Bunnings’ Warehouse Future Strategic Plan

This report is to analyse Bunnings’ warehouse future strategic plan to fit in its’ existing strategy and supported by its existing strategic capabilities and resources. We start our report from summarizing the current situation and performance of Bunnings. Bunnings ranks the first in hardware and home improvement market with large occupation of the market and presents quite good in the industry.

On the basis of the past and current experience, Bunnings sets up its strategy to provide products with lowest prices and best service for customers. In the process of external environment analysis, we find that the whole industry is going through continue growing with high future profitability in the next few years. However, ever Bunnings doing downstream vertical integration to maximize the profit, it will still be faced with low to medium level negative influence by remote environment.

In the internal analysis, we identify the leader strategy adopted by Bunnings through 5Qs methods, outline major interests and expectation for several key stakeholders, describe the low cost as its strategic capability by passing three tests, evaluate its’ performance on four perspectives by the Kaplan and Norton’s balanced scorecard approach, and distinguish the fierce competition from Mitre, Danks and Woolworths. As for the gap analysis part, three areas are targeted between Bunnings’ strategy and its existing performance analysed above. We also offer recommendations for each gap. In the last part, two strategic options, production development and market penetration, are chosen to apply Bunnings’ strategy into actual implementation stage.

In production development option, employee understanding, customer satisfaction and efficient communication channels are critical to operation level. In market penetration option, Bunnings can still apply its existing strategy complemented with effective performance management and reward systems.

Summary of the current position of Bunnings

Bunnings is Westfarmer Ltd’s wholly owned subsidiary operating in the retail hardware and home improvement sectors in Australia. Its primary markets are the small to medium-sized builders and owner-builders. It is a market leader, operating 177 warehouse stores, 56 small formats stores, 23 trade centres well as 7 frame and truss manufacturing sites in Australia.

This accounts for 14% of this market. It also operates internationally in the New Zealand market where it owns 17 Bunnings Warehouse Stores and 24 small format Bunnings stores (Westfarmers annual Report 2009, p24). Financial Position: According to Westfarmers’ 2009 annual report (2009, p24): Bunnings cash sales grew 13% and the total Sales revenue grew 16. 1% to $5. 8 billion in 2009. The EBIT grew by 15. 84% from 2008 to 2009 and Bunnings recorded a profit of $1. 535 billion. This accounted for 44 % of Wesfarmers’ net profit. They currently employ 28,000 team members. Bunnings recorded a strong result in all Australian states and across all product ranges.

This was mainly driven by good execution of merchandising and operational strategies. There are 10 new Bunnings warehouses and 10 trade centres opened with continued investment across the store network. Another 10 stores are under construction with 20 more sites being developed. Bunnings’ strategy: Their ambition is to provide their customers with the widest range of home improvement products at the lowest prices every day, backed with the best service. Their Team Members are the heart and soul of their business. Their team’s guiding principles are integrity, respect, teamwork, achievement and innovation. These guiding principles are the keys to their culture and to achieving their vision.

Sustainability is pursued within all their operations by striving to make them socially responsible, environmentally aware and economically viable. They engage with the communities in which they operate and live and they actively contribute to causes and organisations that benefit these communities. They seek to lessen their environmental impact in ways that are measurable including: achieving better and more efficient use of resources; ensuring their suppliers operate sustainable and ethically; interacting and educating customers about environmentally friendly alternatives; and focusing on the “reduce, re-use and recycle” waste management principles.

They value their Team Members’ contributions, recognising and rewarding their efforts providing a fun, satisfying and safe workplace. By living their values and operating sustainably, they will continue to “build the best” and earn the right to serve their customers tomorrow and into the future (Bunnings Warehouse 2009) Competitor focus Competition for Bunnings has been relatively strong. It’s main competitors in this market are Mitre 10 and Danks Holding Limited (ACCC,2009). Most discount specialists, like Big W and K-Mart compete with Bunnings on a limited range of items, most often high volume, and low margin items but due to Bunnings’s wide range of products, they are able to compete strongly with these operators. Future potential

Bunnings continues to expand its operations with new Warehouses, Small Format Stores and Trade Centres throughout Australia & New Zealand focusing strongly on their values and vision for the future.

External Environment

Current life-cycle position of the Australian hardware industry The industry is at the growth stage of its life cycle. According to John Gillam, Bunnings managing director, over the past two decades, this market has grown slightly faster than GDP and this rate of growth is expected to continue. At the present, the hardware business industry is highly lucrative with a $24 billion annual value attached (Ferguson 2009). [pic] Remote environment The analysis of external influences on hardware industry is as follows:

1. Political positive and Low. Political barriers may exist in the hardware industry. The Australian government is usually willing to support the growth of Australian domestic hardware companies with a view to creating more jobs and encouraging technological improvement. At the time of economic downturn, unpredicted tariff may be imposed on imports including building or decorator products.
2. Economic negative and medium to High Global financial crisis has affected the economy of many countries. Because of the economic downturn, a decreasing disposal income of households around the world is inevitable effect which could impact greatly in the hardware retailing market. In Australia, the hardware market has grown considerably over the last decade which is currently estimated to generate sales of around $ 22 billion per annum (Ferguson 2009).
3. Social positive and medium to high Australia’s per capital hardware consumption is seen to be one of the highest in the world as a result of “high levels of home ownership, large garden sizes, and dry weather conditions” (Durie 2009). It indicates that the demand of building products, home hardware or garden products could growth considerably in the next some years.
4. Technological positive and medium to high Technology is one of critical drivers for the hardware industry. The development of new raw material can improve the building products’ quality as well as reduce the maintenance expense for using those products significantly.
5. Environmental negative and medium to high Environmental impact is also a critical issue to the hardware industry at the current stage. Although the industry does not generate much waste or pollution, the Australian government may issue more strict environmental schemes to deal with the increasing concern on environmental protection. Therefore, the hardware industry may be required to cut energy consumption, reduce carbon dioxide emissions, and improve recycling program (Wesfarmers 2008). For example, Bunnings, a major leader in the Australian home improvement market, commits to become “carbon neutral by 2015”. In addition, the company was announced in early 2008 that “it would no longer supply plastic bags for customer use and would instead encourage the use of alternatives” (Bunnings 2009).
6. Legal negative and low to medium From a legal perspective, hardware industry is engaged in activities which are widely exposed to the regulations regarding the management of forest operations. Consequently, it is necessary for the industry participants have some policies to deal with the issue when trading their business activities. For example, in 2003, Bunnings established a timber and wood products purchasing policy that requires all wood and wood products to originate from legal and well managed forest operations (Bunnings 2009).

Overall conclus

Five forces framework

Threat of new entrants low There are several factors that are used to determine the threat of new entrants. Firstly, it is economies of scales. Bunnings is a specialist retailer of home, garden and building products. It plays a leading role in the home improvement market with 18% of market share (Durie 2009). Therefore, it can be seen that Bunnings has the ability to generate cost reduction through volume discounts from suppliers and efficient capacity utilization which cannot be achieved by new entrants with little market share.

Secondly, Bunnings operates throughout Australia under the “Bunnings” trade name. In addition, the company has been implemented its Bunnings Warehouse retail strategy which offers customers a large product range with low prices and high service levels (Bunnings 2009).. The strategy creates the differentiation between Bunnings and its competitors as well as makes it difficult for new companies to enter into the industry. In relation to distribution channels, Bunnings is a vertically integrated wholesaler who also operates retail stores. Furthermore, Mitre 10 and Danks, the second and third largest participants in the market also provide wholesale supplies to member stores and some other non-member retailers (ACCC 2009).

It indicates that it may be quite hard for new competitors to distribute their products through established distribution channels as those have already been locked in by existing competitors. As a result, the threat of new entrants in the Australian hardware retail market could be low.

Substitutes It is quite hard to assess the impact of substitute to the hardware industry. This is because Bunnings and other market participants provide a large range of products to customers.

Power of Buyers low The Australian hardware retail market is dominated by a few companies but sells products to many customers, such as individual customers and business. In addition, they provide variety of products under their brand name which make it difficult for customers to change to an alternative. For instance, Bunnings sells a large of product at low prices and under the “Bunnings” trade name. As a result, power of buyers in the industry could be low.

Power of suppliers low Bunnings, Mitre 10 or Danks purchase their products not only from local manufactures, but also from oversea suppliers. Furthermore, in relation to timber and wood products purchasing policy, Bunnings buys all wood and wood products from only suppliers who are satisfied Bunnings’ policy. Therefore, it can conclude that power of suppliers in the industry is low.

Competitive rivalry low to medium The degree of competitiveness in the Australian hardware industry could be low to medium. This is because at the current stage, the market is dominated by few competitors in which Bunnings is a major leader with 18% market shares. The other two market participants are Mitre 10 and Danks, which hold a small percentage of market shares. Overall conclusion: It can be concluded that the future profitability of the Australian hardware industry will continue to be high. Industry value chain analysis: In the whole home improvement industry value chain, Bunnings is a downstream vertically integrated. It covers wholesale suppliers, retailers and distribution channels. In the operation of wholesale supply and retailing, Bunnings operates almost 200 warehouse stores and 80 formats stores in Australia and New Zealand.

In these stores, there are thousands products on selves for customers. Before suppliers become partners with Bunnings, they are required to attend “Bunnings Supplier Representative Accreditation Training Course”. Under the well knowledge of Bunnings’s high quality standards and efficient ordering and supply management by suppliers, Bunnings secures its products with high quality and enough stock volume. Besides the wholesale and retail operation, Bunnings Trade Centres provide service dedicated to picking, packing and delivering customers’ orders in full and on time. It ties much closer relationship between customers and Bunnings retails.

Implementation plans

Based on the above analysis, we can see that, there are two strategic options to fit our gaps; production development and market penetration. We should let Bunnings’ staff have a comprehensive understanding of our new strategies that is essentially important, because they are the persons who are closet to our customers and who operate processes that create vales. When we talking about production development, Customer survey can be useful tools to be aware of their needs and make sure that the product being developed has enough demands.

This could be achieved by consulting professional organizations to perform it. During this process, the communication between our staff and the professional consulting company is essentially important. There should be a comprehensive understanding between them. For example, what kind of customer survey we want, what the survey result means for our company. Furthermore, the purchasing department, which is one of the department in our company is critical to this strategy as well, they are the persons who negotiate with suppliers to get the quality and low price products. Bunnings’ current strategies are low prices and high level service, which are the key factors when talking about market penetration.

They are matching with our current strategies. However, we should aware of the performance management and reward systems when we implement our strategies.

References

1. Australian Broadcasting Corporation 2009, ABC, Woolworths announces hardware sector assault, viewed 30 Oct 2009,
2. Australian Competition and Consumer Commission, Statement of issues-Woolworths Limited/Lowes’ Companies, Inc. -proposed acquisition of Danks Holding Limited, viewed 25 October 2009,
3. Bunnings 2009, Bunnings, Perth, viewed 30 Oct 2009, < http://www. bunnings. com. au/contact-us_bunnings-sustainability. aspx>
4. Bunnings 2009, Price Guarantee, Bunnings, viewed 29 Oct 2009,
5. Bunnings warehouse 2009, Bunnings, Perth, viewed 30 Oct 2009, < http://www. bunnings. com. au/contact-us_who-we-are. aspx>
6. Durie, J 2009, “Woolworths buy of Danks designed to take on Bunnings”, The Australian, 25 August, viewed 26 October 2009, http://www. theaustralian. news. com. au/business/story/0,28124,25978244-5013408,00. html
7. Ferguson, A 2009, “Bring it on, Bunnings says”, The Sydney Morning Herald, 25 August viewed 25 October 2009, < http://www. smh. com. au/business/bring-it-on-bunnings-says-20090825-exm9. html&g t;
8. The West Australian 2009, Wesfarmers chief earns $8. 1 million in 2009, The West Australian, viewed 28 Oct 2009, < http://au. news. yahoo. om/thewest/business/a/-/wa/6100897/wesfarmers-chief-earns-8 -1-million-in-2009/>
9. Wesfarmers 2009, The Annual Report, Wesfarmers, viewed 26 Oct 2009, < http://ir. wesfarmers. com. au/phoenix. zhtml? c=144042&p=irol-reportsannual>