Defections from the Mitre 10 and Home Timber & Hardware networks are shaping up as a bigger risk to Metcash’s bid to create a serious number two player in hardware than the competition watchdog investigation. Source: The Sydney Morning Herald
Rival buying group Hardware & Building Traders (HBT) has enjoyed a significant spike in new members since Woolworths and its US partner Lowe’s announced plans to abandon hardware in January and sell off the Danks-supplied Home network.
HBT revealed that most of the retailers had come from the Home network but it said there was also a significant number of Mitre 10 operators who were concerned about how the current upheaval in the sector would affect their operations.
Natbuild National Building Suppliers Group has also expanded its business on the back of the uncertainty, with long-time Home member Hume & Iser recently joining the trade buying group.
Natbuild only services the trade sector but it has built a small, valuable client list of businesses turning over at least $15 million a year and, as a consequence, its customers account for about 4% of the total market.
Natbuild chief Peter Way, who is working on a submission for the Australian Competition and Consumer Commission, said a lot of franchisees had questioned the value of their membership to the two big retail networks since Woolworths signalled it plans to exit hardware.
“I think turmoil in the industry creates opportunities so we have a window of opportunity that we do need to take advantage of absolutely and I certainly … see that as a benefit,” Mr Way said.
Mr Way said he accepted the need for consolidation in the hardware sector but he was not totally convinced a Home-Mitre 10 merger was the ideal outcome.
“From our point of view we are attacking it from the buying side of things, not so much the operational side of things because that’s what we can make comment on,” Mr Way said.
“We are dealing with suppliers on a day-to-day basis for our members and that’s the area we can probably provide some feedback on.
“We understand there needs to be some rationalisation. Do we see this as the best rationalised move? Possibly not. Is there any alternative? Definitely not at this stage.”
The ACCC ended months of speculation over Metcash’s interest in Home after announcing a public review of the listed wholesaler’s acquisition plan for the franchised hardware chain in early May.
It’s understood Metcash is the front runner in the competitive bid for Home, with sources close to the deal suggesting it will likely trump bids from private equity players, including one-time Dick Smith owner Anchorage Capital Partners.
Hardware analyst Geoff Dart said Metcash would not be able to keep all the members from the Home and Mitre 10 networks if the deal went ahead.
“I don’t think members from Home or Mitre 10 are very happy at the moment and a number are looking for somewhere else to go,” Mr Dart said.
Peter Womersley’s family has been part of the Mitre 10 network for more than 60 years, during which time he has watched Bunnings evolve into the “price setter” for the industry.
He supports a merger of Mitre 10 and Home on the basis that it will give the expanded operation the might to “slow Bunnings.”
“I’m very supportive of it because it will make us more relevant and give us a better chance to compete with Bunnings,” Mr Womersley said.
It’s understood Metcash believes the deal is “pro competition” because it will ensure the continued viability of the independent hardware sector and build a player with the scale to compete more effectively with Bunnings.