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Developing a Business Strategy – Bunnings Warehouse

Developing a Business Strategy – Bunnings Warehouse

Part A – Organizational Context

Bunnings Warehouse is an international chain of household hardware owned by Wesfarmers since 1994. This enterprise has stores in Australia, the United Kingdom, Ireland, and New Zealand. In 1887, two brothers who had emigrated from England founded the warehouse in Perth, Western Australia. It started out as a limited company whose main activity was saw-milling. Later in 1952, it became a public company expanded into the retail business, and purchased multiple hardware stores. The business started expanding into other areas in 1952 and in 1994 it opened the first warehouse in Melbourne.

Currently, the chain has 294 stores and more than 30,000 employees. Its market share in the retail hardware sector in Australia is approximately 20 %. Competing chains include Mitre 10, Home Timer and Hardware, and other retailers operating independently.

Statement of Strategic Intent

Focus on strategic pillars of lowest price, most extensive range, and best service. Seeks to provide families with the products they need every day at the lowest prices while delivering growth and improving productivity and efficiencies to support investment.

Positioning Statement

The quality of our people is our greatest competitive advantage, and providing them with opportunities to improve their performance is key to our success.

Industry Value Chain

In the household hardware industry value chain, Bunnings has a downstream vertical integration. It covers the wholesale suppliers, distribution channels, and retailers. In wholesale supply and retail, the business has almost 300 stores and in Australia and New Zealand. Its market share in the retail hardware sector in Australia is approximately 20 %. Competing chains include Mitre 10, Home Timer and Hardware and other retailers operating independently.

Part B1 – External Strategic Analysis

Porters Five Forces Analysis

The Porters Five forces framework analyses the competition a business faces. It draws from five forces that determine the intensity of competition and hence the attractiveness (or lack thereof) in terms of profitability. This framework can be applied to any business regardless of the size.

Bargaining Power of Suppliers

  • High competition among the suppliers which makes it ease for Bunnings to switch from one supplier to another and get discounts. (weak force)
  • Diverse channels of distribution the suppliers have reduced their bargaining power making it favorable for Bunnings (weak force).
  • Suppliers rely on selling high volumes which reduces their bargaining if a producer decides to cut volume and affect their profits. This is better for Bunnings making it a weak force.
  • There are low switching costs to a different supplier (weak force). Because of this, the suppliers have lower bargaining power.

Bargaining Power of Buyers

Buyers are less sensitive to prices, as a result in case of an increase in prices, the products will still be bought (Weak force). This inelastic demand has a positive effect on Bunnings.

The customers have a high need for the products and can end up paying more for the particular products (weak force).

The number of customers is relatively larger. (weak force). As a result of this, the customers do not have high bargaining leverage.

Threat of substitutes

The substitute products have lower performance (weak force).  This means that the customers are less likely to switch from Bunning’s products.

There is significant product differentiation which makes it less likely for customers to find substitutes that are comparable to meet their needs.

The threat of new competitors

High costs of entry into the market make it hard for new competitors to enter the market since they will have no guarantee of returns (weak force).

The strong distribution network that Bunnings enjoys makes it difficult for new competitors to match since they will enable the goods to have lower costs.

Bunnings enjoys a strong brand name which threatens new competitors.

High switching costs for the customers, the products from Bunnings are cheaper, and it would cost the customers more to buy from another company with higher prices.

The intensity of existing competition

The industry is large in size which enables competitors to grow without much rivalry or fighting for market share.

The extent of competition is low because there are few businesses in the industry.

PESTLE Analysis

Pestle analysis focuses on the eternal macro-environment which includes the political, economic sociological, technological, legal, and environmental factors.

Political Factors

The trading hours in Australia are restricted by the government.

There exist ad hoc regulations in the country.

Economical Factors

The growth rate of the industry that Bunnings operates has a slow growth which slows down the extent to which Bunnings can grow.

The wage costs compared to the global market are higher; therefore Bunnings must spend more on labor.

The Australian and New Zealand dollar has increased its strength which makes it favorable for Bunnings to enter into new markets.

Social Factors

The life expectancy of Australian citizens has been increasing gradually. This means that the customers will decline progressively due to the durability of the Bunnings products.

Women are participating more in the workforce, and as a result, Bunnings must balance its workforce to show equality and not project gender discrimination.

The education qualification of the population on average has increased which translates to Bunnings being able to acquire skilled and highly qualified labor.

Technological Factors

The extent of online shopping using mobile phones and other internet-enabled devices has increased. Bunnings can, therefore, reach new markets and deliver to more customers with ease.

Technology is used to predict the preferences of customers in the Australian Market which helps in reducing business costs and increasing profits.

There exist value-added services that are enabled by technology.

Legal

The underwriting division was sold to Insurance Australia Group.

The Wesfarmers insurance broking division was sold to Arthur Galler.

Environment

It is a requirement that the waste in landfills must be reduced by 6 percent. Bunnings must, therefore, check its waste.

All firms must report their emissions due to the NGER Reporting Act.

 Part B2 – Internal Strategic Analysis

Strategy Canvas

Bunnings provides its customers a wide range of home improvement products. It also produces outdoor products and has a commitment to deliver the best service and lowest prices each day. The firm focuses on attracting a team of high quality and issuing them with a rewarding and safe working environment.

More value to the customers

The firm has delivered more value to the customers. It has an ongoing focus on creating more value for the customers.

Better customer experience

Bunnings maintains and has improved the availability of stock. The business has a vast knowledge of the products and projects it delivers to customers. It also has a consistent service delivery, in addition to that it provides a better customer experience and deeper engagement with the customers, in-home, in-store, and online.

Greater brand reaching

Bunnings expanded its digital ecosystem significantly. It also opened an additional 22 locations for trading and reinvesting in the existing stores. It focuses on creating more stores, in-home, and digital services. Consequently, it aims to further open more stores and expand the digital ecosystem.

Expanding commercial

Bunnings has leveraged its network to create deeper relations and more value. It has an improved service which has a more localized engagement which makes the services easier to deliver to the customers. Bunnings has continued to leverage its core strengths of total market capability: trade centers, stores, digital, and in-field. It focuses majorly on the wider market to expand its opportunities for selling.

More merchandise innovation

Bunnings has an expansive range and products that make DIY easier. The improved range consistency across the network is an added advantage that enables the firm to leverage and respond to the customer lifestyle trends and changes in the economy and environment. Bunnings further innovate new products and projects which further widens their product range.

Entry into Ireland and United Kingdom Markets

Bunnings has created a strong business foundation which has enabled it to carry out home-based acquisition integration activities. It has also implemented pilot stores to advance in post-acquisition.

Part C – SWOT Analysis

Strengths

  • With wider knowledge of the retail industry, Wesfarmers formed the brand and concept of Bunnings successfully and has utilized the purchasing behaviors and trends of the consumers.
  • Existing customer base that is loyal to the brand, especially business organizations find it easier to track their orders and gain discounts.1
  • National extensive reach with a locational stance that is dominant.
  • Bunnings has back financial investment in the business.
  • Favorable returns from the IT investment through the online shopping platforms.
  • Able to foresee the trends of the market and adapt to them, such as creating iPhone applications.
Weaknesses

·         In the international market, there is low supervision making Bunning’s objectives to focus on Australia and New Zealand.

·         The rate of employee turnover and injury is high.

·         The business requires a local partner – there is community backslash because the smaller hardware stores are being closed.

·         The firm is not able to grow further sustainably in Australia

·         The Bunnings Warehouse Trust is a weakness due to the increased costs of leasing in the long term.

·         Bunnings has not enforced loyalty programs in the organization.

Opportunities

·         Diversification of its expansion into alternate services and product industries which will enable it to provide services.

·         The environment of the market is healthy.

·         In New Zealand, there is increased detraction of small retail businesses.

·         The business can create strategic alliances with other companies to provide resources, materials, and equipment.

·         Development of customer loyalty products and differentiating methods of accommodating businesses and individuals.

Threats

·         Bunning’s competitors target the market areas where it does not provide its goods such as advertisement of a store as female-friendly by Masters Home Improvement.

·         Regulations by the government and the Australia Consumer Competition Commission which rejects Bunning’s further expansion by acquiring other businesses.

·         The trends of consumers are shifting to online shopping platforms and e-commerce. Consumers prefer the convenience and the attractively affordable prices of online shopping and the limitless range of products they can access.

Part D – Recommendations

The following strategic framework should be adopted by Bunnings over the course of four years to refocus the business:

Better quality and volume of products in line with fashion and basics.

Reduction of the prices as time moves along.

Promoting the business with mass reach and brand love.

Providing the most enjoyable and easiest customer service.

Creating better stores at strategic locations.

Better quality and volume of products in line with fashion and basics.

Bunnings should identify the volume lines and reset the cost base. The focus should be on progressively clearing the inventory that is slow-moving, seasonal, and aged. The organization must continue reducing the inventory and SKU.  Additionally, it should fix the systems for planning merchandise and increase the production volume and 365 lines. On the fashion and quality, these must be reset. Resetting the quality and function will enable Bunnings to be open to new suggestions and respond positively to changing trends. The risks of this strategy occur when a product is out of fashion and is no longer desired. This will leave the firm with inventory that is not moving which might force them to dispose at a throwaway price.

Reduction of the prices as time moves by

Bunnings should be able to reduce their prices below that of their competitors by looking for alternative financing sources that will blanket the reduced prices. There is already an acceleration of the conversion to everyday low prices (EDLP). This will attract more customers and give it a competitive advantage over its competitors. Bunnings should introduce a markdown policy that is ‘clear as you go’. The already established EDLP conversion should be completed. Finally, the firm should implement a price and range architecture that is consistent and cuts across “Best, Better, Good”. The risk of this strategy is reducing the profit margin and maintaining the price leadership.

Creating better stores at strategic locations

There should be a progressive implementation of a revised department which will focus on the network plan of the stores’ division. Bunnings should review the reward program for the stores and complete the trial formats of the pilot stores. This will translate to better market coverage and consequently more sales by volume. Expansion into newer markets can bring about new opportunities. The risk of expanding into newer markets is the volatility of the exchange rate which may lower the currency resulting in losses.

Promoting the business with mass reach and brand love

Bunnings should reduce the investment in marketing and instead refocus on more effective and tailored commercials. The point of sales should be reduced to so as to simplify the operations of the store and the messaging of customers. Consequently, the firm should reset the catalogs to fewer annual distributions. Leveraging customer insights, Bunnings should develop and implement a clear brand strategy and relaunch the brand. This way, its brand name will soar to newer heights and shake other market players in the industry. The risk of this strategy is poor brand promotion which might end up soiling the brand name instead of raising it.

Bibliography

Wesfarmers. “Wesfarmers 2016 Annual Report.” Annual Report, 2016.

Linden Wears. “Metro North-West Joint Development Assessment Panel Agenda.” DEPARTMENT OF PLANNING LANDS AND HERITAGE. February 1, 2018. Accessed September 14, 2018. https://www.planning.wa.gov.au/daps/data/metropolitan daps/metro north-west jdap/Meeting agendas and papers/20180307 – Agenda – No 203 – City of Stirling.pdf.

Lifestyle and Retail. “Bunnings Warehouse SWOT Analysis, Competitors and USP.” MbaSkool. 2016. Accessed September 14, 2018. https://www.mbaskool.com/brandguide/lifestyle-and-retail/9229-bunnings-warehouse.html

Linda Ross. “Bunnings Corporate SWOT and Strategies.” Prezi. 2013.  Accessed September 14, 2018. https://prezi.com/llbpqyx_csry/copy-of-bunnings-corporate-swot-and-strategies/

Wesfarmers. “Sale of Insurance Underwriting. 2014.  Accessed September 14, 2018. https://www.swotandpestle.com/wesfarmers/

Australian Competition and Consumer Commission. “Bunnings Group – Acquisition of five Mitre 10 stores”. May 2010.  Accessed September 14, 2018

Hunt, Shelby D., and Dennis B. Arnett. “Market segmentation strategy, competitive advantage, and public policy: Grounding segmentation strategy in resource-advantage theory.” Australasian Marketing Journal (AMJ) 12, no. 1 (2004): 7-25.

 

 

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Question 


Developing a Business Strategy - Bunnings Warehouse

Developing a Business Strategy – Bunnings Warehouse

Aim of the Assignment:

Application of Strategic Management Models/Tools/Concepts and relevant course references to advise top management on how they should position the business for improved performance over the next four years with an actionable

Develop a Business Strategy:

Assume that top management would like you to develop a medium to long-term strategy for either:

Your Organisation (the company where you work)

OR choose ONE from the following list of organizations:

  • Australia Post
  • Curtin University
  • Woolworths
  • Bunnings
  • Jetstar

Your report to management must use the following headings/guide:

Part A – Organisational Context (15 marks)

Statement of Strategic Intent Positioning Statement Industry Value Chain

 Part B1 –External Strategic Analysis (20 marks)

Use the following TWO tools below to complete the analysis of the organization’s current external environment:

·         Porters 5 Forces ·         PESTLE Analysis

Part B2 – Internal Strategic Analysis (20 marks)

Choose ONE tool from the four below to complete an analysis of the organization’s current internal strategy. Note: in this context, analysis means applying the tool and discussing insights gained.

·         Firm Value Chain ·         VIRA Analysis
·         Activity Mapping ·         Strategy Canvas

Part C – SWOT Analysis (20 marks)

Based on information from Part A and B perform a SWOT analysis of the Organisations Strategy using a table similar to the one below:

Part D – Recommendations (20 marks)

Using the insights gained from Parts A, B, and C above, provide advice to top management on how they should position the business for improved performance over the next four years. That  is:

Recommend FOUR key (new) strategies with the benefits and risks for each

References (5 marks)

The referencing style for this assignment must use the Chicago format

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