The following is an edited transcript of the speech given by Mark Laidlaw, CEO of Mitre 10, on 16 October 2015 at the 2015 National Hardware Industry Luncheon. The speech has been edited for purposes of concision and clarity only.
Thanks for the opportunity to come and talk to you all today. My aim today is to talk about where we see the industry, the hardware industry, and where we see a little about Mitre 10's journey, and what we need to do in the future. I'm very happy to take some questions as well.
I just went over and said g'day to the Danks guys and it was very nice to meet them. We do have to be aware that we are competitors in this room, so I probably do have to tailor some my normal comments, and I'll do that. It is important.
[Introduces the Mitre 10 senior executive team.]
Culture is very important. These are tough jobs. Whenever you are up against big corporates, you rely on your team. These guys come from small business backgrounds, Carl's dad ran a milk bars and greengrocers, Chris' dad owned butcher shops.
It has to be in your DNA. The thing about us is we fight for small business every day. That is the difference between us and other companies. Yup, Metcash is a corporate. But we are a wholesaler. We don't want to get involved in the retail side. We want to provide solutions for our members, but we don't want to run the stores.
It is a big difference to our competitors. When you get a job at Mitre 10 you have an induction, and the first thing we say is, just remember your customers, the Mitre 10 stores, they are putting their houses on the line each and every day. They are not getting a wage or drawing a salary every month, they have the bank to pay every month. Once you understand that, you realise the importance of the independent sector.
So, we have some charts here. I know a lot of you in the room, and a lot of you have been on this journey with us since 2010, and you know our strategy. So this is really, in many cases, an update on where we see the strategy going. It is still the same strategy, because we are fighting for survival as an independent sector. But it is a very interesting state of play at the moment.
As I said to the Danks guys over there, there is no body in hardware that actually records market share, category shares. We come from a background in grocery where every week AC Nielsen would give us the categories. How much market share Coles had, how much Woolworths had, in soft drinks or deli or whatever.
That does not exist in hardware, so you are reliant on the numbers from what you read. So these numbers, this is our best estimate. It is a busy chart. I will just give you two or three take-aways from that chart.
The reason it is important, yes, Woolworths and Bunnings, they talk about a $45 billion hardware market, home improvement market. Of course, it suits them to say that, because they say, certainly Bunnings has about 18% of that market. And they throw everything in there, IKEA, Harvey Norman, Barbecues Galore, the whole lot is wrapped up into that $45 billion.
We define our market as a $27 billion dollar market. The lay of the land is something like [this chart]. You've got your big-boxes in one corner, you've got your specialists up in the other. And then you've got this incredibly fragmented marketplace in the middle which are all these "planets". Blue is Mitre 10, red is Woolworths. Yellow is large independents.
That's $27 billion, and you have a look at that big green moon there, which is Bunnings, we know their number is at $9 billion so certainly in that sector, Bunnings has 33% of the market. It is important we don't lose sight of that.
The rest of us are much smaller players. There is no other real dominant player in that marketplace. In the years ahead to really survive, and to co-exist with Bunnings - remember Bunnings is a powerhouse, and a competitor to be respected, because they are a corporate that is loved by a community, and that is very unusual.
Most of the community hates Coles and Woolworths, but they have to shop there. Bunnings is a corporate that people love going to, and shopping at on weekends. Taking the kids there to the playground, enjoy the sausage sizzle that is out the front. They are a corporate that is much loved, so we have to understand that and co-exist with them. They are not going to go away.
So we have to do it better, do something better, find our niche, be famous for something else.
So at some point all those planets in the middle - and we desperately try to do this - we need to get together, we need to mount a campaign against Bunnings. It will be a very sad day the day that Bunnings buys up all the timber in this country. Could happen. We are famous for timber, we sell a lot of timber and we need to keep it that way.
So, the split of it is, and again I'm happy for the Danks guys to put their hands up and tell me whether I'm right or wrong, but there is a different spectrum in there in the middle of the map.
There are guys who are fighting for trades businesses, and we certainly want to enter that market. We have about 130 trade centres, and in recent years we have formed some very good alliances with groups such as Banner that came from Natbuild, with the Dahlsens Group, with the Chambers Group. We certainly are focused on going out there and getting those trade businesses.
Danks have done the same. They have gone a different way, they have corporatised them, they have bought out those businesses. I understand that. Suppliers would love that, because you get compliance very quickly. So they've got 44 stores there that are company operated, and then they've also got the independent stores. And they have some very good independent stores, as we have.
Then down the bottom, there are a lot of small stores. Thrifty-Links and small Mitre 10s as well. The challenge is for those stores to survive. There is no question that the next couple of years a lot of small independents will disappear. It is a sad thing.
They can survive. If they are prepared to differentiate themselves they can survive, but it will be a challenge. And there will be a number of independents exiting the business, that is for sure.
So, in saying that it is important to work out how can Mitre 10, how can we as a wholesale business really work, to make sure everyone is viable? Remember our mission statement is to build successful independents, to make them vibrant. So for the rest of the time I would like to talk about the things we are doing.
Before I go there just the history, we came in in 2010, Mitre 10, I know Gary is over there. We had our challenges, and again it is very interesting when the previous CEO of your business - so the guy you take over from - goes and works for the competition, being Woolworths, then spends the next six months of his life targeting your stores and offering them big dollars to switch. That is a challenge.
But we withstood that challenge, and I'm proud to say that over the five years we have built our sales. In the marketplace where Bunnings is dropping 20 big boxes a year, and Masters was certainly dropping a large number (they have cut back now) but in that environment we have managed to continue to grow. We hit a billion in sales last year, and that is wholesale sales.
Over the journey over the five years we have averaged about 7% annual sales growth. So we are pretty proud of that. In a dynamic and competitive marketplace.
Of course that is done now, that five years is finished, and we've got to reinvent ourselves for the next five. For the oncoming competition.
Like most businesses, and I've read the Danks presentation, James Aylen presentation - it is a good one. The presentations are all very similar, we are all trying to do the same things. Not sure if he copied me or I copied him, but you can check that out.
We are all trying to do the same things, but ultimately it all comes down, you can write as many strategies as you like, but it all comes down to how you execute those strategies, in the end you know that. The winner will be the team that executes the best.
So on this slide are set out the five prongs of Mitre 10: retail and trade excellence, shopper led range and competitive pricing; trade; digital; data; insights; and supply chain.
So if I go through the group, retail and trade excellence, the next one is shopper led ranging and the pricing and the trade, Carl's team heads that. We have a very dynamic marketing manager, she is not here today, she runs the digital strategy.
She was instrumental in getting us the Block, there is a lot of good luck that comes along the way. We picked up Scott Cam in 2010. It was one of the first things we did in 2010 was to look for brand ambassador. We were presented with two or three.
You have to understand at that stage, Scott was the second guy on the show. We thought Scott appealed to the broader audience, to tradies to kids, to the female shopper, so we grabbed Scott and it ended up he was given his own show, The Block. In its reincarnation, as it had an earlier version.
We were fortunate with that, and we have been nationally running that series of The Block ever since. It is probably coming to its time, as people get sick of DIY programs. I am certainly sick of DIY programs - and singing programs. But it is probably coming to its time, but it has served us very well for five years. And our relationship with Scott Cam is going to continue in the future.
Supply chain is the other part of that under 25% of our volume goes through a DC. So a lot of the product goes direct to the store, which is exactly how it should be. We have three DCs in Australia, in QLD, VIC and WA.
So, touching on that in a bit more detail. Retail and trade excellence, we call it the Sapphire program. It really can be translated into "the store of the future". What does the store of the future look like? We learn as we go. We have had five years in this now, for grocery guys, a lot of the disciplines are the same, but we certainly had to learn about hardware and trade.
And so over five years we have done about 90 conversions, so we have converted stores from other places to Mitre 10, and we have learnt along the way. And we have a very good, albeit overworked store development team, that has come up with some pretty good store designs on what we think is the best store of the future. And it has to be driven by what the consumer thinks is the best store of the future.
Again we use the example. Supermarkets, Coles, Woolworths, milk at the right aisle and bread far left of the shop. You have to walk through the store, and it's not exactly setup for the consumer. I still get some argument from my "Mitre Tenners", but hardware was done a little similar, with paint all at the back, so as to pull consumers through to the back of the store.
We think being a consumer-driven business paint should be at the front and centre of the store and that should become your hub, and should have a very experienced customer service team operating out of that hub to service any questions the customers might have.
So that is one of the main standards under the Sapphire. Other things that we think are very important are to get your power tools right, to certainly have a trade drive-through, all elements that make up a Sapphire store.
We have developed our own paint counter for the colour centre, and I think we have that placed in six stores. So it is early days for us on Sapphire. The plan is for us to do 10 stores this year, with the full store of the future layouts, we have completed four, and to be honest the results are very good.
We are looking for a 15% sales uplift in those stores. They don't have to be big stores, so of those four we have completed, yes, one was Sebastopol (VIC), I encourage people if you haven't been to Sebastopol, go and have a look. We are very happy with the way it has turned out, it is a larger store with trade.
We have also completed a beautiful little store in Paddington in Sydney. Where is Richard from Valspar? Go and have a look, tell me what you think. It is a beautiful little store, convenient. That store will match up against any Bunnings.
So if you think about it, we have to have a store like Sebastopol in every country town, and we would like to have a little convenience store like Paddington in every suburb. That would be our dream. And the stores make sense.
So there are a number of the other elements that make up a Sapphire store. That is Sebastopol there with the colour centre and the power tools. Of course, it is only when you get all those elements of your store right that being local makes any difference.
So it is no good saying to everyone, "Oh we are local come and shop with us". If your standards are poor and your price is not right and your staff are not trained properly, being local doesn't mean anything. But if you can get those things right, the localness of the ownership is very important.
And you will see when you walk into that store, Ross and David Gay, their faces hit you in the front, much to Ross and David's embarrassment as they are very shy men. But once we got the standards right we wanted to promote it as being local owners in their community, and that worked well for us.
E-learning: Once you have set the store up, and again, preaching to the converted, it is so important that your staff are adequately trained so they can continue to maintain those very high standards. So we have a good e-learning program. I know it is a good e-learning program because our members pay for it. So that means there is some value to it. So if you put it out there and the members pay for it, you know there must be some value. It is not a freebie, it is not a giveaway.
But e-learning is serving us very well, and it is so important to train your staff.
It is all about a point of difference as we have talked. Bunnings is the competitor. We need a reason for people to drive past a Bunnings store and come to a Mitre 10. That is not easy, that is hard.
There are some things that consumers will go past a Bunnings store and Stihl is one of those reasons. How many stores, I think we have Stihl in about 80 stores. Eighty-six stores. It is a real point of difference for us, it is a good product.
Same with Weber, we all know Weber sells. And we are trialling at the moment a couple of other alliances, with Beaumont. We are excited about those alliances, and there will be others to come. Because Stihl and Beaumont won't ever go into a Bunnings. It is important.
Carl, thing about Carl, he will fight hard, I'm sure a lot of you guys in the room know that. He has the respect of the Mitre 10 members because they know he will fight hard on their behalf. If you went out there and asked the public about Mitre 10 pricing compared, or any independent pricing compared to Bunnings, they will say that Bunnings is cheaper. Not actually true.
Bunnings spends millions every year telling everyone about how cheap they are. So we independents get a bit of a bum rap on our price perception. So we realised we needed to do something about that.
So we set up a private label program, Buy-Right frontline private label program as an entry-point product, and it sells, it is going well. So it matches the Bunnings price, head-to-head.
It is interesting if you price check a Mitre 10 store, we have checked the whole store, and a number of them, particularly when Bunnings has come to town. In many cases, they had to put as many prices up as they had to drop prices. Hard to believe but it is true. You just have to make sure you have the right prices on the right products. So the private label program works well for us, and it has good take-up.
Ranging. Preaching to the converted again. But believe it or not, Mitre 10 in all its years, probably had a go with the Mega, but when we got in there, simple retail things such as core ranging weren't in place. Take my hat off to Danks, Danks were way ahead of us in this area. So we played catch-up in that, and we are getting some results here where we have actually defined the range.
It is probably our big program at the moment on those three categories where we can provide solutions for our Mitre Tenners. Again, the biggest challenge for independents, our suppliers tell us all the time.
You can agree something with Carl and his team in head office, and you can agree with the store owners, and then suppliers will get out to the store, and the guy in the store at that time, the store manager, has all the control, and has let a half dozen reps from foreign companies come in and fill the shelves.
It is an ongoing battle for us getting that discipline in the stores. It is a real focus for us now, making sure the core range is put in the Mitre 10 stores. So every Sapphire store that gets done, we don't invest into those stores unless the core range is in place which is important.
Trade. We are all fighting for this space as the planets showed. We have done our research, Natbuild has done its research, John Bowen has done his research, everyone has done his research about the trade customer, and the same things keep coming out.
I think it is important, it will be harder for Bunnings to do some of these things, but they will get there. They will get there eventually. So we have to beat them to the punch.
Trade, we want to dominate that, we want to be the big player in that. No one dominates it at the moment. It is all about that relationship piece, having the relationship with the tradie at every touchpoint. For the tradie time is money, you have to have a good system, you have to be getting that product out on site on time. That is what it is all about for the tradie. So a lot of our time and focus will be going into that.
And then other amazing simple things. Like at your store having clean toilet facilities, and getting a coffee and an egg and bacon roll. They are really important to the trade.
Who would have thought after seeing how comfortable those dunnies are on the site that they would have wanted clean toilets! Of course they want clean toilets. And not many stores provide them. And we now have clean toilets at Faggs, haven't we?
Makes all the difference. So simple things that get overlooked time and again. So that is the space we want to get better at. If you asked us who does trade well, we would say Bowens do trade well, in Victoria. They cross off on most of those touch-points.
Tait's is a powerhouse. Tait's is an amazing business, but Bowens have really picked up their game in trade, and we want to replicate that.
And the last part, digital. Of course in any retail business these days you've got to have a digital programme. You've got to do it right, it can be very expensive, it can get away from you.
We've learnt that through Metcash, Metcash has spent a lot of money on digital. In the end we ended up doing our own thing, on a cheaper basis and we've had some good results. It is called "omnichannel", it's a bit of a "wank" title, but it means you have to get across all the channels in digital.
We've got some things there, we've set up our own loyalty card, Mighty Rewards. We now have a lot of our stores on Mighty Rewards. It took a while for our members to understand what Mighty Rewards really was.
Of course it is all about getting to know what the consumer buys and what insights you get. It is so important to us now, we know when Bunnings do come to town and drop a big box near to you, you are absolutely reliant on the data that comes back from your Mighty Rewards programme.
We had it in Gympie, I think the Bunnings was 100 metres away, dropped a big box. We were able to know exactly what our customers were buying, and to target offers to those particular customers, and they have not gone to Bunnings those ones that were on the Mighty Rewards programme. It has been a very good result for us, so you should never undersell the importance of a really good loyalty programme.
Click and collect is also good, because of the convenience of the Mitre 10 stores, it is very convenient to go and pick up from those locations, particularly in regional towns. Click and collect is great, because it means the store owners don't have to carry stock. So if they order something, the order goes straight to the DC and we deliver it overnight, and the customer can pick that up within 24 hours, so the stores don't have to carry the stock, very important.
Tradies online, it will be the way of the future. It is amazing in trade, but you've got your older tradies, that have never known how to turn on a computer, and then you've got your younger tradies like my son coming through and it is all about the iPhone as we know, and it is that group of tradies that we've got to get ready for. So we certainly need technology and Tradies Online to deal with the trade market.
That is really all I've got to cover today, except that the key focus for us to go back and get our existing stores up to the store of the future standard, through the Sapphire store programme. It is about getting our range right, it is about getting the digital programme right.
I'm a firm believer that if we can get these things right, independents can thrive. Seen it, seen it in IGA. A good IGA will always better Coles or Woolworths. Bunnings is a bit tougher, because they are a bit sharper, but a good independent store can beat Bunnings. Firm believer in that. Hope we've got your support on that.
Thanks very much
Q: Just wondering if you have a particular demographic that you've isolated that is distinct from Bunnings? You have already spoken about tradies, any gender, or age demographics?
A: When we came in, the research said we just looked after the old farts, which is probably right. Mitre 10 customers tended to be of the older demographic. I don't mind that, because that is the growing area, of course, the baby boomers they have got money to spend and time on their hands and they love doing DIY, they are weekend warriors. So I don't have a problem with that.
So we believe that in our stores we can't be all trade, we certainly need a DIY element. Retail is important to our Mitre 10 members. It is just hard if there is a Bunnings down the road to complete on that, you lose your weekend trade to Bunnings.
But in country towns are stores would cater for everything. Excellent garden centres, good outdoor, DIY, but we think they need to have trade as a point of difference, because that is something Bunnings doesn't do. Our split is 51% trade, 49% DIY.