Masters at playing the Big C game

Tuesday June 5, 2018

Not that I want to take a parting shot at Masters Home Improvement’s failed attempt to gain a slice of the Bunnings’ pie, but has anyone really evaluated where the DIY/Home Improvement space is now after they have disappeared into the corporate black hole?

How can any business make spectacular losses of more than $3 billion in a 6 year period and so little has been said about the whole disastrous experience and the negative impact left on the industry and the Australian consumer?

Time to Monstafy it.

Masters was doomed from the start. There are several reasons for its failure but the crass mentality of the Big Cs (Big C?…check out Monstafy blog #1) was an underlying factor.

Masters needed to take part in a chess game with Bunnings but rolled up with a deck of cards and too many Jokers. Thinking the joint Woolworths and USA Lowes brands would be enough, their approach propelled Bunnings further forward in the DIY space. Having previously lived in the Bunnings ecosystem as a product supplier during the launch of Masters, Bunnings played a few key strokes against the potential threat. Besides a war chest to increase their store footprint, ‘subtle’ messages to their product suppliers ensured brands thought twice before pitching tent in the Masters’ camp.

And few suppliers risked losing their position in Bunnings 200 plus stores to support an alternative with less than 20 new stores in Year 1, not unless they had good reason to believe in the new alternative. Bunnings forced Masters to play at high altitude from Day 1 with an inferior product range and the air got thinner from there.

Masters’ showed their hand in the approach to lure product suppliers into their stores. Fulfilling my entrepreneurial urge to sus-out what opportunities may exist, I spoke with Masters Building category buyer before they launched. I got the Big C attitude of trying to screw the best price and best trading terms out of me because it would be a privilege to sell in Masters. What an alternative! They dug the first hole for themselves by giving suppliers no real alternative to come into their stores, resulting in the average product offer that occupied their shelves, including goods imported from the USA with Spanish labelling to appeal to the 0.5% of the Australian population that speaks Spanish! The Masters product range was severely unattractive and stayed that way until their last breath in 2016.

How could this have been tackled differently by Masters?

Swapping out their advisory executives for a few customer centric entrepreneurs would’ve been a start. The fact is, the scariest term to hear for suppliers trading with the Big Cs is Trading Terms, basically this is the privilege brands pay to be on the shelf of corporate retail stores. So get a load of these privileged costs:

  1. Settlement discount — a charge of 4–6% paid to Big Cs so the supplier is paid on 30 days.
  2. Volume rebate — a charge for the high volume of stores you get sell through. A whopping 8–10%.
  3. Advertising rebate — paid to the Big C to advertise and drive consumers to stores. If lucky, the supplier may end up in the product catalogue. This charge can vary from 3–6%.
  4. Long Term Incentive — paid back to the Big C if sales hit the target number. This can vary from 0.25–1%.

Trading Terms can land between 20–25% and the worst part is every year these percentages increase, costing every supplier more to stay in the Big C stores as time goes on. The ugliest truth is when you add up all these charges guess who pays for it? Yep, the consumer gets stung with it as suppliers must increase their prices to allow for these charges that flow onto the final shelf price. The Big Cs are good, they manage to screw all this money out of their suppliers before anything is even sold and then the Big C adds their profit margin, load up another 50%. Is it any wonder consumers pay such high prices for DIY/Hardware in this country.

If Masters had seen the real opportunity, they would’ve lured Bunnings suppliers without the ugly Trading Terms. The Big Cs don’t need these charges to survive, their profit margins factored into every product on the shelf makes them extremely profitable but peaking the corporate share price dictates while the fibre of their DNA is greed.

It was a marathon to be run, not a sprint and Masters died so early because they couldn’t play the long game different to their opponents. Could you imagine if Masters tried luring Bunnings suppliers over without these Trading Termcosts? Many suppliers would’ve been prepared to support it, after all if you do the math the percentages don’t lie, 20–25% of privilege costs just to be on the shelf of Bunnings is an awful lot of money for suppliers with a modest $1m of sales. Scale that up for companies selling $5m, $10m, $25m and beyond, those costs and savings would make significant impacts on the bottom lines of many businesses. The lost opportunity for a WIN-WIN-WIN could’ve been realised, as Masters would’ve won, their suppliers would’ve won and their consumer would’ve had the biggest win. Against Bunnings, Mitre 10 and any other corporate retailers, this would’ve been a disruptive shift to get loyal support from consumers and suppliers.

What I’m talking about couldn’t be fathomed by Woolworths/Masters as the above exists in the same world as unicorns and fairies for them. The Big Cs control the DIY market to a point that doesn’t allow any product to be sold at real value, this is not what the Australian consumer wants and it’s not what the Australian way is about. The collateral damage of the 6 year Masters experiment caused the disappearance of many small businesses caught in the cross fire between Bunnings and Masters locations. The Masters failure has left a DIY market dominated by 2 Big Cs Wesfarmers/Bunnings and Metcash/Mitre10/Home Hardware and the most unfortunate casualties were their loyal staff who carried out Masters business plan to be left with no job.

One of the reasons I was driven to create Monsta was servicing the DIY/Hardware market for 20 years I felt an ongoing discomfort to the point I started to cringe when I saw what it cost us to produce a product and what the disproportionate price it landed on the shelf at with the Big C retailers. So, our online Monsta model was born to provide a real alternative that the Big Cs can’t hijack, and we get to ensure we can deliver on one of our key principles — Fair Price.

In a world changing at rapid knots and where reality TV stars can now become President of the USA, disruption is real. The internet has changed everything for the better and we’re only experiencing its infancy. With Australia’s largest online retailer Kogan, along with Amazon and Alibaba making themselves known Down Under and the many other online retail opportunities, it’s a good time for the Australian consumer to win and I’m excited to see Monsta deliver its share of these wins.

Your time and attention has been greatly appreciated…. till next time.