For obvious reasons there is plenty of ongoing discussion about Woolworths Limited (ASX: WOW) entry into the hardware market via Masters Home Improvement and naturally this has also led to comparisons with Bunnings which is owned by Wesfarmers Ltd (ASX: WES).
A recent study by Roy Morgan Research has outlined where the real battle actually lies.
Bunnings is far and away the clear leader when it comes to the hardware market and Masters closest rival is actually second-placed hardware store operator Mitre 10, owned by wholesaler Metcash Limited (ASX: MTS).
According to findings released by Roy Morgan:
- Over 9 million Australians over the age of 14 (that's almost 50% of the nation) shopped at a Bunnings store in a four-week period during 2014.
- In comparison, Masters has been attracting 1.2 million shoppers within a four-week period in 2014. While this is impressive for a business which has only been in operation for a few years, it is still behind the second-placed Mitre 10.
- Mitre 10 maintained close to 1.8 million shoppers per four-week period in 2014, making it the clear second-placed hardware retailer.
- Perhaps most worryingly (depending on what angle you are viewing from) Roy Morgan also found that Masters trails Bunnings, Mitre 10 and Home Hardware by around 4% to 6% when it comes to customer satisfaction levels.
Should you buy the leader or the up-and-coming competitor?
As I stated here, there are reasons to currently favour Wesfarmers from an investment point-of-view. On the flip side, the potential for Woolworths to grow its hardware offering into a comparable business to Bunnings and achieve comparable returns on capital certainly does improve the investment case for Woolworths.
