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PROJ 6005/6018 Case Study 2022
Bunnings v Masters … was ‘Portfolio Oxygen’ just hot air?
Field Marshall Helmuth von Moltke once observed, “No battle plan survives contact with the enemy.”
That certainly rings true for Masters as they admit defeat in their six-year battle with Bunnings. So,
what was wrong with their ‘Portfolio Oxygen’ strategy, and what can be learnt from their estimated
$1.6B failure?
Thorn in the Side
It was during the GFC in late 2008 and Wesfarmers was facing a major crisis with its Coles
acquisition.
Despite this, Woolworths was worried: there was a possibility that continued success with its
Bunnings stores would allow Wesfarmers to rebuild the Coles brand and provide some real
competition in the supermarket sector: something had to be done. Attempts to buy the Bunnings chain
(which would have provided Wesfarmers with much-needed cash) were rebuffed. Against this
background, Woolworths conceived ‘Portfolio Oxygen’: a direct attack on the Bunnings cash-cow
designed to starve Wesfarmers of the resources and focus required to re-invigorate the Coles brand.
Strategic Assessment
The $43B home improvement market is growing as Australians are attracted to DIY, and Bunnings
has just 17% market share. But they are an established player with 20 years of consistent sales and
profit growth; over 330 warehouses, stores and trade centres in prime locations; extensive experience
in hardware and a highly capable management team with a focused strategy. So, how should
Woolworths implement ‘Portfolio Oxygen’? History indicates that about 1 in 4 market entries will
fail, but the odds of success can be improved by having a sound strategy, based on detailed research
and analysis – and then delivering on the brand’s promise to the customer.
Strategic Success
For an investment of this size should include a review of similar market entries: both successes and
failures. This will reveal key issues that should be considered before arriving at a final decision,
and/or during implementation. Analysis of market size, competitors and the value proposition to the
customer are also key issues and require detailed research. The cost of entry should not be
underestimated; in five years Masters have accumulated losses of over $900m – before exit costs!
Finally, there should be a robust critique and analysis by key team members, supported by an
organisational culture that supports challenge of its leadership and strategy. Woolworths’ senior
management would have done considerable work before taking the Masters venture to the Board,
which also approved the plan. Their exercise in ‘group thinking’ would prove to be one of the most
expensive mistakes in Australian corporate history.
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Strategic Objectives and links to Programs and Projects
1. Review of previous, similar market entry cases
2. Use of game theory to test competitor reaction
3. Evaluation of industry life cycles
4. Team critique & analysis
5. Attractiveness of value proposition
6. Analysis of market size
7. Competitor assessment
8. Set achievable market share & revenue
9. Establish costs of entry
Project Teams and Stakeholders
The projects that address the above goals require management of the complexity of the various project
teams which incorporate multiple backgrounds and experiences located in Australia and few virtual
teams. The project teams will work with other departments such as Information Technology, Human
Resources, Manufacturing, Sales, Marketing, Accounting, Finance, and Legal departments.
The external stakeholders include their existing and potential customers, suppliers, and investors.
The Toolbox
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Why did it go so wrong for Masters?
A lack of consideration of four key issues contributed to the downfall of Masters:
1. Strategic direction
2. Customer and competitor assessment
3. Brand narrative
4. Strategic reviews.
Woolworths’ strategic intent with Masters was to “suck the oxygen” out of Wesfarmers’ resurrection
of Coles by attacking its sister division, Bunnings – a strategy not directly linked to customer or
market feedback in the hardware sector. Woolworths would have been better to deliver what
customers DO value: lower supermarket prices. A price war would have dealt Coles a significant
blow; stalling – or even stopping – its planned recovery and delivering longer-term revenue
opportunities for Woolworths.
A detailed customer and competitor assessment would have confirmed the size and growing nature of
the home improvement market. It would also have discovered Bunnings strengths in established base,
store location, layout, product offering, perceived value and trades accounts (30% of Bunnings
revenue). Also, competitive gaming exercises would have given Woolworths a better idea of
Bunnings capability and willingness to respond to the entry of a serious rival. Faced with increased
competition, Bunnings accelerated its growth with the planned opening of 40 stores in 2015-16 and
subsequently 10-14 each year.
Ultimately, the Masters brand failed to excite customers. Feedback indicated issues with store layout
(“confusing”); product lines (white goods done better by others); customer service (“lacking”);
location (“not as accessible as Bunnings”). It is interesting then, that Bunning’s weaknesses also
include customer service – to which can be added poor digital offering and a lack of in-home services.
Stories regarding poor customer service at
Bunnings are many, but the company has worked hard to improve their image through consistent
advertising campaigns focussing on service, range and low prices. Points of differentiation for
Masters could have been more responsive and knowledgeable employees; a superior digital presence
and in-home (DIFY) services following lifestyle trends of an ageing population – which could also
have engaged the trades sector as allies and customers.
Finally, regular strategic reviews would have highlighted issues and should have prompted earlier
changes at Masters. Bunnings expect store establishment to take 12-24 months in NSW (its toughest
market), but expect profitability within a few months of operation (excluding start-up costs). Masters
have recently made changes in many of their stores (to be more like Bunnings!), which have had a
positive impact on revenue – but it was too little, too late.
Summary
Is Bunnings vulnerable? Certainly: but it will need a knowledgeable competitor with a customerfocussed strategic direction and a brand that delivers customer needs. Masters had none of these and
was doomed to failure by Woolworths misguided belief in its superior ability and misreading of
Bunnings reaction to a competitive threat.
