Woolworths is not doing things in half measures to take on Bunnings. It is entering a joint venture with the worlds second largest retailer and buying Danks which owns Thrify Links and Home Hardware stores. Richard Goyder, the CEO of Wesfarmers, that owns Bunning says joint ventures cause problems in making decisions and the Danks purchase will put offsie their smaller stores.
However if Woolworths did not take such a bold step, it would be years before they could catch up to Bunnings. Are the risks worth taking to get rapid growth. Woolworths says that by doing the joint venture they will get access to volume discounts on their product and so compete with Wesfarmers low prices.
One of the benefits of rapid expansion is being able to get instantly larger volumes and the opportunity to get lower prices. However this should not be assummed and you should verify this before proceeding. Woolworths purchased Dank’s to give it immediate access to stores across Australian. A common reason for an acquisition is to expand your geographical reach. Many Toowoomba businesses expand into Brisbane this way.
It appears a motivating reason for Woolworths doing this is that they want to hit Wesfarmers in the most profitbale part of their business and so down the whole group, including Coles. While this is not open to Woolworths a better way is to actually acquire your competition and so definitely take them out.
If you do go ahead with this you need to plan thourougly. If you get it wrong it could take you
years to recover. Get it right and it could catipult your business ahead. The first question to get clear is what is the Strategic reason for buying this business? How will it provide a benefit that is greater than what the business on its own will bring.
For instance you may have great systems and infrastructure that could double the profit of the existing business. Or the business you are buying is strong in your most profitable service. The aqusistion enables you to get your product mix very profitable. If you have an existing business you should not aquire another business unless you have a clear strategy on how it can deliver you profits that are greater than the profits the business is currently making.
Once you have that strategy you need to work it through in detail to conisder the implications in all the areas and the possible challenges you will face and how you will overcome them. For example one of the biggest reason’s acquisitions fail is because of the difference in culture and in the new business the staff feel like second class citizens.
How will you address this issue? Woolworths will have many challenges with this ambitious move. I am sure they have thought through all the issues.
It will be interesting to watch how well they do this over the next few years.
Published by Toowoomba Chronicle www.thechronicle.com.au on 10 September 2009.