Rona buys Cashway - Brief Article

Home Channel News, Feb 21, 2000 by John Caulfield

Quebec buying group makes ambitious push into Ontario

TORONTO -- Rona Inc., the largest dealer-owned buying group in Quebec, made its most aggressive foray into the province of Ontario when it agreed early this month to pay 50 million Canadian dollars (US$34.5 million) to acquire Cashway Building Centers, the country's third-largest building materials retailer, whose 61 outlets are located throughout that province.

Rona, based in Boucherville, Quebec, already distributes to a network of nearly 500 stores operating under several different banners in four provinces, including around 50 stores in Ontario. Its wholesale sales last year rose 20.7 percent to C$987 million, and its profits grew 9 percent to C$14.7 million, despite a C$45 million investment in building a 625,000-square-foot distribution center. The co-op's goal, according to its chairman Henri Drouin, is to be generating C$2 billion in sales by 2002.

To achieve that, Rona is accelerating its push into Ontario, whose retail home improvement market is estimated to account for C$8 billion of Canada's C$23 billion total. Along with the Cashway acquisition, Rona intends to spend C$400 million over the next two years to open new outlets, most of which will resemble the coop's stylish 95,000-square-foot Regional Renovateur format.

In 2000, the company will open large-format home centers in the Ontario cities of Brampton, Mississauga, Kingston and Ottawa. Earlier this month, the company hired Richard Blickstead to head up a new retail division created within Rona to orchestrate its nationwide expansion, which will put the company more directly with big-box operators Home Depot, Revy Home & Garden and Reno-Depot each with aggressive growth plans of its own. Blickstead's varied career includes a stint with Wal-Mart.

"Our goal is to gain a 10 percent share of Ontario's market within two years," said Robert Dutton, Rona's president, during a press conference announcing the co-op's expansion plans that was held Feb. 7 during the Canadian Hardware & Building Materials Show here.

Rona's market share in Quebec is a hardy 34 percent, and it recently spent C$20 million to pen a 163,000-square-foot L'entrepot warehouse in the town of Brossard, its 12th in the province. "So our growth must come from vigorous ventures outside of Quebec," said Rona chairman Henri Drouin. During the press conference, in comments that were clearly directed at the competitors in the audience, Drouin extended an "invitation" to "enterpreneurs" operating lumberyards to consider joining Rona. And Dutton shook his head in approval when a reporter asked, half in jest, whether Revy might be the company' s next takeover target.

Serving all customers

Rona's deal with Cashway -- which includes the 25-percent stake held by Russel Metals, which owns the real estate on 34 of Cashway's stores -- has been in the works for several months, and didn't catch many of its competitors by surprise. "It reaffirmed that consolidation is not over in Canada, and in fact will accelerate," said David Grubbe, the president of the 580-member TruServ Canada buying group. "We all want to grow; it's finding a good fit that's the challenge."

In Cashway, Rona is acquiring a company that, in the early 1990s, was foundering. In 1994, it launched several programs aimed at getting its operations closer to their customers, although the jury is still out on how successful those efforts have been. Last year, Cashway's sales rose 3.6 percent to C$322 million, and its earnings, while up 37 percent to $3 million, were less than 1 percent of its revenue. "Cashway had to do something, because it wasn't moving forward," observed Barrie Sali, the president of Tim-Br-Mart, the Vancouver, British Columbia-based buying group whose members operate 195 stores in western Canada.

Cashway was one of a half-dozen companies whose names were mentioned as possible buyers of Beaver Lumber before Beaver was acquired by Home Hardware last year. And just prior to signing its deal with Rona, Cashway completed its acquisition of five yards operated in Ontario by Hensall District Co-op. These stores will become part of Rona.

Rona officials said they were drawn to Cashway's operations because of what Dutton said were "its relationships to pros and its-employee training." In addition, the acquisition plays into Rona's marketing hook that it is the only buying group in Canada whose various store formats are diverse enough to serve all customers.

The co-op has created a new banner, Rona Cashway, and will soon start shipping new signage to Cashway's stores, which range in size from 12,000 to 30,500 square feet, and mostly operate in smaller communities. Dutton stated emphatically that "no stores will be closed [and] no jobs lost." Cashway employs 1,069 people.

"Rona's offer ensured the long-term viability of our stores," said Jim Pybus, who was named president of Rona Cashway. Craig Graham, Cashway's chairman and CEO, is stepping down.

Seven of Cashway's stores are owned by managers through joint venture agreements. Rona intends to offer all Cashway's store managers the opportunity to buy their stores outright and become dealer-members of the co-op. Rona will provide financial assistance to those managers, although Pybus said the details -- such as how much, over what period of time and through which lenders -- still needed to be worked out. Dutton said that the Cashway stores would be "integrated" into Rona's network over the next five years.