nearby Homebase will become Bunnings by 30 June, with 10 conversions due this year.

Bunnings has a price guarantee, where, if a customer finds a competitor's lower price on the same stocked item, it will beat it by 10%. The price guarantee excludes trade quotes, stock liquidations and commercial quantities. The company has also increased the number of different products available on the shelves by 40%. The retailer says value is the driver for purchasing, although it favours branded product, but aims to bring in some local plant buying in the season.

"We know Brits love their gardens and our research shows they make double the spend on gardening than our Australian customers," says Davis. "We want to capitalise on that, giving them what they want, with more advanced plants and a lot more landscaping than they would traditionally see. The customer will have a far wider range to choose from and we've pushed into heavier-end landscape products and advanced planting."

He points out that staff are better prepared, with 3,000 hours training before St Albans reopened. Badges on staff aprons show which courses they have passed. There are 30 more staff than before at St Albans - 68 in all. The converted Homebase store features a weekly "sausage sizzle" in the car park, an idea imported from Australia and designed to bring a sense of community to the often soulless environment of the DIY big box. Also new to the DIY sector are a children's play area and cafe.

The Dutch are believed to be taking an aggressive stance on pricing with Bunnings, taking the hit of the euro, unlike UK suppliers who want renegotiation. The Dutch are not raising prices but expect this year's loss to equal more business in 2018.

Avoncross, Ivan Ambrose and Florna are among British Bunnings plants suppliers. Davis says Bunnings will buy "whatever is best value". Forward orders are "important" and he wants to build relations with suppliers, with new limited local buying of plants on the cards.

On Brexit and exchange rates, he says: "Prices are going to come under pressure. There is a lot of inflation caused by currency but in the end the market and the customers will set prices. Customers tell us what they're prepared to pay. But there's no room in the current exposed period for mediocrity." He adds: "We obviously want to support local growers where we can but at the end of the day we have got to be competitive and if they are competitive we will more than support them."

Those growers can help Bunnings with what will sell at what time. The "majority of stock will come centrally then we'll supplement that with local growers offering products to our local teams to empower our team members to make sure we have the right stock at the right time. That gives us far more flexibility. The variety of plants available here is significantly more than in New Zealand and Australia." He says garden and related landscape and bird feed could be 30% of sales.

Growing the market?

Rival B&Q has revamped 10 stores including a £3m relaunch in Milton Keynes, where Bunnings has its UK headquarters. Some analysts have suggested that B&Q parent company Kingfisher's stock could fall as a result of Bunnings' launch. Davis says Bunnings will "grow the whole market like we did in New Zealand".

He adds: "We as a business have always looked at the wider market and bring new ideas in to make the whole industry grow. That's not something one retailer does, it's something the whole industry does, and sometimes that's spurred by improved competition. I'm also seeing the investment B&Q and Wickes are making and that has to be good for customers and the industry. If you look at Screwfix, Wyevale, Wickes and Dobbies there are lots of ways to market. This new format forms our perspective and we hope the customers like it."

Davis says Bunnings has learnt from US giant Lowes setting up Masters as a failed rival to Bunnings in Australia. In the UK, Bunnings has already spent £60m on revamping ranges and shed 160 middle managers in a three-year break-even plan. Plants range from £100 olives to 47p pansies (with Dutch labelling). Dutch hellebore is £14.97. Also prominent is Chessum soft fruit, Orchidiva orchids at £4.97 and product from Mr Fothergill's, Westland and Briers. Davis explains that brands remain important because they drive innovation.

Bunnings has ditched home furnishings and concessions Laura Ashley and Habitat, which will initially cost £200m in reduced sales. Tool demonstrations and kids' garden sessions make the store more like a garden centre than before, with more community involvement. The revamp will be tweaked after surveys and group customer sessions. More prominent value offers and advanced planting have already been brought in.

Davis says early indications are that Bunnings "should meet" UK financial targets. The measure of success in 2017 is the trial of pilots "and that's not just strong financial outcome. That's about engaging with local communities and customers, and ensuring we're providing a great environment for team members to work."

The store has 36 sections such as "plants" and 450 subsections such as "artificial grass" with about a quarter gardening-related. Bunnings has also ended zero-hours contracts and introduced the National Living Wage for all workers older than 18, rather than the Government's policy of £7.50 applying to those aged 25 and older. The move has led to an average pay rise of £555 for virtually all of its 12,000 store employees.

David Ball, managing director at grower Neame Lea, says: "It's interesting how development is similar to when Aldi came in and stripped out costs and drove volume at a low cost."

Successful format transplanted

"Bunnings have done exactly what they said they would - they have delivered their successful Australian DIY warehouse format without adapting it for the UK market," says mdj2 director Andy Newman. "It is a no-frills store and there is not a cushion or candle in sight. Walking the store it is clear to see that Bunnings have total conviction in the approach that has served them so well in their home market. The store delivers strong first impressions on price, range and stock depth.

"One of Bunnings' core beliefs is that more range equals more sales, hence they are offering a very wide choice of products. They have also backed this range width with stock depth that would make most finance directors twitch.

"For garden centre retailers it offers opportunities and threats. From a positive perspective, in our opinion Bunnings have created an even clearer divide between the sheds and garden centres. While Homebase has spent several years aiming to appeal to core garden centre customers by improving their shopping environment, Bunnings have stripped that all away. This store is not going to be an enjoyable place to shop in peak season but it will be well stocked and prices will be very sharp.

"This gives garden centres clear licence to continue to offer a real point of difference - to be the best garden retailers in the marketplace by delivering quality ranges in a great shopping environment. It would be easy to get distracted by Bunnings and B&Q fighting out a price war, which can be expected.

"Our calculations suggest these stores will need to deliver in the region of 40%

sales growth to deliver a sensible return on investment - and that is no small number in a mature market."

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