Wesfarmers today announced it has closed a deal with Home Retail Group to buy Homebase, the British home improvement retailer and garden centre, for £340 million ($705 million).
The move is the first step in a plan to dominate the home improvement business in the UK using the Bunnings brand, and business formula, from Australia.
The basic plan is to turn Homebase, with its premium prices and low promotion budget, into a Bunnings branded network in three to five years with Australian-flavoured warehouse low prices.
This chart shows the three phases of the five-year plan for Bunnings in the UK:
Wesfarmers sees an attractive and growing market in the UK, currently worth about £38 billion ($78 billion), or about 1.6 times that of Australia.
At the moment, the market is highly fragmented with the top two players having about a 15% market share each across a variety of formats.
Wesfarmers believes it can improve the performance of Homebase as it builds a Bunnings-branded business.
In terms of store numbers, Homebase at 265 stores is similar to Bunnings with 236 warehouse stores, 65 small format stores and 33 trade centres. The Homebase stores are in high population density areas across the UK.
The UK has a similar home ownership rate as Australia – 60% in the UK and 62% in Australia. But homes tend to be smaller and older in the UK which means higher wear and tear.
Detailed analysis by Wesfarmers indicates there is significant potential for store network expansion under a new Bunnings format.
Here are the differences between Homebase and Bunnings:
The plan is to gradually move from the more premium offering at Homebase to the Bunnings warehouse model of big range, low prices.
In Australia, Bunnings is a significant contributor to Wesfarmers. Sales jumped a stunning 11.6% in the September quarter to $2.5 billion.
The quarter like-for-like growth, stripping out new stores, was 8.2%, still a big result.