Bunnings Seeks To Expand Its Dominance

Australia | Mar 31 2025

Wesfarmers' flagship Bunnings business plans to expand into new categories, target new customers, update its in-store technology and rationalise its supply chain.

-Bunnings outlines positive growth strategy
-New categories, digital update, supply chain improvement
-Analysts confident in growth capacity
-Wesfarmers' overall valuation remains a point of public debate

By Greg Peel

Conglomerate Wesfarmers' ((WES)) flagship "hardwarehouse" business Bunnings is already as good as ubiquitous in Australia and New Zealand, considered the obvious go-to across a range of DIY projects for consumers and as a supplier to trade. But that's not enough. Bunnings does not dominate across all available categories.

Last week Bunnings hosted an investor day and site tour at which the company's strategy was clear and unchanged, Jarden notes, summarising the strategy as: leverage scale and win share by having the best price and biggest range across the $110bn-plus A&NZ home improvement market.

There was no trading update, and little in the way of new financial information, albeit management did cite a material opportunity to lift sales density (sales per square metre of floor space), noting US peers generate 2.1x the sales productivity of Bunnings.

As expected, no financial targets were provided, UBS notes, yet Bunnings provided multiple drivers of future sales and earnings growth across (1) category (new categories and share gains in existing categories); (2) enabled by growing and optimising space; (3) commercial growth (ranging, experience, fulfilment and loyalty); (4) omni-channel and retail media growth enabled by data and digital capabilities; and (5) productivity, supported by technology.

Category Growth

Bunnings has already been focused on expanding its product categories, Ord Minnett points out, particularly since the pandemic. The cleaning category, valued at $2.8bn, has seen significant success, especially among younger demographics and renters.

Additionally, Bunnings is rolling out 400 automotive products and trialling energy and renewables, including electric vehicle charging stations. The smart home and security category is also growing, with only 30% of households currently owning security cameras or electronic doorbells.

The aged care segment is expanding in response to the ageing population. These expansions are facilitated by reducing floor space for less profitable categories, which have been moved online or to subsidiary Beaumont Tiles.

Bunnings' sales density has grown some 3.7x faster than space growth, Morgan Stanley reports, with FY15-24 sales growth up 98.9% versus space growth of 26.8% over the same period. Management believes it can increase store sales density (which is still lower than global peers) by continued category expansion, better range localisation, and growth in commercial and e-commerce.

Launched in 2023, Bunnings' pet category range has grown to over 800 products across 300 stores, with a strong focus on value through unique bulk pack sizes. Success in the category is resulting in increased customer frequency, as well as attracting new customers, resulting in strong sales growth year on year. The category is tracking towards becoming a "leadership" category, management suggested, as is the case for tools and paints.

Bunnings is targeting a national auto range roll-out, with the category expected to be in all stores by Easter. Electronic pricing tags are expected to be utilised across the category to ensure competitive pricing is maintained (against the likes of Supercheap Auto ((SUL)), brokers assume). Bunnings is not aiming to be the one-stop-shop for the auto category, but sees scope for further category expansion.

As noted, the introduction of a cleaning category has proven a hit with consumers, to the extent analysts recently included Bunnings along with Aldi as providing competition to the supermarket duopoly.

Matching products to the lowest price in supermarkets (on per unit/weight cost basis), will be assisted by electronic shelf labelling. Cleaning now represents six of the top 25 products that are cross-shopped across stores, Morgan Stanley notes.

Strong Fundamentals

The economy is providing Bunnings with strong fundamentals to exploit, UBS suggests: population growth; housing alterations, additions, repairs and maintenance; lifestyle and demographic trends; innovation and technology, and Bunnings' share is low (17%) in a large, growing total addressable market.

Bunnings' range is thus evolving to meet demand in new categories (smart home, automotive, pets, rural, moving and storage, renewable energy, EV charging, assisted living) and gaining in low-share categories (kitchens, plumbing, electrical and lighting).

The company's floor space growth continues (1-2% per annum), with FY19-24 revenue growth (7.6% pa) above space growth (2%). Space has been optimised by curated and localised ranges, a focus on core categories (eg, new tool shop format) and reallocation of space (eg, window furnishings moved online to make room for new cleaning ranges).

Ord Minnett notes 1-2% space growth per annum over the next five years is a far cry from management's earlier 10% target, but this is due to challenges in locating and executing new sites. New stores continue to perform strongly nevertheless, as evidenced by significant sales growth at the recently opened Marsden Park site in Sydney.

Commercial (38% sales) has a diverse customer base across builders, tradies and organisations (education, healthcare, aged care) providing resilience, while an improving offering (commercial ranges, sales and service, digital, fulfilment, personalisation and loyalty) and formats (frame and truss, Beaumont Tiles and Tool Kit Depot) positions Bunnings well, UBS believes, for improved market conditions.

Hammer Time

Bunnings recently launched its retail media platform, "Hammer Media", and will target profitable growth in the segment over time.

While Macquarie believes the opportunity relative to the size of the business may be below other retail categories which have higher frequency of purchase (eg, supermarkets), earnings from the division will be coming off a base of zero.

The company is cautious about in-store digital promotions but plans to introduce in-store radio media and expand its marketplace to include services.

Supply Chain

Bunnings will be focused on being able to provide an attractive proposition to its suppliers, and it does have the benefit of limited competition at scale in categories such as tools and hardware.

Bunnings will seek to improve productivity by simplifying its supply chain, which Macquarie sees as a material opportunity given the complexity in current store replenishment. At present, suppliers send stock to several supplier depots, which then go via several, under-utilised trucks to the store, highlighting this potential.