An 'intoxicating mix'

A very happy New Year to everyone and I hope it’s a successful one for you.

For those of you who follow the content I share on LinkedIn, you may have seen a post late last year referring to the Kingfisher One Project. I had visited the B&Q Warehouse in Milton Keynes and for the first time saw the new unified Decorating Accessories product range.

Despite my knowledge of the Kingfisher One strategy, I was still surprised how well-known, UK brands such as LG Harris had been significantly marginalised in favour of the Dial brand. The new range looked good on shelf, the supporting point of sale was clear and simple and yet I felt consumer choice had been dramatically reduced in favour of a range that can be sourced more cost effectively and rolled out to multiple retail formats. My post, simply said ‘The Kingfisher unified range looks great on shelf, but it seems wrong that well known UK brands like LG Harris have been so marginalised, limiting consumer choice. What about giving customers what they want?

The reason for mentioning this, is the debate the post caused. Of all the content I’ve shared in the last couple of months, this one seemed to create the most interest and the discussion has now been viewed over 20,000 times. If you get a moment, the comments made by other people make interesting reading.

Steve Collinge - The Kingfisher unified range looks great on shelf.

After a defence of the need for brands from certain quarters, one of the contributors wrote:- ‘Folks, don't get caught up in the bubble of your brands, The customer sees a paint roller and if they have to paint a room, they will buy whatever is on the shelf’.

Don’t get caught up in the bubble of your brands – what an interesting comment and what a great challenge to brand owners. Many of us have the experience of selling, building or managing brands and others have worked hard over many years to develop the reputation of a brand with their target audience.

As brand owners, if we don’t consistently deliver what our audience, clients or consumers want, then we very quickly become at best stale and uninteresting and at worst irrelevant and forgotten. Understanding our customers and consumers, whether we’re a retailer, manufacturer or supplier has never been more critical than it is today.

Which is why I find the current approach taken to brands by the various retailers of home improvement and garden products so fascinating.

We all know Kingfisher are set on the path towards unification across their operating companies and in many cases, this means one after another of the UK brands are either being beaten into submission or in the case of L.G. Harris, marginalised to the point of being an after-thought. Kingfisher have good reason to pursue this strategy, not least of which is the commitment to deliver an additional ￡500m of profit to the Kingfisher bottom line over the next 3 years.

But what’s the approach to the brands from the other retailers?

Well this is where the situation gets really interesting. As Kingfisher has continued to develop its stable of own brands, each in turn delivering on paper a higher % margin to the bottom line and each able to provide a common range suitable for their various Operating Companies, their competitors have pursued markedly different routes.

Bunnings/Homebase

At one stage, Homebase was a significant supporter of own brand, with one of the highest levels of penetration. However, following the Wesfarmers acquisition in February 2016, they've put a complete halt to that strategy. The company doesn’t offer a Bunnings own label brand in Australia, preferring to offer exclusive ranges from key supplier partners. What you see in the Bunnings UK trial stores and increasingly the Homebase stores, is a combination of well-known brands and a growing participation of lesser known names sourced from their Australian suppliers. These include Tactix, CraftRight, Saxon, Morgan, Ultimate Storage, Flexi Storage, Move Master, Jumbuck, Marquee and Smart Storemaster to name just a few.

This combination of strong brands headlining key categories, complemented by very competitively priced ranges in areas where brands are less important, works very well down under and there’s no reason why it shouldn’t work well in the UK. As we all know, Bunnings UK & Ireland currently have far greater challenges than their mix of brands to deal with, not least of which is the dramatic decline in sales from the remaining 240 Homebase stores. However, the correct focus on strong brands to drive increased footfall into both the Homebase and Bunnings trial stores, may just be what they currently need.

Wickes Building Supplies

For those of you who have been around for a while will remember, at one stage the only brands you’d find in a Wickes store were Blue Circle cement, Duracell batteries and the Tesco milk in the staff room fridge. Their strategy was similar to Marks & Spencer's St. Michael – create a range of own brand products of at least the same quality as the market leading brand and sell them for 20% below the brand leader. A great strategy, which led to a higher level of customer loyalty to Wickes than any of the other sheds, some of which still remains today.

Five years on and the transformation of Wickes is almost complete. The speed with which B&Q has exited well-known brands, has been matched by the speed with which Wickes has embraced them. The combination of a wider range of great brands, a dramatically improved shopping experience and one of the best kitchen and bathroom departments on the market has provided Wickes with a compelling shopping experience and of the three sheds is probably the one, I’d back with my own money.

ManoMano

As a new entrant to the UK market in 2016, with a completely un-heard of brand and a quirky website with which to engage with consumers, they’ve been rather successful, achieving a turnover of ￡4.4m at the end of year one, which we’re reliably informed is likely to double to around ￡9m by the end of 2017. The ManoMano homepage lists the growing range of brands who are now supplying them, some on a direct basis and many through third parties. The current market changes are playing directly into their hands as they actively seek new branded partners to complete their UK offer.

The Discounters

The Range, Wilko and the likes of Poundland and B&M Bargains (the last two whom lacked category credibility 5 years ago), have all taken significant steps to improve their home improvement and garden offering. With the promise of significant volumes and new store driven sustainable growth, the big brands can no longer ignore the discounter channel and one by one are joining the discount party.

For the discounter retailers, the brands offer instant credibility and when combined with very aggressive retail prices, you create what I like to describe as an ‘intoxicating mix’, which has helped them to rapidly build market share at the expense of the sheds. A great brand at a great price has and always will be the driver of store and website footfall. Which is why I always wonder why some retailers choose to advertise unknown branded products in non-price sensitive areas – it doesn’t work and it’s a waste of investment.

It must be incredibly attractive to Kingfisher to see the percentage margin gains and economies of scale being delivered by the One project. The new ranges that we’ve looked at in detail, Lighting, Bathrooms and Decorating Accessories all deliver attractive, refreshed and compelling offers, coupled with great point of sale. In ‘brand-less’ categories, I have no doubt the changes will work and they’ll contribute towards the ￡500m of additional profit promised to investors.

However, as One Kingfisher starts to impact on categories where brands do matter to consumers, or where at the very least, the brands provide ‘better’ and ‘best’ options for consumers to trade up, with the consequential increase in cash margin, I’m really not so sure.

Dramatically cutting back or even removing brands has a far greater and far-reaching impact that remains invisible for some time. The brand owners, many of them large global organisations with significant financial backing and impatient investors, demand sustainable, profitable growth and where does that growth come from if it’s not from the largest home improvement retailer, Kingfisher?

I'll tell you where it comes from, it comes from investing in other retailers, the likes of Bunnings/Homebase and Wickes, it comes from opening new channels such as ManoMano, Amazon and other pure play retailers, it comes from the Discounters and it comes from selling direct to consumers.

It also comes from innovation, game and market changing products that deliver retail excitement, create real value growth for categories and an improved experience for consumers. By removing the brands, you not only remove the consumers option to trade up to higher value products, but you sever the innovation pipeline, the life-line to keep your ranges and categories interesting and exciting.

You stop being the first-choice retailer that suppliers go to with their new ideas and innovation, you willingly open the floodgates to every single competitor to your business and on a serving plate you hand them the opportunity to deliver ‘an intoxicating mix’ to your own consumers.

We'll be watching the situation very closely in the weeks and months to come. 2018 will be a fascinating year in many respects and my team at Insight DIY and I, can’t wait to bring you all the very latest news, intelligence and market developments as they happen.

Source: Steve Collinge – Managing Director Insight Retail Group Ltd

Please feel free to contact me on [email protected].