Five keys to its success

Acquisitions are a risky business. It’s often hard for a big company to make an acquisition create value, especially in the short term. But Wesfarmers has had a number of transformative acquisitions, most notably the $19 billion Coles buyout. Others that come to mind are Bunnings, Westerns Collieries and Howard Smith. Return on equity has risen after every one of them.

Coles and Bunnings in particular are regarded by many analysts to have fuelled strong growth in a tough environment.

Bank of America Merrill Lynch’s David Errington says, “Bunnings is a standout business for Wesfarmers in terms of expected future growth in sales and earnings.” He notes the aggressive store rollout program, which will see trading space increase by more than 40 per cent over the next four years.

Errington also says he expects Coles to have double-digit earnings growth for at least the next three years.

The use of the company’s surplus capital is likely to be directed towards further acquisition, judging by the company’s strategy day on Wednesday. Wesfarmers has set up a business development office in Hong Kong, fuelling expectations that the company may look offshore for new growth opportunities.

Goyder has taken a leaf from the growth book of the People’s Republic of China. He had a five-year plan for Coles post the 2008 acquisition. With that period now finished and successful, he has moved on to the second five-year plan, according to Commonwealth Bank of Australia analyst Andrew McLennan.

“The focus this time is more towards retailing best practice, however from our perspective, new store expansion plans and further progression on sustainable margin expansion are just as compelling as the technology, channel and efficiency focus,” McLennan says.

As part of Coles’ huge FlyBuys campaign last year, they were reported as sending a card to almost every home in Australia – with the bait of a 10 per cent discount on a customer’s top five grocery products.

It was a smart move because big data is the future of commerce. Those cards give Coles huge insight into customer information and data. Big data is a new front in the battle for market share between the big retailers, such as between Coles and its competitor Woolworths.

Coles has used big data to pick the best locations to build expensive supermarkets but also to better guide their marketing campaigns so that are more specific. According to Deloitte, about a third of companies get the market advantage of using big data, the other two-thirds either don’t know where to start or are completely unaware.

Charles Duhigg’s book “The Power of Habit: Why We Do What We Do in Life and Business” explains how Target in the US is using big data.

Target’s analysts worked out 25 products, such as calcium, that give them the clue one of their shoppers is pregnant. They then send coupons and deal offers before the baby is born to try and change the shopping habits of that new mother into a customer for life.

As flagged in The Australian Financial Review’s StreetTalk column, Wesfarmers is believed to be considering the divestment of some of its property assets.

Deutsche Bank’s Michael Simotas notes: “Management highlighted that it intends to continue using innovative structures to support the sale and leaseback of property in order to focus on driving return on capital.”

All that said, Wesfarmers also faces difficulty, particularly on the mining side of the business which is a drag on the good news from the retail side of the business.

That means it is now be up to the authority for ensuring the on-street parking regulations are adhered to and the council's civil enforcement officers will issue penalty charge notices for breaches.

The authority has also used the changes to remind blue badge holders they can get an extra hour's parking for free in the town's car parks.

In the pay and display car parks, disabled drivers get the added 60 minutes on top of their ticket expiry time and can receive the same benefit in the pay on foot areas if they obtain a free smartcard by registering at the Customer Service Centre, School Drive.

Reminders of the free hour have been put on the new signs which detail the change in parking enforcement and it has been highlighted on the council's website, Facebook page, Twitter feed and in the summer edition of the authority's publication Together Bromsgrove.

“We want to make sure they are doing this to ensure there is a quick turnover of parking spaces and bays including those for taxis and people with disabilities.

“We have also taken the chance to include details about the town’s Blue Badge scheme so our residents, and visitors to the town, will know they get an hour's free parking on top of what they pay for.”

But Bromsgrove District Council has come under fire in the past for not making its car parks free to blue badge holders.

Labour leader, Coun Luke Mallett said: "The move to civil enforcement against illegal parking could improve problem parking in the town but it must be fairly and proportionately applied and will only ever be a part of solving our parking problems locally.

"A bigger issue that contributes to parking issues as well damaging our town centre economy is the cost of parking in Bromsgrove and the charging hours.Click on their website www.artsunlight.com for more information.