Strategic Analysis Assignment on Bunnings Australia

Question

Task: 1. Describe briefly the background information (strategic context) of the corporation and the organisation. This information should be brief and relevant to the discussion of your assignment and thus may include ownership, history, size, business scope, major products/services, and major markets, and financial performance of the organization selected.
2. Conduct a macro-environment analysis (focusing on Bunnings Warehouse in this assignment) for the entire industry (The Australian householder hardware industry) within which the organisation operates. You should use the analytical framework provided in the textbook. Foci will be placed on the understanding of the purpose of this analysis, the identification of key factors and their implications in terms of key opportunities and threats, and the discussion of their overall impact on the industry growth in the future. Draw your conclusion based on your macro-environment analysis.
3. Undertake an industry (competitive) analysis using Porter’s 5-forces model. You are required to pay attention to the purpose of this analysis, the inter-connectedness of different aspects of the competitive forces, the links between the competitive forces and macro-environment, and their overall impact on the industry and the organization selected in terms of main driving forces in the competitive environment. Draw your conclusions based on your five-force analyses.

Answer

Founded in the year 1886 in Western Australia, the company opened its first ever warehouse in the year 1994 in Melbourne, Victoria. Bunning is one of the largest and leading retailersof home improvement and outdoor living products in Australia and NZ which is selected in the present context of strategic analysis assignment. It is also seen as a major supplier for project builders, tradespeople and also for the ever growing housing industry. The company which operates out of Australia and NZ closed the 2019 financial year with revenue of over $13.1 Billion. At the very present Bunnings have over 350+ trading stores and employees over 40,000+ team members (Wesfarmers, 2020). It is one of the front runners in terms of contribution to the Australian and NZ economy. The company claims that it has material for the entire possible project required for home improvement and development as is seen from its huge collection of product range which lies from tools, building and hardware material, outdoor living, kitchen, bathroom and plumbing, curtain and blinds, paint and decorating and even storage and cleaning. Hence, it is clear on this strategic analysis assignmentthat Bunning can be seen as one stop shop for all of the home improvement and development needs. Besides providing hardware, Bunning have also been helping out the home owners by providing them with consultation ideas in person and even through its plethora of DIY videos (Bunnings, 2020).

Figure 1: Bunnings brand under which it is operated in Australia & NZ (Bunnings, 2020)

The billion dollar business of Bunnings stands tall on the three pillars of lowest prices, widest range of equipment and providing best services to its esteemed customers. Bunnings at its warehouse works with a number of leading brands such as 3M, AEG, Bosch, Dulux, Philips, Stanley and dozens of more. The underlying objective of working with so many brands is to provide the customers all the tools and equipment they require for outdoor living and home improvement. The strategic analysis assignmentis focussed on two parts, in the first part a macro environmental analysis of Bunnings is carried out using the Pestle Framework, the second part will focus on the market attractiveness and profitability using the Porter 5 forces model.

Macro Environmental Analysis
Macro environmental analysis is an external analysis which ascertains the influence of all the possible factors in accordance to the PESTLE framework. The analysis is conducted below within the strategic analysis assignment keeping in mind the Australian Household Hardware industry with the focus on the organization selected which is Bunnings, Australia.

PESTLE Analysis

Figure 2: Diagrammatic representation of PESTLE framework

Political Factors
Australia can be seen as a politically stable, prosperous and a peaceful country under the leadership of Scott Morrison. In the recent light of the COVID event, the markets are now gradually opening up and the removal on restriction is again a good sight for the business. Hence, it can be stated in the strategic analysis assignmentthat the support of the Australian government for the business is increasing with the opening up of the economy and can be seen as a good sign for Bunnings.

Economic Factors
COVID-19 is the worst pandemic witnessed by the world, after Spanish flu which occurred over 100 years ago. It is due to the factor of Pandemic, it is expected that the Australian economy will shrink by 2.25% in the year 2020 and will bounce back with a growth rate of 2.5% in the following year (In the Black, 2020). However, this was something which did not come out of the blue. The obvious implication herein strategic analysis assignment for Bunnings and the industry is that there will be lower spend from the customers at least in the present year, and the focus of the people will lie on buying grocery and other discretionary items. However, it will only be a small setback for Bunnings and as soon as the economy recovers, it is expected that a huge line of customers will be find across its stores.

Socio-Cultural Trends
Australian’s takes pride in being good citizen, and this is engraved in their DNA’s. This is one of the biggest reason that Australia was able to contain the virus, as the population was cogent to practice and follow the social distancing norms and not to step out of their home to keep themselves, their family and their community safe and secure (McKinsey & Company, 2020). Bunnings which grew its business by 6% in the FY ending 2019 will suffer due to COVID-19. However, once the economy bounces back, people will start shopping freely at its stores. The USP of the store which is lowest price, wide range of product selection, Do It Yourself techniques and videos have helped the Australian socio-cultural environment immensely over the years, and will continue to do so over the coming years.

Technological Environment
Bunnings warehouses are laced with modern day technologies and always embrace any change in the technological trends to improve their warehouse processes. The company at present uses IBM XIV storage system which has 54 Terabytes of storage capacity, which the company uses to store the important data and also to improve its inventory. Besides this the company also has a strong and fully developed MIS, through which it keeps a check and control on all off its operations (Bajkowski, 2020). Data Theft and Cyber security are the two most obvious threats to the industry and Bunnings, but the company has taken measures through its strong firewalls to keep its data secure.

Legal & Environmental Factors
The Australian Home and Hardware industry has many stringent laws and regulation, which are even stringent than any other industry. However, Bunnings Australia has not reported any kind of compliance issue in the past or in the present. The industry is also seen as the one which has an impact on environment. Thus the company has been focussing on reducing its GHG emission by replacing its power source to Solar Photovoltaic. As of June 2019, the company had 91 stores fully lit up with LED lights and in the next year over 31 more stores are to follow (Bunnings, 2020). Likewise, the company is also focussed on water treatment and waste & packaging in its warehouses.

Hence, it can be said in this strategic analysis assignment that Bunnings and the overall Australian Householder Hardware industry is touted to suffer a knee jerk reaction especially due to the pandemic and people curtailing their spending to only grocery and other discretionary items. However, with the economy opening up the situation will improve for the business, and there are no other foreseeable threat of the Bunnings Australia. Micro Environmental Analysis

This can also be seen as an internal analysis, and the same is conducted using Porter 5 forces model for Bunnings, Australia. The model is used to ascertain the profitability and attractiveness of the industry.

Porter 5 Force Analysis

Figure 3: Diagrammatic representation of Porter 5 forces framework

Bargaining Power of Suppliers
The power of suppliers can be seen as a strong force in this particular industry due to the reasons such as much organization in the industry, and therefore the suppliers are also in large numbers (IBIS World, 2020). Bunnings itself works with large number of individual suppliers who provide equipment and tools for its stores and warehouses. However, Bunnings has a long standing relationship with its suppliers which mitigate the force to be moderate for Bunnings.

Figure 4: Leading suppliers for Bunnings, Australia (Bunnings, 2020)

Threat of new entrant
The threat of new entrant can be seen as weak force, primarily because of the follow reasons presented in this strategic analysis assignment:

• Bunnings has a strong name, reputation and market share in the industry.
• It will take lot of time for a new player to enter the market, invest high capital and spend years and years before it can stand in front of Bunnings or other major stores(Blake, 2020)

Hence, it is clear in this strategic analysis assignment that the threat can be seen as low.

Threat of Substitute Products
As already mentioned one of the strong pillars or the USP of Bunnings is its lowest prices, due to this reason outlined in the strategic analysis assignment the threat of substitute products can be seen as moderate. And moderate only in the case if company does some major blunder in terms of its product strategy or in case it increases its price, and its competitor has been offering it at the lower price. Hence, it makes the threat to be low to moderate for Bunnings (Roy Morgan, 2019)

Bargaining Power of Customers
It is mentioned herein strategic analysis assignment that the bargaining power of customers, which is an extremely important parameter in the 5 force analysis, can be seen as high. The reason being customers have plethora of options to choose from, second is the product offering of each of the player in the industry and lastly, the ever changing and evolving preference and taste of customers. However, Bunnings with its huge product offering, lowest prices and strong customer service manages to keep its customers happy and satisfied.

Competitive Rivalry
It is evident in the strategic analysis assignmentthat Bunnings has a market share of over 50% when it comes to the Hardware and household industry, and the reasons for which are its excellent customer service, lowest price, large number of stores and a recognized and reputable brand name.

Figure 5: Figure showing the Leading Hardware store customer satisfaction ratings (Roy Morgan, 2019)

Bunnings has been winning the competition of the best Hardware store in the industry for 20 straight months in the row. None of its closest competitors such as Mitre 10, Home Timber & Hardware, True value and other can compete neither in terms of customer satisfaction index, neither the prices nor the offering. This makes the threat from competition to be a weak force. The interesting fact for Bunnings is its positioning which is of cost leadership, and its stores is seen as a place of Haven for the Traditional family life segment and with men (53%) and Women (47%)(Roy Morgan, 2019).

Hence, the strategic analysis assignmentcan be concluded by saying that Bunnings Australia enjoys its market leadership position with a huge market share of over 50% in Australia. Despite strong forces from the suppliers and the bargaining power of customers, the brand is still the most trusted brand even for the customers and for the suppliers due to the long lasting relationship and excellent supply chain management strategy of the company.

References
Bajkowski, J. Bunnings boss slams suggestions tech could kill lowest price guarantee.Strategic analysis assignment Retrieved from :https://www.itnews.com.au/news/bunnings-boss-slams-suggestions-tech-could-kill-lowest-price-guarantee-538349

Blake, D. 2020. Competition watchdog sounds warning over Bunnings merger with Adelaide Tools. Retrieved from: https://www.smartcompany.com.au/industries/retail/accc-bunnings-merger-adelaide-tools/ Bunnings. 2020. Bunnings warehouse. Retrieved from:https://www.bunnings.com.au/

Bunnings. 2020. Sustainability. Retrieved from: https://www.bunnings.com.au/about-us/sustainability

IBIS World. 2020. Hardware wholesaling in Australia-Market research report. Retrieved from:https://www.ibisworld.com/au/industry/hardware-wholesaling/4232/
In The Black. 2020. Economic Forecast: Mixed outlook for 2020/21. Retrieved from: https://www.intheblack.com/articles/2020/07/23/australias-economic-outlook-is-a-mixed-bag#:~:text=The%20Outlook%20forecasts%20that%20Australia's,2.5%20per%20cent%20in%202021.

McKinsey & Company. 2020. Emerging from COVID-19: Australians embrace their values. Retrieved from: https://www.mckinsey.com/industries/retail/our-insights/emerging-from-covid-19-australians-embrace-their-values Roy Morgon. 2019. Bunnings hammers competitors with twenty straight satisfaction awards. Retrieved from: http://www.roymorgan.com/findings/8133-csa-results-hardware-store-satisfaction-july-2019-201909130622

Wesfarmers. 2020. Bunnings. Retrieved from: https://www.wesfarmers.com.au/our-businesses/bunnings Wesfarmers. 2020. Investment Centre.Strategic analysis assignmentRetrieved from: https://www.wesfarmers.com.au/investor-centre