1 B&Q Background
B&Q PLC is the UK retail arm of Kingfisher Group PLC and is the UK’s leading DIY and garden centre retailer.
It was founded as a privately held company in Southampton, England in 1969 and went public in 1979 before acquiring Scottish DIY chain Dodge City in 1980. B&Q was itself acquired in 1980 by F. W. Woolworth only to be sold two years later to current owners Kingfisher Group. B&Q PLC contributes 45% of Kingfisher’s total retail sales.
B&Q dominates its sector, in competition with three other large UK DIY superstores; Homebase; Wickes; and Focus; as well as a large number of much smaller retailers and builders merchants.
Figure 1: Market Share and Profit per %point of share (Source: Mintel, Fame)
Figure 1 shows B&Q’s market dominance with a 49% share of retail sales and also highlights the profitability of its operations, delivering around 30% more profit from each percentage point of market share than its two closet rivals.
2 Vulnerability and Costs
Vulnerability may be determined by the steepness of the Short Run Average Total Cost (SRATC) curve.
B&Q’s SRATC curve is driven by; Distribution Costs, Property Costs, Energy Costs, Staffing Costs (Quasi-fixed) and Debt Interest.
B&Q owns a property portfolio valued at £800M, most of which is used for trading purposes. There has been no significant addition to the property portfolio over the past 5 years suggesting B&Q are operating at the optimum number of properties. The portfolio is financed by debt. In 2006 B&Q reduced its debt and released equity by selling and leasing back a number of properties.
Rising oil prices have increased energy supply and distribution costs.
Distribution and warehousing is subcontracted to Exel Logistics on a 5 year contract ...