Quebec building-products retail battle moves to the national stage
Canada's $28.6 billion building products retail industry has long been more fragmented than its U.S. counterpart. But if Quebec-based Rona Inc. has its way, that's going to change. Fresh from a year of record revenues and profits, the company is embarking on a major initiative to double market share during the next five years.
"We want to establish a significant presence across the country," said Michael Brossard, the company's marketing director. "We want to sign up new vendors, open new stores and make acquisitions if the opportunity arises."
The strategy's center-point is a monster $60 million 2003 advertising budget announced late last month, which includes print, radio, sponsorships, and for the first time, a cross-Canada television campaign.
"We want to establish a footprint that will place Rona in the minds of Canadian consumers," said Brossard. "In future campaigns we will build on that base to drive home additional messages."
Although Rona is a household word in Quebec, the brand is only a rumor the rest of the country. The company has an 88% top of mind awareness in its home province, but less than half of that in Ontario, and in Western Canada recognition is the low 20s. However with the acquisition of Cashway in 2002 and Revy in 2001, coupled with the addition of the Revelstoke and Lansing banners, the company's split identity was becoming an issue.
With the new campaign, Rona will consolidate its image under its house brand. The process began with new signage at the acquired stores, including posters assuring customers they could rely on consistent personalized service, even though the store was now part of a national chain.
"We built our name on service," said Brossard. "And that's not going to change."
Like a lot of the industry's advertising, Rona's campaign is as much about building interest in home renovations as it is about gaining market share.
Canada's building products retailers have been on fire lately, due to low interest rates and a continued home renovation craze among the country's cocooning boomers. Industry wide annual revenue growth is projected to average 5.0% during the next three years.
Advertising agencies have been among the biggest winners of this trend, as key players such as Home Depot, Home Hardware, Canadian Tire and Réno-Dépôt duke it out to see who will be left standing after an expected industry-wide consolidation occurs.
According to one analyst, upstart Rona, with its recent acquisitions looks to be a dark horse to make significant gains.
"Rona (has taken) on the role of industry consolidator with proven acquisition experience," wrote James Durran of National Bank Financial in a recent report. "(The company) appears to be the only major Canadian hardware retailer with the tools required to capitalize on the industry's inevitable consolidation."
Like many of its competitors, Rona is turning to humor in its ads to get its point across. The three initial spots in the company's new campaign -produced by BCP -- feature caricature-like actors facing typical household situations that call for a minor repairs such as a broken toilet, missing tile or a smelly rug that needs to go. "You are a handyman," challenges the announcer, exhorting the protagonist to handle the job himself.
Brossard wouldn't say how much of the $60 million ad budget would be devoted to television, but added that RONA distributes about 200 million circulars a year, which chews up a big portion.
Rona's ad blitz couldn't have come at a better time. The company has been in a toe-to-toe battle with arch-rival Réno-Dépôt Inc. for market share in Quebec. But that battle will now have nation-wide implications in the building products industry. Just a few days after the Rona campaign was announced, Réno-Dépôt was put on the auction block by its British parent Kingfisher PLC.
The company currently operates 20 big box outlets in Quebec and Ontario including three in the greater Toronto area, and had plans on the books for additional four or five. But those plans have been put on hold, at least temporarily.
The announcement left observers speculating which existing partner would make the best fit with Réno-Dépôt. At first glance Home Depot, the U.S. giant which dominates the Ontario market would appear to be the ideal partner. Although Réno-Dépôt stores tend to be bigger than Home Depot's, both swear by the big box concept, and one would think they would complement each other well.
The problem is that at least nine of Réno-Dépôt's 20 stores are close to Home Depot outlets and another six are in similar markets, making synergies doubtful.
But Réno-Dépôt's concentration in Quebec doesn't make it the ideal fit for Rona either. Réno-Dépôt officials say that the stores are profitable and growing, and that the parent company plans to sell the stores as a going concern.
If that's the case, a better fit might be U.S. based giant
Lowe's, one of the two players who -- along with Home Depot --
dominate the American building products industry.
"Spring is the time that most Canadians begin to thing about renovations," said Paul Hétu, the company's vice-president of communications and advertising. "And we intend to be very present in the consumer's mind."
Réno-Dépôt's new campaign, which should hit the airwaves this week, builds on the huge size of the company's big box outlets and its emphasis on selection.
The hilarious television spots, produced by Diesel Marketing, show fake ads for non existent products using the theme "If it existed, we would sell it."
One spot is for a mythical double-bladed chain saw that is so solid that it can cut through an iron safe, yet sharp enough to slice a pork roast. The fictional saw doubles as an electric toilet plunger and can be used to spray paint on walls. The campaign's $4.5 million media placement will be handled by MBS.
However the industry shakes itself out it's almost certain that Home Depot, which dominates the Ontario market and has a massive U.S. support system to fall back on, is going to be one of the players left standing.
According to a company official, Home Depot is simultaneously conducting a major building program and is in the midst of a new brand repositioning begun earlier this year to coincide with the advent of the spring rush.
"We are pursuing an aggressive strategy," said Pat Wilkinson, Home Depot's director of marketing. "There is a lot of room for growth in Canada, particularly in urban areas where we are strong." The company already manages 89 big box stores, and expects to open another 30 during the next two year.
Home Depot's creative is done in the United States its new brand building centers around the slogan "You can do it, we can help." Like many marketers who centralize English North American creative, Home Depot makes an exception in Quebec, where Cossette has been the AOR for the past three years.
That leaves Canadian Tire and Home Hardware, neither of which fall into precise categories. Canadian Tire has a significant hardware and building products offering. But form only part of its operations, and the company is not a direct challenger to any of the major players. Home Hardware, on the other hand has smaller stores, but its cooperative characteristics, put it at a distinct disadvantage when competing on a national basis.
One sub-text underlying industry competition is how long Canadian consumers are going to continue their love affair with the big box outlets that Home Depot, Réno-Dépôt and -- to some extent - Rona, have staked their futures on.
Many have speculated that as the Canadian population ages, consumers are going to be less enthusiastic about the long walks through gigantic parking lots and endless aisles.
However one industry observer thinks that so far the concept hasn't run out of steam.
"People have been saying that boomers will be going to smaller stores for more than ten years," said Robert Gerlsbeck, editor of Hardware Merchandising magazine. "But it hasn't happened yet."
However things play out in the long run, Rona is clearly positioning itself for some short-term gains. Several brokerage houses recently issued research reports on the company, a strong indication that they expect to see investing banking business.
The bottom line is that if Rona is looking to raise cash, and the investment banks want to help them do it. That means there are a lot of people who like its chances to built market share across the country.
Chart: Canadian Hardware Industry (2001 estimates)*
Stores Sales Est. Mkt Share
Home Depot 78 $ 3.4 billion 11.8%
*Chart compiled by National Bank Financial using information from a variety of sources
Peter Diekmeyer can be reached at firstname.lastname@example.org
|© 2002 Peter Diekmeyer Communications Inc.|