‘We added scale by merging with a competitor’

Peter Macaulay of retailer Kitchen Warehouse discusses business mergers, working with family and the ongoing transformation of the retail experience.

Amalgamating businesses through mergers or acquisition is not that uncommon. Indeed, for many SMEs it is a prominent strategy to grow in size and scale.

Yet what happens when the two businesses are an online and a traditional retailer, operated by a brother and sister?

Amalgamating two distinct companies

Kitchen Warehouse effectively began as two separate companies: Kitchen Warehouse and Kitchenware Direct. And they were owned and operated by Peter Macaulay and his sister Justine Murphy (pictured).

“It was initially my parents that started Kitchen Warehouse, and that was probably about 15 years ago, and they started that as a bricks and mortar retail operation, which my sister and brother-in-law also got involved with, and they grew that to seven stores here in Perth,” explains Peter.

Around 2006, Peter identified that there was a market for selling the same products online, and so he built that business - Kitchenware Direct - from the ground up.

“For that seven to eight year period they were totally separate companies and, in essence, we were competitors,” he says.

Thankfully, the main reason for merging the two entities was not emotional but purely based on business factors.

“It enabled us to scale Kitchenware Direct quite rapidly as an online only … business, and at the same time we were able to [maintain] those existing relationships with vendors,” says Peter.

“We tried not to step on each other's toes too heavily, because that makes for awkward conversation for Christmas lunch.”

Siblings in business

Of course, family members going into business together is common, but it is not always successful. So it begs the question, as effective competitors – and now business partners – is there sibling rivalry between Peter and Justine?

“There absolutely was competition between us, and we tried not to step on each other's toes too heavily, because that makes for awkward conversation for Christmas lunch. But no doubt, we were in direct competition,” Peter says.

“I was talking to one of the staff members that's been with us for a long time, and they were just having a chat because they were retiring. She [said] 'Oh, I remember when you were Kitchenware Direct: you guys were the enemy, and people used to come in and they wanted to price match!'.”

However, Peter says the transition from competitors to business partners has been relatively smooth, given that both went into the merger with their eyes open and the business plan agreed in advance. Although there have been challenges breaking down the old ‘us and them’ culture across the business units.

Given that the online business had a much smaller staff than the retail business, it also proved to be quite unbalanced.

“When we made that decision to merge the two companies, we were all quite clear on what the end goal was.

“Probably the toughest thing has been culturally, so bringing together the two companies, there was a long of language initially used about 'us and them', that sort of terminology. Particularly when, even though the companies have merged, we were still providing the two separate brands, Kitchenware Direct and Kitchen Warehouse.

“So that, I think, was one of the key things: to rebrand Kitchenware Direct, basically retire that brand, and then transition to a singular brand, being Kitchen Warehouse. It was a key thing in that cultural shift to make sure that everyone's aligned to the same goal and operating as a single team rather than that ‘us and them’ mentality, of 'us' online and 'them' in-store, or vice versa.”

“It's much harder to close the loop on in-store customers, although it's becoming more feasible.”

Marketing the business

With scale comes the ability to market more widely. But with two very distinctive retail channels, marketing has required a multifaceted approach, according to Peter, and it has presented learning curves for both himself and Justine.

“We spend a lot of money on adverts for the online retail part of it. But that's a relatively easy marketing channel to get right, because it's a direct conversion ... so it's very easy to measure the ROI,” he says.

“In terms of the broader marketing around whether it's print or catalogue, or social or display ads, that's been a learning curve for me; it's not something traditionally with the online space that we've delved too far into.

“But broadly what we're seeing and what we're focusing on is shifting spend from traditional print media to social, and that's an ongoing process, and it's an ongoing process of testing. It's much harder to close the loop on in-store customers, although it's becoming more feasible.”

Peter says a primary challenge is measuring the success of social media marketing, such as an ad on Facebook, in driving customers to a physical store, although adaptations are gradually helping to reconcile such issues.

“But one stand-out, in terms of where we still place a lot of emphasis with the more traditional marketing, is with catalogues,” he adds.

“There's more incentive for a customer to come into showrooms to touch and feel the product in-store, and then go and buy online.”

Ongoing struggles

According to Peter, there are two main areas that cause headaches for the business. One has been trying to harmonise pricing across the two channels, given the obvious cost discrepancies.

“Broadly, in our industry, the difference between the prices is far less. There's more incentive for a customer to come into showrooms to touch and feel the product in-store, and then go and buy online. [But conversely] there's a lot more comfort about being able to deal with the person, make that transaction in-store and take that product home on the day, and then also having confidence around being able to return that product,” he explains.

“[Eight years ago] there was a big discrepancy between what you would pay for a product online versus what it's available in-store at. We've harmonised our pricing broadly; you would pay the same price online or in-store.”

Kitchen Warehouse has also worked to enhance its offering within its stores to add more value for its customers, including experiences such as in-store cooking demonstrations, workshops and celebrity appearances.

The other challenge, says Peter, comes down to staffing, which is proving to be an ongoing struggle.

“I think if I had twice the number of staff, it would be better. The challenge with business is allocating limited resources, and most effectively,” he says.

“Purely from the viewpoint that often everyone's challenge is 'How do you allocate all those limited resources most effectively?'.”

Despite Perth, in particular, suffering from the end of the mining boom, Peter says that recruiting good staff remains a challenge.

“From a retail perspective, yes [it’s difficult]. Perth is obviously a mining-driven town, so there’s very few large retailers in Perth.

“As we grow and we're looking to bring new expertise into the company, we find it a bit tricky to hire in Perth, because there's a very limited base of potential staff who have had experience. 

“For example, we hired an e-commerce manager of New Zealand to fill that role, because there was a limited skill set in Perth.”

Growing further afield

While the business is already sizeable, with a roughly 200-strong workforce, Peter says there is still plenty of scope to scale further.

“We intend to start selling more broadly overseas online, but we do have some challenges [because] some of the brands we're selling have regional restrictions on where we can sell into, and also just in terms of making sure we've got everything right in terms of credit card fraud,” says Peter.

Kitchen Warehouse also has aggressive expansion plans for its stores, aiming to increase the network from seven stores across Perth to 27 Australia-wide over the next five years.

Fast facts:

Business name: Kitchen Warehouse
Industry: Retail, kitchen products and homewares
Location: Perth, WA
Customer base: Australia-wide, as well as some sales to Singapore and New Zealand
Turnover: In the tens of millions
Number of employees: 200

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