RONA Inc. unveiled Phase 2 of its 2008-2011 strategic plan — the New World program — which calls for a renewed focus on growth amidst signs of gradual economic recovery. The company also made public its financial objectives for the next two years, in front of members of the financial community attending RONA’s 2010 Investor Day in Toronto.
New World reflects rapidly changing behaviour
The New World program is designed to help guide RONA to transition to a post-recession era where retailing and consumer behaviours will be transformed to reflect both new types of consumers and a new generation of merchants. Accordingly, the program will initially involve two key components: the customer experience; and talent and succession management. Two major initiatives announced late in 2009 — the launch of the innovative STUDIO by RONA concept and the introduction of a unique Succession Planning Program designed to attract next-generation entrepreneurs to become store owners — provide a taste of what is to come with the New World program.
Research clearly shows that consumers are demanding high quality in the products they buy and better value for money. RONA intends to capitalize on those demands with a revamped private-label strategy that includes several new controlled brands. The company has raised its private-label penetration target from 20 per cent to 24 per cent of sales by the end of 2011, representing a 250-basis-points increase per year from the current level of 19 per cent. It is also introducing new product categories with broad appeal for next-generation consumers, and intends to launch a new integrated program that will combine elements of its successful RONAdvantage complementary incentive to renovation tax credit with other existing loyalty programs to provide customers with even more compelling reasons to choose RONA for their renovation needs.
“We are confident that our many initiatives aimed at enhancing the customer experience — innovative store concepts, new product categories, new private and controlled brands, new tools to improve loyalty and stepped-up training for store employees — will drive customer growth,” said president and CEO Robert Dutton. With regard to succession, Dutton said the company’s new succession-planning program “demonstrates our resolve to appeal to next-generation dealers and sustain RONA’s role as THE consolidator of the Canadian hardware and renovation industry.”
PEP program: the right strategy at the right time
The New World program follows the company’s Phase 1 PEP program — Productivity, Efficiency and Profitability — which focused on optimization of the store network and supply chain. Dutton credited PEP for helping RONA weather the worst of the recession and said he was proud of the company’s 2009 achievements. “Thanks in large part to the success of PEP, RONA today is a well-oiled machine with the financial flexibility required to support renewed growth in a rapidly changing market environment. Our teams are mobilized and we know precisely where we want to go. In other words, we are ready for the recovery and ready for the New World.”
As examples of PEP’s success, Dutton cited a 120 basis-point improvement in the gross margin, reduced inventories, increased productivity at the company’s distribution centres, substantial reductions in logistics and transportation costs and successful implementation of several key elements of a four-year IT optimization program.
While the New World program entails a transition to renewed growth, Dutton noted that the company is also striving for continuous improvement in costs and productivity. “PEP is now ingrained as part of the RONA culture.”
Growth vectors and 2010-2011 financial objectives
In this second phase of its strategic plan, RONA’s growth will be achieved along the four vectors that have been at the heart of the company’s success in the past: on one hand, development of the network through new store construction, development of the affiliate network, and acquisitions; on the other hand through “customer growth,” the term the company is now using in place of organic or same-store growth. The goal is to grow RONA’s share of the Canadian market from the current 17.5 per cent to 20 per cent.
Claude Guévin, executive vice president and chief financial officer, presented the key financial objectives of the New World program:
- Grow EBITDA margin by 20 to 30 basis points per year;
- Increase earnings per share by an average of 10 per cent - 15 per cent over the period;
- Increase return on capital by 75-100 basis points over the period;
- Maintain an investment-grade credit profile.
“Armed with a strong balance sheet, clear financial objectives and an excellent reading of the marketplace, RONA is ready to embark on a new phase of its development utilizing a decidedly strategic, integrated approach with an objective to return to double digit earnings-per-share growth and improved return on capital in the next two years, said Guévin.
In 2010 and 2011, RONA will focus primarily on strengthening its position in Ontario and the West through targeted renovation, expansion, relocation and consolidation projects, while continuing to develop markets in Quebec and Atlantic Canada. Development of the professional and commercial market, worth an estimated $70 billion, is another priority.
RONA is also well-positioned to seek out appropriate acquisitions. Potential targets include Canadian retailers and commercial and professional specialists, as well as distributors or buying groups. The company also intends to launch an aggressive cross-country campaign targeting hardware and lumber-and-building-supplies dealers to either acquire them or help them plan their succession through RONA’s unique new succession planning program.