Bunnings case study Audrey Nata PDF

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Bunnings case study Audrey Nata...

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INTB701 International Business Strategy Individual Analysis Report

Audrey Nata 15901151

Executive Summary The purpose of this report is to analyse the internal and external profiles of the Home Improvement Industry that Bunnings Warehouse NZ currently operates in. By conducting this analysis, we are able to draw strategic conclusions that can further improve the performance and success of Bunnings in its markets by discovering the issues that the company faces. All the information in relation to Bunnings has been taken from the case provided. The internal analysis starts by looking at the company’s profile. Bunnings is currently practicing a cost leadership strategy with their famous “15% off the same stock item”, while also vertically integrating through taking over some of the supply chain. Following the profile, a description of Bunnings NZ’s resources and capabilities are looked at against the VRIO framework. The Framework highlighted three in particular resources that the company has which aids their sustained competitive advantage - common pricing strategy, brand image, and their current General Manager - Toby Lawrence. The full VRIO Framework can be found in the appendices. As shown through the brand’s expansion into the New Zealand and British market, Bunnings’ current international corporate strategy is global standardisation, which is further discussed. The OLI paradigm is used to show the company’s choice to expansion; the VRIO framework supported the ownership factor, location advantage was supported by the brand’s horizontal integration in replicating their domestic store abroad, and internalisation was supported by the similarities in culture between Bunnings’ current markets. The external analysis starts off with a look into the Home Improvement Retail industry profile. It highlights the increases in activities that prove the industry to be a profitable one. The current competitors in the industry show to be strong - Mitre10 and PlaceMakers, which are both Kiwi companies - giving them locational advantage not only on brand image but market knowledge. The next section looks at Porter’s Five Forces of the industry which is fully discussed in the appendices. It highlights that the bargaining power of buyers and the degree of rivalry are the most influential in the industry, this draws the idea that Bunnings should put more energy into their customer-focused brand image to give a different value to consumers in comparison with its key competitors. The PEST analysis looks at other influencing forces and leads to strategic issues that Bunnings face. PEST along with the other models discussed in this report highlights some of the most critical strategic issues faced by Bunnings and how they currently operate. Some strategic issues were their lack of online presence, their international corporate strategy, and adaptability to the kiwi market. These can be tackled through creating new platforms and media content, changing their corporate strategy from global standardisation to transnational strategy, and being more involved in kiwi family events to influence the perception of the Aussie brand in the Kiwi market.

Introduction In 2001, a giant home improvement store - Bunnings Warehouse entered New Zealand and changed the market from its initial entry to its rapid growth. Bunnings Warehouse is now a clear key competitor in the industry. This report’s purpose is to conduct and show a strategic analysis of the company - Bunnings Warehouse NZ. An internal and external analysis of the company will be conducted in order to determine the company’s outline in the industry resulting in factors that contribute to being a key player in their field. The internal analysis will consist of the firm’s international business profile, their resources and capabilities, and current international strategy that entails its current markets too. Following, will be the external analysis that consists of the industry and the firm’s competitors’ profiles as well as a general analysis on the industry and its driving forces. Concluding, are the key issues that the company faces along with linkages to strategic models to determine what exactly the company might currently be entailing now or in the future. Internal Analysis Company Profile Conducting an internal analysis is important when it comes to identifying a firm’s strengths and weaknesses, as it leads to the generation of advantageous strategic decisions for the company’s future. A company should lead with identifying who they are and want to be in the communities and markets before starting on their different levels of strategies to compete against other firms - giving a differentiated value for their customers (Dugdale, 2018). Bunnings Warehouse NZ originally started as Bunning Bros; formed by two brothers in 1887 in Western Australia - Arthur and Robert Bunning. They set out Bunning Bros as a timber and sawmilling business which later moved to retailing hardware in the mid 1950’s, which carried on through to today (Bunnings Case Study, 2018). Even after being acquired by Wesfarmers Group in 1994, Bunnings Warehouse stayed true to their family-friendly vision (later discussed in resources and capabilities). Bunning’s focuses on their customers quoting their vision, “Here at Bunnings we're committed to providing our customers with the widest range of home improvement and outdoor living products at the lowest prices”(“About Us-Bunnings”, 2018). Bunning’s have three main customer segments: consumer retail, light commercial, and heavy construction; they aim for a store visit to be an experience for the whole family in what’s generally a male-dominated sector through their garden centres, cafes, nurseries/playgrounds, and outdoor furniture and BBQs (Leask, 2017). Bunnings’ current corporate level of strategy is vertical growth strategy. This refers to the methods that the company undertakes to generate more revenue from the sales of their goods (Leonard, 2018). Bunnings has taken over a part of their supply chain by producing and selling their own line of products in some categories such as BBQ’s; their own brand Metador and Jumbuck but the acceptance of the brands didn’t come easily - even with the lowest prices policy, their competitors were watching the brands’ every move (Bunnings Case Study, 2018). At the business level, Bunnings operates in cost leadership strategy which allows the company to target a broad scope - shown through their wide range of products and facilities, while also having (low) cost as a competitive advantage - attaining the same prices for their products in all stores and also guaranteeing the lowest costs among their competitors through a 15% discount if proven otherwise (Bunnings Case Study, 2018; Integrated Cost

Leadership/Differentiation, n.d.). Resources and Capabilities An important tool that firms use to analyse the internal aspects of their company is the VRIO analysis. The tool was developed to look at the firm’s resources (both tangible and intangible) in order to help achieve sustained competitive advantage. Created by J. B. Barney in 1991, the author acknowledges four attributes that a company must possess in order to attain sustainable competitive advantage; the resources must be valuable, rare, inimitable, and the company must be organised to exploit it (Jurevicius, 2013). When looking at Bunnings Warehouse NZ’s framework (Appendix A), we are able to identify the resources that help the company on achieving a sustained competitive advantage. What a lot of New Zealanders are aware of is Bunnings’ price guarantee. All their stores offer a 15% discount if a customer can prove that there is a cheaper price of the same stock item in a competitor’s store (Bunnings Case Study, 2018). They also offer a common price strategy which allows its customers knowledge that they don’t have to go to a certain Bunnings store to get lower-priced items, therefore not delaying the consumer journey map and generating more sales per store. Bunnings’ brand image is distinctifying, as stated before with their price guarantee along with other factors, they are a customer focused company. Their red hammer against the dark emerald background can be recognised by most Kiwis, even if they aren’t the typical ‘DIY Man’ that shops at Bunnings. With that knowledge, Bunnings also offers other facilities that aims to target the whole family, with their garden area, cafes, and even nurseries that is situated at all their retail locations (Leask, 2017). To also build the knowledge of their brand image, the company is known for their television advertisements of retail employees giving their unscripted opinion on their thoughts of the brand and what it’s like working for the company - giving customers a sense of relatability that the company’s employees also value the company along with also adding to some of that value. Toby Lawrence is the new General Manager as of 2017 of Bunnings Warehouse New Zealand, adding onto the value chain being an intangible asset to the company (Bunnings Case Study, 2018). Lawrence spent four years as State Operations Manager in South Australia and an additional three years as an Area Manager in Tasmania, preparing him for his new position as GM in small scale, New Zealand; however the demographic and geographical differences is something that he will need to be aware of in order to succeed in his new position (Bohling, 2018). The previous GM before Lawrence, Jacqui Coombes, informed the media that having a new GM gives a fresh look into new innovations which will help the company grow further in the nation (Bunnings Case Study, 2018). Lawrence, the company’s brand image, and price guarantee, are only a few factors that help Bunnings Warehouse NZ sustain their competitive advantage in the market. The unique mix of the company’s resources and capabilities allows them to hold a great percentage of the market share in New Zealand, posing a threat to current and potential competitors which aids their

competitive advantage. Current International Corporate Strategy The current international strategy that Bunnings pursues is global standardisation strategy. On an axis of cost pressures and local responsiveness, the brand faces high cost pressures (especially with their 15% price guarantee) but currently low pressures for local responsiveness as the products they sell are quite globally standard in its general form (Tan, 2018; Bunnings 2018). This however, has significantly backfired when Bunning’s parent company, Wesfarmers, bought out an established player in the british market - Homebase, to rebrand into Bunnings Warehouse UK with a “copy and paste” model of the Australian stores. The firm took AUD$1.3 billion hit to its bottomline (Brook, 2018). And it’s needless to say that Bunnings should rethink their international corporate strategy. Current Markets and Entry Modes As mentioned before, Bunnings was created and still runs in Australia, the brand’s key international market is New Zealand being the most geographically and demographically similar. They have recently entered the British market, opening its first store north of London in St Albans but faced a major backlash as they did not carefully take into consideration the differences in the British DIY market (Brook, 2018). This report analyses the OLI paradigm of Wesfarmers’ Bunnings Warehouse as a tool for the firm’s foreign direct investment (FDI). When the company takes a look at the paradigm of OLI (ownership, location, and internalisation), it seemly points towards the direction of engaging in FDI in the British market. Ownership refers to the possession of certain resources that tick off all the boxes of the VRIO framework (“OLI: Choosing the Right Entry-Mode Strategy”, 2016). As Bunnings has shown to have some resources that completes the framework such as their price guarantee, brand image, and General Manager, they have the ownership advantage needed for FDI. The location advantage refers to the different motives for multinational companies (MNCs) to locate abroad. Bunnings takes horizontal FDI in the case of locating to both New Zealand and the UK as it replicates its domestic facilities in the foreign market as an attempt to improve its market access and reach a broader range of its foreign consumers. (Neary, n.d.). Results has shown this strategy works in the Kiwi market but failed in the British market. The final step in the OLI paradigm is to determine whether or not the firm has internalisation advantage in the foreign country (“OLI: Choosing the Right Entry-Mode Strategy”, 2016). Bunnings chose to continue in FDI from this step into both New Zealand and the UK because of the similar demographics and psychographics of the countries to Australia; they acquired the local British company - HomeBase (Brook, 2018), although they had success with their FDI in New Zealand, they may have been better off licensing Bunnings Warehouse in the UK to gain more local market knowledge. External Analysis

Industry Profile Bunnings Warehouse currently operates in the Home Improvement Retail Construction Industry. The Australian market data (Appendix B) for the industry will give a general feel to the New Zealand market as the New Zealand data is currently limited. From the table shown in Appendix B, the Home Improvement industry in Australasia has shown to be at a constant annual increase from 2011 starting at AUD$5,141,400 rising to AUD$5,497,900 in 2016. In terms of future growth, it’s worth looking into the trends in NZ construction as the key drivers for purchasing Bunnings’ products (Bunnings Case Study, 2018). Looking at the median house prices in New Zealand, there has been exponential growth of 6.8% and the value of the national housing stock rose from NZD$620billion in 2012 to NZD$1051billion in 2017 (Appendix B). Trends show a peak in 2019 for the demand of construction but with newly introduced Labour laws, predictions of a slight decline for the demands will occur in 2022 (Bunnings Case Study, 2018). With the large range of products that Bunnings Warehouse are able to sell, it puts new entrants at a distant especially if they’re starting small; the Home Improvement industry only has a few players in the New Zealand market with Mitre10, PlaceMakers, and Bunnings being the larger players and the Top 3 in the market. Unlike Bunnings, Mitre10 and PlaceMakers are only based in New Zealand and have yet to enter foreign markets and pride themselves of being the ‘local’ option (Gibson, 2017). Placemakers’ parent company is Fletcher Building Limited who are also involved in vertical upstream integration as along with owning certain building materials in PlaceMaker stores, they also own Mico Bathrooms and Tradelink Bathroom & Plumbing (Rotherham, 2016). As mentioned before, Bunnings’ key customer is the ‘DIY Man’ as with other competitors’ in the industry but Bunnings aims to broaden that range by providing other facilities. Suppliers for giant stores like Bunnings that has such a vast product range and options for each product has multiple suppliers for certain products; Bunnings itseslf has relationships with over 1,110 of the best Australian, New Zealand and International Suppliers (“About us-Bunnings”, 2018). Competitor Profiles Bunnings key competitors compete in the same industry of Home Improvement and building trades sectors, with the main stated previously - Mitre10 and PlaceMakers. Both competitors being New Zealand based gives them the upper hand on the kiwi image but Bunnings still puts up a strong fight and is still a major player in the industry. Along with the direct competitors, in Bunnings other sections such as gardening, Bunnings competes with Garden stores such as King’s Plant Barn and Palmers. As there are many other product categories in Bunnings, they have many other competitors too - from physical stores to online stores and from local to international. There are currently no new competitors that have recently joined the New Zealand Home Improvement industry but if there were, it would very costly to imitate the wide range Bunnings Warehouse has and would be quite some time to be a significant threat to the company. Industry Analysis (Appendix C) The threat of new entrants to the retail home improvement industry is low because of the high startup costs it takes to have the wide range of products and relationship with suppliers that Bunnings and the other top competitors in the industry has already acquired. There is new

potential threats with the popularisation of online sales, meaning new entrants can not even be based in New Zealand and compete, however, Bunnings also has an online presence along with physical brick-and-mortar stores to keep them ahead of new incumbents that only have an online presence. The threat of substitutes in the industry is moderate because there is the aspect of having the full range of different brands for multiple products, but some products like tools may come off as expensive and consumers are able to borrow as well as calling someone else in to get the job done. Supplier Power in the industry is moderate. With larger brands having more power as customers get a sense of familiarity, which helps drive sales, while smaller suppliers can be easily replaced or removed because of the vast range of brands and products that are provided in store. Consumers’ bargaining power is low if they act as individual consumers, but buyer power for the firms in the industry that include trade is very high as most their sales generate from sales and relationships with the buyers should be maintained because losing one buyer could lead to the loss of more current and future buyers if the reputation of a firm is damaged. The Degree of Rivalry in the industry is high because even though there are only a few competitors, the market isn’t as big as a retail industry in say fashion for example. Competitors highlight their competitive advantages to gain the top name in a very tight competition. The profitability of the Home Improvement industry is moderate-high. With bigger firms more likely to be more profitable with their power in the market compared to smaller or new firms.

Driving Forces/PEST Analysis Political Factors: Developed countries have shown to have more political stability over developing countries (World Bank, 2015). This is a factor to consider when a company is looking to engage in FDI as this means that change in government regulations will less likely be an issue if the organisation is well aware of the regulations. With a company in the Home Improvement industry, the organisation will want to look at all the regular things that they have considered when setting up in their home country; there might be a few differences but it shouldn’t be a great impact on the how the company can operate in the foreign country (Post, 2017). By analysing the political factors of a foreign country, the organisation can draw a conclusion as to whether it’s best to set up shop, license, franchise, or export to the foreign country. Economical Factors: This factor helps determine market trends for countries and can help determine the success of an organisation when engaging with foreign countries. Organisations in the Home Improvement industry may want to look at Nominal GDP per capita as it shows increases and decreases in countries to determine whether residents of a country are more likely to have disposable

income. Increases in GDP per capita in developing countries over the decrease in developed countries (World Bank, 2015) can tell an organisation that focuses on improving a home more than its current state - that it should probably consider engaging with developing over developed countries for likelihood to generate more revenue from consumers.’ Social Factors: Demographic and cultural aspects of a market is analysed when looking at social factors; it helps organisations determine their wants and needs and what drives their purchase decisions (Post, 2017). Home Improvement businesses should look at the construction trends of a country as well as how consumers habits and preferences. It may be common for the demographics of the target market to DIY home improvements in New Zealand and Australia, but not common for those same...