Investing in independents
Store name: Mitre 10 Goulburn
Store owners: Bernard Maas (Owner), Michael Pengilley (General Manager)
Buying group: Independent Hardware Group (IHG)
One of the biggest challenges that presented during the integration of Mitre 10 and Home Timber & Hardware was the reality that some newly acquired company stores were competing in towns against independents. Quick to acknowledge this complication, the IHG (Independent Hardware Group) team were upfront in stating that where it made sense for the independent to take over the company store, that would be the preferred outcome.
In the town of Goulburn, in New South Wales, this was exactly the situation. With the independent Mitre 10 store and the corporate-owned Home Timber & Hardware store just a few hundred metres apart, it posed a huge challenge for owners Bernard Maas and Michael Pengilley.
“It is crazy to compete against your own in a town where there just is not the room. We knew the only way forward was to approach IHG and ask what could be done to join the two businesses together. I believe that one successful business is far better than two struggling ones,” Bernard said.
General Manager, Michael Pengilley, who is also Bernard’s son-in-law, took on the challenge and struck a deal with IHG to purchase the Home Timber & Hardware store in April 2018. He proceeded to consolidate both businesses into a one-site operation.
This paved the way for a stand alone hardware/trade offer in a larger and more central location within the town, while the original Mitre 10 site, operating under Goulburn Produce, returned to a 100 per cent CRT (Combined Rural Traders) rural supplies business. The Home Timber & Hardware site has since been rebranded to Mitre 10 and will shortly undergo IHG’s ‘Sapphire’ transformation program.
The consolidation was complex and a substantial undertaking but both Bernard and Michael believed it was the only way forward if Mitre 10 Goulburn was to survive.
“There is always a worry when you are putting yourself deeper in financial debt, but you have to spend the money to make the money and you have to invest in your future. There are always those sleepless nights but every business owner has that,” Bernard said.
“Having the one hardware operation now is certainly a big plus for us. IHG has been very helpful and very supportive of us throughout this transition period,” he said.
Confidence to invest
One person that has his sights set on the future of the business is Michael, who was the key driver of the acquisition, the move to the new site and reinvigorating their customer offer through ‘Sapphire’.
“This is all part of the strategic plan for where we want to take our business. The last few months we have been in a transition phase. We had blue and teal colours all over the place and paint everywhere. Half the signage was Mitre 10 and half was Home Timber & Hardware. But the changes have been great and our staff are really getting stuck into it,” Michael said.
Planning such a big change is no easy feat, but Michael said IHG’s support team has been incredibly hands-on throughout the entire process.
“The early business planning session with David Dillon and Greg McKean was fantastic. Their expertise is exceptional, especially in really pulling out the nuts and bolts of the purchase. The planning sessions offer a complete deep dive into the ‘health’ of your business, reviewing key business performance levers, strengths, weaknesses and helping us to identify short and long term opportunities for growth,” Michael said.
“The process broadened visibility over the business and helped hone our focus on where the growth opportunities are. It gave us clarity that it was the right business decision to go ahead with the consolidation.”
“What we have found is that a $6 million store and a $5 million store coming together can easily equal $12 million and grow from there. Our integrated hardware offer now has the capacity to do much better and give the Big Box up the road a run for its money. A town needs to have 10,000 people per hardware store and Goulburn has a population of about 30,000. We had four hardware stores in town so the growth that we were looking for, we just could not get it from where we were with our mixed hardware and rural offer. We had to move sites and grow the business that way,” he said.
Mitre 10 Goulburn Operations Manager, Greg Tyson spoke of his initial scepticism when the idea of amalgamating both stores arose, and how his doubts quickly diminished after working closely with IHG.
“Here we are an independently owned store branded Mitre 10 and IHG have just purchased our competition up the road. So, we were thinking how is it that Mitre 10, being the big corporation that they are, can support us equally?” he said.
“It was then that Bernard and Mick were talking about going in and buying the Home Timber & Hardware store, and I also heard about the ‘Sapphire program’. We met the IHG guys who would help facilitate and guide us through this journey and I can honestly say there is not one person from IHG who has not shown us that they care more about us as people and us as a store, than they appear to about the bottom line of Metcash.”
“Sure, the bottom line of Metcash is always there but what they are attempting to do is show us, through their expertise, how we can run our store better. My scepticism has gone. I like the theories behind the assistance that these guys bring to the business,” Greg said.
When Mitre 10 Goulburn relocated to the previously company-run HTH site, Michael immediately observed the polished operations instilled in the store team.
“We found that the corporate store’s standards, procedures and processes were immaculate. We could not match that. However, what we tended to do well was build our customer relationships, because we had local customers on board who had been loyal to us for decades,” he said.
“Bringing the two stores together has given our customers a better place to be. A well-established family business with trust in the community alongside the retail disciplines and efficiencies of a corporate. Bringing the unique values of each store into one is really helping us achieve what we believe we can do,” Michael said.
It was in 1982 that three farming brothers, Bernard, Martin and Lex Maas along with their dad, Alex, decided they needed ‘off farm’ income. They purchased a rural produce operation in Goulburn that was going out of business. Within three years, the family had outgrown the original site and moved to an old railway workshop.
“The workshop was a heritage listed building that had sat derelict for years, so the family moved everything to the big shed, and the rural side of our business just grew and grew,” Michael said.
It was also around this time that there was a hardware business in town trading under the Mitre 10 banner. This store was also shutting down, so the brothers employed some of the more experienced staff and brought them across to their growing rural business. Next, the business diversified into timber and hardware given the housing and renovations boom that had commenced in the region.
“It got to the point where we needed to become part of a hardware buying group so we could purchase products in bulk and gain cost efficiencies. We initially branded up as a True Value/CRT store in the early 90s and had some good success. But this all changed again when a large format Bunnings was built in Goulburn in 2012.”
“Even though our tradie market was solid and about 80 per cent of our business, a Big Box coming to town still hurt our business and so the brothers decided to rebrand to Mitre 10. By doing this, we kept all of our trade customers. The retail side of the business suffered but, at the time, this was such a small portion of our business it was not overly concerning to us,” Michael said.
In October 2016, Metcash inherited 41 company-owned stores as a result of its acquisition of the Home Timber & Hardware Group from Woolworths. One of those stores was a HTH branded operation in Goulburn, a very short distance from the Maas business. This meant the family found themselves competing with a corporate store that belonged to the same buying group.
“So, we’re competing against our own kind I guess, especially because the corporate store had, in previous years, decided to become more trade focused to compete against Bunnings. While we had all the older tradies, they had a lot of the new generation trade customers going through their books,” Michael said.
This was the situation Michael faced 18 months ago when he joined as General Manager of the Mitre 10 and CRT business, after leaving behind a career in IT managing a big team in Canberra.
“I walked into a CRT with a Mitre 10 inside it. The CRT was about two aisles in size because Mitre 10 was so big. I knew then that neither of the brands could grow where they were and the businesses were at capacity. If we had two locations, we could then expand the Mitre 10 at one and CRT at the other. Without the space, we could not stock the brands we wanted to stock and the staffing in the store were majority hardware, so it was damaging the business staying where we were,” Michael said.
Facing up to consolidation
This is when Mitre 10 Goulburn approached IHG and a meeting was held to discuss the merging of the two stores.
“IHG had earlier said that, where it made sense to do so, they would hand back company-owned stores to independents. In their words, ‘a good independent will always perform better than a company store’. Our situation was a prime example where it just made good business sense to consolidate,” Michael said.
“The negotiation process from there was very easy. The store had its challenges and I do not think it was overly profitable before we moved in. The store was improving each year but in Goulburn there were four hardware stores, so it was never going to be easy, especially in a rural environment,” Michael said.
Before the consolidation of the two hardware sites, Mitre 10 Goulburn was a mixed business of 50 per cent CRT, 45 per cent trade and five per cent retail.
The intention over the next few years is to expand its retail offer under the ‘Sapphire’ journey, continue to grow trade sales, and become the ‘Best Store in Town’ for both customer types, according to Michael.
“We have completed the rebranding so we are fully branded Mitre 10 inside and out now. The actual ‘Sapphire’ program is set to begin in May. We expect this will take us to the end of the year,” he said.
“We see a real opportunity to regain some of the DIY market in town and compete far better against the Big Box. The transformation will improve trade no doubt because there are many trade-focused parts to the Mitre 10 model including tradie technologies and ranges, but I see the real profit advantage for us in getting back to being number one in retail and encouraging more female shoppers to our store. You walk into any ‘Sapphire’ stores as a home owner and love it because it is so well laid out,” Michael said.
With the store currently sitting at 70 per cent trade and 30 per cent retail, Michael said he does not believe the store will ever sit at 50/50 but he does expect it to grow to at least 60 per cent trade 40 per cent retail.
“Trade is high turnover and low GP, so you receive big jobs with little margin, whereas the GP on retail is far more attractive. So, the more extra bits and pieces customers pick up as they are shopping, that helps a lot,” he said.
With the store’s garden centre already well renowned in town, Michael said the green-life focus remains important to the business and hopes to improve the centre as part of the ‘Sapphire’ program.
“The new location of the nursery is in quite an old building. It needs to grow because it is limited where it is,” he said.
The customer response to the relocation and store changes has so far been positive, according to Michael, who said it took a while to rebrand following the acquisition in April, and probably had customers wondering if the new owners intended to improve the store.
“There were so many things we had to get through but once the painting was up in January customers were like ‘wow this place looks fantastic’ and we have been chipping away at things since the paint up. This includes relaying some areas, clearing obsolete stock and just getting ready for ‘Sapphire’. Our shoppers love the incremental improvements. There are constant comments that the store is getting better and better,” he said.
Michael and his wife, Kathryn, who works on the rural side of the business, are the succession plan for the family business, but for now Michael is focused on growing the now consolidated hardware business – growth based on the good rapport the family has built within the community through decades-old relationships, local knowledge and familiarity with the market.
“When there are four businesses in town all racing to the bottom on price, it makes it really difficult to operate so the merging of the two stores and the changing of the attitude of how we approached the market has improved this place ten-fold. And our customers are seeing the positives for themselves too.”
“Everyone is excited for what is next,” Michael said.