Taubmans and Dulux have shouldered rival Wattyl out of the paint aisles of Wesfarmers' Bunnings Warehouse chain with hefty discounts and "exclusive" deals.
Paint is a hardware equivalent of supermarket milk or bottle shop beer - it brings in customers who will hopefully linger and buy more.
The question is whether Bunnings' decision to move to two paint suppliers was made in the normal rough-and-tumble of retailers placing a high price on access to their shelves, or whether it is connected to the fact that Wattyl is owned these days by US group Valspar.
Valspar just happens to be the paint supplier of choice to US hardware chain Lowe's, which has teamed up with Woolworths to try to knock Bunnings off its perch as hardware supremo. Valspar's acquisition of Wattyl was always seen as a precursor to building manufacturing capacity to service the new hardware venture.
Hardware is technically not yet a battleground between the retailing duopoly because Woolies is still a few months from opening its first store, but it is clear that blood is being shed in some border skirmishes.
Wattyl chief Tony Dragicevich apparently had an out-of-office meeting with a Bunnings executive last week to be told the shock news that the last of his brands still gracing the aisles of Bunnings would soon be "de-ranged". Bunnings' buyers briefed their store managers and staff on the decision yesterday.
Wattyl's interior decorator paints got the chop from Bunnings a couple of years ago for what the retailer saw as underinvestment and performance. The last to go are its highly rated exterior coatings, Solagard and Killrust.
Given that Bunnings controls something like 30 per cent of the retail paint market, Wattyl is likely to lose about 10 per cent of its sales, and quite possibly a few workers, depending on how successful it is in coping with the hit.
Bunnings' view is understandably quite different. In a statement to Insider it pointed out that it has been reviewing a host of categories for the past eight months and that "a major outcome of the review will be significant range expansions of (Taubmans') and DuluxGroup's products, ensuring a more innovative paint offer for customers".
It also rejects any suggestion that by not selling the same brands as Woolworths, it will be easier to maintain its "every day low prices" strategy, rather than entering into the cut-throat discounting more common in other retail sectors.
Insider understands that Taubmans' parent, PPG Industries, not only offered changes to its colour range, and more generous rebates and training deals for Bunnings' staff - it agreed that its brand would be exclusive to Bunnings in the corporate hardware market (it will still be sold in the smaller independent chains). That is a deal Wattyl - or Valspar Wattyl, as Bunnings refers to it - clearly could not offer.
PPG is expected to do the reverse of Wattyl and expand its production of paint to meet the new Bunnings demand, although the official line yesterday was that "PPG Industries has declined the opportunity to provide a statement".
While Dulux's Weathershield brand is reasonably well known on the street as an alternative to Solagard, Taubmans' outdoor offering, Endure, has a lower profile and a smaller market share.
Woolworths has already been to see the competition umpire, Graeme Samuel, crying foul on a few issues like land-banking and what it sees as restrictive deals that Bunnings is trying to strike with suppliers. Those inside Bunnings say they have yet to hear from the Australian Competition and Consumer Commission about supplier complaints, and Samuel is, quite correctly, keeping mum on the subject.
Insider can tell you that lawyers for Wattyl are looking at whether the group has any basis for legal action, and there is little doubt that competition law will be the focal point.
HASTIE ON HOLD
Hastie Group's much-delayed $130 million equity raising appears to have been blown out of the water by institutional investors driving too hard a bargain on pricing.
The plumbing contractor has been suspended from trading for more than a month while it finds a way of raising enough fresh cash to cut its gearing ratio back to levels that make its banks less twitchy. It has net debt of $190 million to $200 million and pretty much wants to halve that.
Hastie halted trading in its shares in mid-February, when the stock was at 92.5 cents. Yet when chief executive David Harris and his advisers from Macquarie Capital, including Dominic Meagher, did their show-and-tell sessions with investors, the professional investors pushed for prices below 30 cents a share.
With only 240 million shares on issue at the moment, to raise $130 million at 30 cents a share would treble the amount of stock.
Massive dilutions like that generally only get done to avoid being tipped into receivership, or on the way out of it - and Hastie has been adamant its finances are not that perilous, which is why the board said there will be no issue at that price.
Hastie has told investors it has more than $2.6 billion in orders, is profitable and its margins are looking healthier. It reckons all it has are issues of getting under some of the covenants on its seven bilateral loan agreements - terms which had been extended to the end of this month.
Hastie now thinks its banks will let the Thursday deadline pass because it is comfortable with its earnings outlook and cash flows, and give it enough time to finalise talks with offshore investors on taking a slab of either convertible stock or an anchor investment.
insider@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
What did Bunnings announce about its paint suppliers and which brands are affected?
Bunnings has moved to stocking two main paint suppliers — Taubmans (owned by PPG Industries) and Dulux — and has de‑ranged the remaining Wattyl brands that had been on its shelves. Bunnings briefed store managers and staff after completing an eight‑month category review that led to the change.
Why did Bunnings choose Taubmans and Dulux over Wattyl (Valspar/Wattyl)?
Bunnings says the decision followed a broad category review and will allow range expansions of Taubmans and Dulux products to create a more innovative paint offer. Insider reporting also notes PPG/ Taubmans offered exclusive supply in corporate hardware, improved colour ranges, more generous rebates and staff training — deals Wattyl (now owned by Valspar) reportedly could not match.
How big a hit could Wattyl face after being de‑ranged from Bunnings?
Because Bunnings controls roughly 30% of the retail paint market, the article estimates Wattyl could lose about 10% of its sales as a result of being de‑ranged — and that outcome could also put some jobs at risk depending on how the company manages the shortfall.
Are there competition or legal concerns for investors to be aware of after the Bunnings paint decision?
Yes. Woolworths has already raised concerns with competition authorities (via Graeme Samuel), and lawyers for Wattyl are examining whether there is any basis for legal action under competition law. Bunnings says it has not yet heard from the Australian Competition and Consumer Commission about supplier complaints, and the competition regulator is keeping quiet publicly.
Will the change in paint suppliers affect prices or Bunnings’ everyday low‑price strategy?
Bunnings rejects the idea that dropping Wattyl is about avoiding price competition with Woolworths; it frames the change as a product‑range decision to provide a more innovative offer. The article also notes suppliers like PPG have offered generous rebates and exclusive deals that can lead to heavy discounting in practice, but Bunnings maintains its everyday low prices strategy.
How is the Bunnings–Wattyl change connected to Woolworths’ planned hardware push with Lowe’s?
The connection in the article is that Valspar — the owner of Wattyl — is the paint supplier of choice for US hardware chain Lowe’s, which has teamed up with Woolworths in its planned hardware venture. Valspar’s acquisition of Wattyl had been seen as building manufacturing capacity potentially to service that new hardware partnership, so the supplier shuffle has strategic implications for the emerging hardware battle.
What should everyday investors in retail or paint suppliers watch for next?
Investors should monitor three things highlighted in the article: (1) shifts in market share and sales for suppliers such as Wattyl, Taubmans/PPG and Dulux, (2) any ACCC or legal developments from supplier complaints or exclusivity deals, and (3) suppliers’ production responses — for example PPG expanding output to meet Bunnings demand — as these can affect revenues and margins.
What’s the update on the Hastie Group equity raising and what does it mean for shareholders?
Hastie Group’s planned $130 million equity raising was stalled after institutional investors pushed for much lower pricing. The plumbing contractor has been suspended from trading for over a month; it has net debt of about $190–$200 million and wants to reduce gearing. Hastie halted trading in mid‑February at 92.5 cents a share, said it is profitable with more than $2.6 billion in orders, but faced investor pressure to price new shares below 30 cents. Management is seeking alternatives, including offshore investors or convertible/anchor investments, while banks have reportedly extended covenant deadlines to allow talks to progress.
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