European Retail Briefing - April 2014
Analyst Comment
 
Building a bigger Kingfisher
●	On 3 April 2014, Kingfisher revealed it was in exclusive negotiations to acquire French DIY chain Mr Bricolage. 
●	In France, Kingfisher already operates 109 Brico Depot stores, positioned at the heavy end of the DIY market.
●	And Kingfisher operates 105 big-box Castorama stores in France.
●	Mr Bricolage has 516 French stores and 69 stores in ten other countries.
●	Mr Bricolage also has a network of independent affiliated stores in the French market that benefit from group purchasing. 

A complementary proposition
Mr Bricolage is a chain of directly-owned and franchised stores under the three fascias: Mr Bricolage, Briconautes and L'Entrepôt du Bricolage. The stores focus on smaller stores targeting local catchments - whether that be in cities, towns or neighbourhood – and focus is on the softer end of the DIY market and gardening.

So the chain offers a good complement to the big-box format of Castorama and the trade-targeted Brico Depot fascias.

Moreover, there are indications that consumer demand is shifting from large out-of-town stores: shoppers in categories such as grocery are increasingly opting for proximity shopping – ie town-centre, high-street or convenience shopping. 

This trend has the potential to impact on DIY. So Kingfisher’s acquisition of locally-focused Mr Bricolage stores is a hedge against this. 

A move into franchising
Perhaps more important is the step into franchising that the acquisition would mean for Kingfisher. 

One week before Kingfisher revealed its plans, the company’s CEO told the French press that the group planned to test a franchise model for its Brico Depot fascia. Kingfisher has so far followed a company-owned store model.

Mr Bricolage is a predominantly-franchised chain – the company owns only 81 out of its 516 French stores. So its acquisition would give Kingfisher a foothold in franchising. In its statement, Kingfisher noted the potential benefits of “an established and successful international franchising operation and exposure to new territories” such as Bulgaria and Belgium. 

In turn, Kingfisher could use this experience to roll out the franchise model to international markets. Kingfisher has already announced plans to open Screwfix stores in Germany – so could we see franchising ultimately used for such international expansion? 

The market context
There are two potential drawbacks:

●	French demand for DIY has been depressed. In the context of the weak macro-economic context, the DIY sector saw a 3% fall in sales in 2013.
●	The acquisition remains dependent on anti-trust clearance. In 2012, Kingfisher enjoyed a 26% share of DIY specialists sector sales in France – the acquisition of Mr Bricolage would add a further nine points of sector share. Will authorities approve the creation of a retailer with 35% share of the retail sector? 

What we think
●	Mr Bricolage is complementary to Kingfisher’s existing French fascias. 
●	The acquisition would kickstart Kingfisher’s apparent aim to move into franchising.
●	It would give Kingfisher around 35% share of the DIY specialists sector in France. 
●	But there’s no certainty the competition authorities will allow the acquisition.