Analysis of potential disruptors in the DIY business

Table of contents

1. Introduction

2. OBI
2.1. Company Key figures
2.2. Current business model
2.3. Digital Activities

3. ManoMano
3.1. Company Key figures
3.2. Business Model
3.3. Disruption potential for OBI

4. Recommendations for OBI
4.1. From Cross- to Omni-Channel
4.2. Pop-Up-Stores
4.3. Shop-in-Shop Format

5. Conclusion

6. List of References

1. Introduction

The do-it-yourself (DIY) industry is in a state of upheaval. More and more classic DIY store sales are migrating to online retailers. The large DIY store operators are being hit by the strong competition from Amazon & Co. At the same time, new market platforms such as ManoMano are entering the market with a specialized range of products. Obi and the other DIY store companies are resisting the "Amazonisation" and trying to keep up. Therefore alternative concepts are needed, which should be the result of this paper.

2. OBI

2.1. Company Key figures

The success story of OBI DIY stores began in 1970, when the basic idea, was to offer everything for building, renovating, and handicraft under one roof. While it was still common in Germany to shop in specialized stores, there were already so-called "One-Stop" do-it-yourself stores in America. Following this model, Dr. Emil Lux and Manfred Maus opened the first OBI store in a shopping center in Hamburg-Poppenbüttel. At that time, the first store had 12 employees and offered a broad target group-oriented assortment in contrast to the predominant sector-oriented assortment (Siegfried, 2013, P.146-147). The name "OBI" is derived from the French pronunciation of the word "hobby" and is protected worldwide except France. From the beginning, the beaver has also been part of the brand as a synonym for diligence and building.

The business idea of 12 specialist shops under one roof was successful and was franchised after a test phase. Today, around one-third of the stores are operated by franchise partners, in Germany the share is well over 40 percent (Bruhn & Meffert, 2002, P.233-234).

After many successful years of expansion, OBI faced its first difficulties in 1985. During the stocktaking at the end of the year, a discrepancy of eight percent was noted and OBI reported a negative operating result. To raise fresh money a part of the company was put up for sale. Tengelmann boss Erivan Haub seized the opportunity and 15 years after the founding of OBI, Tengelmann took over the majority. After a tough overhaul, OBI was back in the black. In 2007 the Tengelmann Group increased its stake once again from 63 to 74 percent by purchasing the shares of the founding Lux family (Franchising-network.de, 2018). The other 26 percent of the ownership rights are held by the Lueg Group. Together they hold 100 of the Olympics Baumarkt Holding GmbH Wermelskirchen. This includes the OBI Group Holding SE & Co. KGaA, which in turn includes several corporations such as OBI Holding GmbH, OBI E-Commerce GmbH, and OBI Logistics GmbH. The management of OBI Group Holding SE & Co. KGaA is run by a two-member Management Board consisting of CEO Sergio Giroldi and CFO Oliver Geiling and a six-member Supervisory Board (Glaubitz, 2018).

OBI is now the number one in the German and Austrian DIY sector. From its corporate headquarters in Wermelskirchen, the company operates over 354 stores in Germany and over 300 other stores in a total, making it one of the top players in Europe. In addition to Germany, OBI is represented in ten other countries and employs a total of over 47,000 people. In the 2018 financial year, gross sales of 7.7 billion euros were generated (Statista, 2020).

2.2. Current business model

Customer segment:

In addition to professional craftsmen, the focus is primarily on end-users such as families, handymen, and semi-professionals. The age and gender distribution of the customers is very balanced: In 2018, around 46% of OBI customers were female (IFAK; GfK Media and Communication Research; forsa marplan, 2019a). The largest group in terms of age is the 50-59-year-olds with a 21.3% share of buyers, with all other age groups also accounting for between 12% (20-29 years) and 18% (40-49 years) (IFAK; GfK Media and Communication Research; forsa marplan, 2019b).

Value Proposition:

OBI’s values and benefits are created mainly for the so-called DIY craftsmen, who have a lesser understanding of craftsmanship. The competent staff in the stores and a variety of online information sources explain the use of individual products to the customer and provide inspiration beyond that. Services such as mixing colors, cutting materials, or preparing a financing offer are offered. Besides, OBI offers a stationary delivery service, a locksmith service, practical courses, and trailer/truck rental. The product range in the markets and online is very broad and at the same time deeply positioned.

Online, home delivery, and reservation at the store are offered as a service. An extensive help section is available with numerous guides, knowledge articles, instruction videos, online calculators (e.g. heating cost calculator), and planning tools (e.g. room planner). OBI promises to make the shopping experience as ideal as possible for its customers, both online and in the local OBI store (Beukenberg, 2018).

Channels:

OBI offers the possibility to buy products in either the stationery shop or the online shop. Also, customers are provided with the "heyOBI" app, which allows for example step-by-step instructions or design ideas to be called up. The DIY stores are located on highly frequented main roads where the view of the building front is unobstructed. For the most part, they are detached properties that are preferably located in the vicinity of other retail properties.

OBI is represented in the typical social media channels such as Facebook, Instagram, and Pinterest, and offers its customers a wide range of contact options.

Customer Relationships:

The closest contact with the customer is maintained in the branches by the staff. The trained employees provide information and receive feedback. Also, there is a comprehensive online FAQ and a service hotline which is also available to customers on weekends and holidays. OBI offers various discount campaigns such as an advent calendar. Usually these are not available across all channels (OBI, n.d. a). Through the membership program of the OBI Top Customer Card a discount scale is given based on the annual turnover (OBI, n.d. b).

Revenue Streams:

OBI makes a large part of its turnover in its stationary sales shops. In addition to the sale of goods, sales are generated by the tool and machine rental and craftsman services. Other additional services such as delivery service or financing options make up a further share of sales. Online commerce still accounts for a relatively small share of sales. Currently, the online share in the DIY store range across Germany averages 13 percent (Gassmann, 2020).

Besides, around one-third of the stores are operated by franchise partners who pay a franchise fee. This amounts to 2.5% of annual net sales and a further 0.25% of net sales for advertising costs (Punktfranchise.de, n.d.)

Key Ressources:

Essential to OBI 's business model are material and personnel factors. The company has a large network of local and international suppliers and supply chains. The approximately 650 stationary shops have a large own sales and rental inventory. Furthermore, the OBI brand, the distribution and storage infrastructure, the online shop, the IT and communication infrastructure, and human resources are considered to be decisive factors.

Key Activities:

The central activities in OBI's business model are procurement, services, and support as well as marketing and sales. The so-called system headquarters supports the stores during the start-up phase with location assessments and analyses. In day-to-day operations, the head office contributes important factors such as the brand, a large, suitable bundled purchasing volume, sophisticated product ranges and processes, as well as a suitable merchandise management and IT system. Other support activities include cash management, tax law, merchandise management, IT, and organizational development. Employees receive training in sales and consulting, with recruitment being the responsibility of the individual store owner (Krüger & Homp, 2012).

Key Partners:

OBI's most important partners are the suppliers as well as the franchisees. Supplier and vendor partners supply the OBI markets, which on average have between 40,000 and 60,000 articles of various brands in their assortment. Delivery and shelf-loading is carried out by an external service company (Bruhn & Meffert, 2002, p. 269).

The franchisee is an entrepreneur who works at his own risk, knows the local conditions and the needs of the customers, and manages the OBI store independently (OBI Südtirol, n.d). Further partners are installation and service partners as well as sales partners.

Cost structure:

The biggest cost driver for OBI are the wages of the 48,000 employees in its stores across Europe. A further share of the costs is caused by the sales infrastructure, such as the costs for retail and warehouse space and procurement costs. Online, costs are incurred for the operation of the OBI online shop and app, their development, and maintenance of the IT and communications infrastructure. Due to the strong expansion, costs are incurred for the implementation of marketing and advertising campaigns, especially in new markets, to overcome the barriers to market entry.

2.3. Digital Activities

In mid-2017 OBI informed about a new strategy. The aim is to develop the company into the leading cross-channel DIY market. To this end, so-called transformation units were created under the names " OBI next" and " OBI Digital". Around 160 specialists from various areas work in the "innovation laboratory" located in Cologne (OBI Next, n.d). The goal is to find new innovative products and solutions for complex challenges and to create new forms of collaboration. The new system will be tested in Austria. It is about nothing less than "redesigning the business model of the entire group" (Glaubitz, 2018).

The main focus is on collecting customer data to address them with individual offers. "The more complex the customer's problem, the better we can play to our strengths. We want to be relevant already where the customer has his first idea, his "first mile" so to speak". Existing customers who use the garden planner, the bathroom planner, the "hey OBI " app, the online shop, and the stationary market should be retained. "This will enable us to understand existing customers better and serve them in a more targeted manner instead of always investing in new customer acquisition," says Sebastian Gundel, head of OBI next (Baumarktmanager.de, 2019b).

OBI continues to rely increasingly on digital sales channels. André Kotoll, Head of Department E-Services, explains why it is so important for OBI: "Customers usually deal with a purchase decision already at home in front of their devices - PC, laptop, tablet or smartphone. That's why we have to create a typical OBI experience on the net, inspire potential buyers and guide them quickly to the right products".

For this purpose OBI has implemented the so-called FACT-Finder. This search and navigation solution based on artificial intelligence helps OBI customers with targeted online research. In a separate area of the suggestion function, there is a service blog, tutorials, and practical guides created by the OBI content team.

Another trend that is becoming more and more popular with OBI customers is the online research and offline purchase (ROPO). Especially in the DIY market segment customers have the need to inform themselves online before buying. For this reason, a large number of Obi stores have made tablet trays available as an aid in the search for DIY products (Wagner, 2020).

The digitalization is supported by "OBI Smart Technologies", a 100% subsidiary of OBI AG. The IT specialists provide information technology services for the companies of the OBI Group and develop the DIY store of the future (Kununu.com, 2020)

3. ManoMano

3.1. Company Key figures

ManoMano is the first digital marketplace for DIY products in Europe. It was founded in 2013 by the Frenchmen Philippe de Chanville and Christian Raisson and acts as an intermediary between customers and dealers. Initially active only in the domestic market, the founders' version was to conquer the little digitized European 400 billion Euro market for DIY and garden products. In the meantime, the company is on the move from France (launched in 2013) to Belgium (2014), Spain, Italy (both in 2015), Great Britain, and Germany (both in 2016). Turnover rose from 1 million euros in 2013, the year the company was founded, to 90 million euros in 2016. With just 420 employees, the trading volume in 2019 climbed to 620 million euros (Gabot.de, 2020)

More than 3.5 million customers are offered products ranging from individual screws to complete garden sheds, a total of more than four million products. The approximately 2500 retailers on ManoMano pay a shopping basket commission of 20 - 25%. Also, the company operates an online tradesmen's agency service under the name Supermano and with ManoMano Pro in France also an extra B2B portal (Paul, 2019).

With a trade volume of 43 million euros and a growth rate of 121 percent in 2019, Germany is the focus of the current expansion strategy. ManoMano aims to become the European market leader and, in the long term, generate a quarter of its trading volume in Germany (Gabot.de, 2020).

Investors also believe in the success of the French start-up. In just six years, ManoMano has raised a total of 311 million euros in capital from top global investors (Partechpartners.com, n.d). Almost all of this money is invested in the further development and expansion of the platform. "Profitability is currently not an issue for us or our investors," explains co-founder Philippe de Chanville (Paul, 2019).

3.2. Business Model

With its platform strategy as an intermediary between customers and retailers, ManoMano is walking in the footsteps of Amazon - but in a niche. The company has recognized that certain products in the DIY segment, such as finding the right hinge for a door, require intensive consultation. "The biggest weak point for consumers in our business is the advice we provide," emphasized de Chanville (DPA, 2020).

Detailed instructions and the "Manodvisors", a community of experts who answer customers' questions via chat and telephone seven days a week, help consumers choosing the right product. Buyers can start a conversation at any time and get advice from a human - not a chatbot. In 2019, customers had 1 million conversations with Manodvisorn (Pavlova, 2020) The experts are mostly retired DIY store employees or dedicated hobby craftsmen who are not permanently employed by ManoMano but work on a self-employed basis. Whoever accompanies a customer as a consultant until the purchase of a product receives a commission from the company (ManoMano.de, n.d).

The success of ManoMano is based on innovations that do not only focus on the satisfaction of its private customers. The company is also interested in accompanying the growth of its retailers. They can count on ManoMano as a strong partner in e-commerce who, by providing the platform, does not compete with them itself and can offer them more data than they would get in stationery stores. ManoMano intends to remain a platform only in the long term and not to offer its own products. "We only grow if our partners grow", says the founder (Gardt, 2020). ManoMano also provides its dealers with logistical resources, such as the company's own logistics service "Mano Fulfillment", as well as other services such as an invoicing service or tools for sales optimization (Startupvalley, 2020).

3.3. Disruption potential for OBI

The do-it-yourself market in Germany has an annual turnover of almost 50 billion euros. In 2019, however, less than ten percent of sales came from online business. The main reason for this are products that require intensive advice and sometimes are too bulky for a profitable distance selling business (Gardt, 2020). ManoMano now wants to fill this gap. When the French start-up entered the German market in 2016, it did so with a declaration of battle. "We are the only way for retailers to build up an intelligent online offering away from Amazon," said the founder Christian Raisson (Baumarktmanager.de, 2019a). This is the first potential of disruption for OBI. ManoMano is a virtual marketplace in the field of e-commerce. At a central location different products are offered by different retailers and presented to the buyer. Throughout Europe, ManoMano sells about four million different articles, whereas an average OBI market has between 40,000 and 60,000 articles in the stationary and about 70,000 articles in the online assortment. In contrast to DIY stores, the platform business model is not tied to linear (supply) growth through network effects. As a result, the entry barriers for sellers on the platform are significantly lower than in the stationary retail trade. Dealers benefit from the cross-border reach as well as the logistics services and can hope for further expansion.

[...]