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Dulux: Stick to the Palette or Paint a Bigger Picture?
As Aussies embraced home renovation in the 2010s, big box retailer Bunnings became a feature of weekend life and paint specialists Dulux Group faced (you’ll never guess what…) a strategic decision.
Dulux was synonymous with house paints, with about half the market share of decorative paint, thanks to its iconic brand. You probably even remember the famous Dulux sheepdog (which, let’s face it, has aged better than Rolf did for arch-rival British Paints).
Dulux had mass distribution through retail and professional channels. But on the retail side, Bunnings and other chains like Mitre10 drove a stiff bargain with suppliers.
With many Dulux eggs in the retail channel basket, and building competitive pressure from premium brands like Porters, it was time to decide what to do.
What would you do in their shoes? Focus on your paint offer? Or diversify into new home-renovation categories to reduce your exposure to Bunnings.
The Strategy Standoff: Brush Up or Branch Out?
The Strategy Standoff
Strategy A: Stick to Paints
Dulux could invest in colour and texture innovation, launching sub-brands to compete with Porters and low-cost upstarts.
This approach would protect its margins but would also lock the group’s commercial fortunes to the paint category and retail distribution.
Strategy B: Diversify into Adjacent Categories
They could pick up home improvement brands in non-paint categories. This would unlock growth, suit their renovation strength and lower risk through diversification.
However, this path would lower margins and could distract management from the core business (and chemistry) of paint.
So, Which Did They Choose?
Cast your vote to find out!
Better luck next time, Strategy B was chosen!
Good Job, Strategy B was chosen!
But what did this mean for Dulux...
Outcome: Facilitator Commentary
Matt Braithwaite-Young
Managing Partner
t +61 2 9002 3100
Painting Outside the Lines
Dulux Group went with Strategy B. It bought a company called Alesco and picked up a range of diverse new businesses in garage doors, construction chemicals and specialty coatings.
By positioning itself as a home improvement leader rather than a paint specialist, Dulux captured a greater share of consumer spending and de-risked its business.
These new acquisitions complimented its existing adhesives and garden brands. I left that bit out of the setup… Dulux already knew a bit about diversification with its Selleys (adhesives) and Yates (garden) businesses – which means they had some experience operating in other categories.
Their move wasn’t universally praised. Many analysts felt diversification would distract Dulux from winning in high-margin paints and reducing ROIC (return on invested capital). It became a different kind of investment which demanded a different kind of owner.
But if you’ve ever had the misfortune to deal with the retail oligopoly in Australia, you will already probably sense why diversification was such an attractive option.
The pain of dealing with the big retailers
What the analysts missed is the dirty secret of Australian retail – the category managers (buyers) of the big retailers actively manage share of larger suppliers.
They don’t want – and won’t allow - any single competitor to pile on too large a market share in any single category. They tend to find one way or another to put a ceiling on market share, even if it means entering the market themselves or allowing other competitors to grow shelf space.
That means strong performers with a focus in a single category have limited headroom for growth. Diversification makes sense.
Then in 2015 Dulux bought Porters anyway, to secure the premium end of the paint category. And in 2019, Nippon Paints bought the whole lot to get their own slice of diversification.
Same Script, New Cast: James Hardie Follows Dulux – With Sinister Twist
This strategy standoff is being played out right now with large building supplies business James Hardie buying US decking business AZEK.
The board rationale is similar to this case - the natural fit of housing siding products (James Hardie) with decking (AZEK) which, like Dulux, would diversify the business and allow cross-sales through existing channels.
However, watch this space - because what James Hardie is really doing is sneaking off the ASX (again) to a foreign listing where they will have less pressure to fulfil their obligations to top up their compensation fund for its asbestos victims.
Strategic Implications for Your Business
The Dulux case highlights a common strategic tension: expansion versus specialisation. But your business challenge may be different – it all depends on your business and your situation.
A Turning Leaf strategy work-up and workshop helps your leadership team understand the key issues your business faces, and align on a direction to win.
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