Bunnings will compete hard on price with Homebase after seeing off Australian rival

UK and Australian analysts say Bunnings, which has around 64 per cent of the A$43bn Australian DIY market, will compete hard with B&Q in the UK on price.

Homebase: second-largest home improvement and garden retailer operating in UK and Ireland with 265 stores
Homebase: second-largest home improvement and garden retailer operating in UK and Ireland with 265 stores

Competition from Australasian DIY/garden centre Bunnings, which recently bought UK DIY/garden centre chain Homebase for £340m, has helped force a new competitor, Masters, to close or be sold in Australia. Owner Woolworths Australia and US DIY giant Lowe's have an agreement to buy back the 33.3 per cent interest held by Lowe's and then find a buyer for the Masters chain, or simply close it down.

Market analysts have estimated the cost of exit plans at A$1.5bn. Masters has 62 stores in Australia after opening its first in 2011. It planned 150 stores by 2016. There are 10,000 staff and Woolworths/Lowe's have so far spent A$3bn on the venture. Masters lost A$200m in 2015.

Australia Garden Centre Association manager Leigh Siebler said: "The Woolworths/Masters/Lowes attempt to tackle Bunnings has now failed despite Woolworths having the money to take them on. Yes, they started too late with Bunnings already being strong but made a lot of mistakes in my mind. Their garden offer was bad compared with Bunnings or any decent garden centre."

New Zealand Commercial Horticulture editor Des Snell said: "A category manager from a rival to Bunnings in New Zealand told me a key to Bunnings’ success is their ability to stick to their core product offering and not be tempted to stray too far outside. A second key element is their ‘low-price offer’ even though most of their prices aren’t low because they do essentially sell medium- to high-quality products. Their TV and radio slogans, which you will hear so often you’ll get to know by heart are: 'Lowest prices are just the beginning' or 'We have the widest range at the lowest prices every day. If you happen to find a lower price on the same stocked item we'll beat it by 15 per cent.' Trouble is, because many of their main lines are exclusive to them, you can’t find them elsewhere anyway."

He said Homebase's operating profit is just one-10th of Bunnings.

Siebler added: "Most suppliers tell me that they (Bunnings) are good to deal with and pay promptly unlike many garden centres. Yes, they want price, rebates and support, but can take huge volumes. When they started with just a few stores it may well be that garden centres underestimated them. They have now built a huge number of stores and that brand."

After the £350m takeover of Homebase went through in late February, Bunnings immediately shed many of Homebase's directors.

Bunnings' results for the half-year ending on 31 December 2015 showed revenue growth of 10.9 per cent, with revenue in the six months totalling A$5.5bn.

Bunnings managing director John Gillam said: "The strong trading performance is a direct outcome of the momentum and traction from a disciplined focus on our strategic agenda. Good progress has been made on our actions to strengthen and grow the business. Work to deliver more value, improve merchandising and enhance customer experiences achieved positive responses with consumer and commercial customers.

"We continued to successfully extend our brand reach physically and digitally. During the period we opened 10 trading locations and we expect to open more than 30 new Bunnings Warehouse stores in Australia and New Zealand across the next two financial years."

At the end of the period there were 240 warehouses, 67 smaller-format stores and 32 trade centres operating in the Bunnings network across Australia and New Zealand.

In January, Bunnings announced plans to buy Homebase from Home Retail Group for £340m. Homebase is the second-largest home improvement and garden retailer in the UK and Ireland, with 265 stores and annual turnover of more than £1.4bn.

Gillam confirmed that the operational and integration planning for the Homebase acquisition is well progressed. "We will combine essential local elements with the best of Bunnings to bring customers in the UK and Ireland an exciting new home improvement and garden offer," he said.

Scotts Miracle-Gro is a preferred partner. General manager Sheila Hill said: "I hope it's going to be good for us. They know us and our brands."

Mr Fothergill's is seed supplier for Bunnings, as well as Homebase in the UK, and said Bunnings "dominates the market" in Australia. Homebase horticulture category manager Andy Goddard said: "It will be interesting to see how things pan out. It's all positive."

Wesfarmers plans an additional investment of approximately £500m in the Homebase team and assets to build a new Bunnings-branded business over three-to-five years. Goddard said it is too soon to tell how supply might change, but added: "If someone is willing to invest, it's got to be a positive thing." He said Homebase's plans for 2016 have not changed because of the buyout - it is "more of the same" with larger specimens, eat your own rather than grow your own and more planted containers and instant gardening.

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