RONA, Inc.

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RONA, Inc.

220 Chenin du Tremblay
Boucherville, Quebec J4B 8H7
Canada
Telephone: (514) 599-5100
Fax: (514) 599-5110
Web site: http://www.rona.ca

Public Company
Incorporated: 1939 as Les Marchands en Quincaillerie Ltee.
Employees: 16,000
Sales: CAD 4.5 billion (2004)
Stock Exchanges: Toronto
Ticker Symbol: RON
NAIC: 444130 Hardware Stores

RONA, Inc. is Canada's largest retailer of hardware, gardening, and home renovation products. It operates a chain of more than 500 stores across Canada, with its largest concentration in Quebec and Ontario. RONA runs a mix of retail outlets, with some so-called "big box" stores, many more traditionally sized hardware stores, and various specialized stores. As well as the mix of sizes, RONA has a mix of company-owned stores, franchises, and affiliated stores. The chain has grown quickly in the 2000s through a series of acquisitions. RONA was hard pressed to distinguish itself from the other major player in the Canadian hardware market, U.S.-based Home Depot, and the company evolved some unusual retailing concepts borrowed from other successful chains such as The Gap and Starbucks. RONA began as a cooperative, and this governing structure endured until it became a public company in 2002. RONA Inc. is the sole North American member of the European buying group ARENA and is a partner in a U.S.-Canadian buying pool called Alliance International LLC.

Quebec Cooperative in the 1940s–60s

RONA was founded in 1939 as a buying group of 30 Quebec hardware stores. The hardware market still remains highly fragmented in Canada, with more than half the market share divided between numerous tiny independent retailers. In 1939, one monopoly company had a chokehold on hardware supplies, and Quebec's small retailers needed a way to fight back. The 30 Quebec hardware owners wished to remain independent operators, yet band together to combine their purchasing power. The owners affiliated in a group initially named Les Marchands en Quincaillerie Ltee. The group's first presidents were Rolland Dansereau and Napoleon Piotte. These men remained active directors in the Les Marchands group through the 1960s.

After World War II, the hardware industry in Canada underwent rapid change. Discount department store chains such as Savette, Woolco, and Towers began encroaching on markets long served by small independent stores. Between 1955 and 1965, some 1,000 hardware stores across the country closed down, unable to compete with the new chains. This prompted a new strategy from determined owners. Dansereau and Piotte, who had been with Les Marchands de Quincaillerie since its inception, incorporated a new entity in 1960, a private company called Quincaillerie Ro-Na Inc. The "Ro" and "Na" came from the combined first names Roland Dansereau and Napoleon Piotte. Dansereau took the title of president, with Piotte termed the new company's External Relations Agent. Then in 1962, Piotte and a group of hardware store owners acquired Les Marchands de Quincaillerie. This company was then formally set up as a cooperative, with the shareholders all hardware store owners or dealers. This cooperative structure endured all the way until 2002, when the group became a public company.

Through the 1960s, Les Marchands de Quincaillerie and Quincaillerie Ro-Na were closely linked, governed by the same president. When Napoleon Piotte died in 1968, both companies were presided over by Charles Morency. In 1970, the two companies formally merged under the name Marchands Ro-Na Inc. Meanwhile, other hardware store owners in Canada also were setting up cooperatives. In 1964, a coalition of Ontario hardware store owners founded Home Hardware, a dealer-owned cooperative of 122 area stores. The next year, Ro-Na joined with Home Hardware in Ontario, Winnipeg-based cooperative hardware chain Falcon Hardware, and Link Hardware, a cooperative in Calgary, to form a national hardware buying group. This new affiliation was called United Hardware Warehouse. There were in effect two levels of cooperative hardware groups: regional cooperatives such as Ro-Na, and a national cooperative that allowed the regional groups to combine their buying power. On the local level, stores belonging to the Ro-Na group retained their own names.

Building Slowly in the 1970s and 1980s

In 1970 the two affiliated Quincaillerie groups dissolved into one entity called Marchands Ro-Na Inc. Marchands Ro-Na moved into new quarters in 1970, in Boucherville, Quebec. The cooperative made some technical advances at that time, replacing a paper catalog system with files on microfiche. Ro-Na also expanded its deliveries inside the province of Quebec. Distribution and delivery were standardized and streamlined within the province. Yet Ro-Na did not look beyond Quebec at the time. The group confined its business to its home province as part of an unwritten agreement with the other members of the national cooperative, United Hardware Warehouse, to respect each other's territories.

In the 1980s, Ro-Na made purchases and alliances that expanded the variety of stores in its group. In 1982, Ro-Na purchased a chain of gardening stores called Botanix. The next year, Ro-Na premiered a chain of boutique-style interior decorating stores under the name Ambiance Boutique. Now what had been strictly a hardware chain had branched out into two related areas. In 1988, Ro-Na acquired a building materials cooperative group called Dismat. At this time the company changed its name to Ro-Na Dismat. By the late 1980s, the Ro-Na group contained all of the elements—hardware, gardening, interior decorating, and lumber—that would soon be brought under one roof by the so-called "big box" retailers.

The trend in the 1980s seemed to be toward bigger stores and bigger chains. Ro-Na's sister cooperative Home Hardware also expanded in the 1980s, buying a 55-store chain in the west of the country. Home Hardware and Ro-Na reinforced their ties in 1984, forming a new allied company called Alliance RONA Home Inc. Ro-Na and Home Hardware were still members of the national cooperative, United Hardware Warehouse. By 1990, this national group included some 1,000 Canadian hardware merchants. The Canadian group joined with a Fort Wayne, Indiana-based group of U.S. hardware merchants in 1990, forming a new group called Alliance International.

Bringing on the Big Boxes in the 1990s

The hardware industry in Canada's southern neighbor was put through a major change in the 1980s with the advent of Home Depot, a company founded in Atlanta, Georgia, in 1978. Home Depot pioneered the big-box format, putting vast, warehouse-like stores down on the edges of suburban areas, and selling a huge array of hardware products, paint, lumber, garden supplies, and nursery plants under one roof. By the late 1980s, Home Depot was a high-flying stock on Wall Street, and the company had plastered its domestic market with stores. Home Depot entered the Canadian market in 1994 by acquiring an Ontario chain called Aikenhead's Home Improvement Warehouse. Because of an agreement with Aikenhead's parent company, Home Depot did not enter the Quebec market until 1998. Thus much of the fiercest competition between Home Depot and Canadian rivals occurred first in Ontario. While Ro-Na's longtime sister company Home Hardware continued with small and medium-sized stores, other Canadian chains, such as Surrey, British Columbia-based Revy Home Centres, Inc., moved into the densely populated suburban Toronto area with football-field sized big-box stores, sometimes building them right across the street from Home Depot. Ro-Na paid close attention to the happenings in Ontario while staying in Quebec. It rolled out its own big-box stores (which the company called "large surface" stores) in Quebec beginning in 1994, under the name RONA L'entrepot. These were warehouse-sized stores, but Ro-Na Dismat hoped to distinguish them from the competition by continuing to offer a high level of customer service.

Canada's economy was doing well in the 1990s, and home improvement was a flourishing business. With the entrance of Home Depot into the country, the several large Canadian chains such as Ro-Na, Home Hardware, Revy, and Montreal-based Reno-Depot Inc. were forced to come up with a strategy that would let them maintain market share. Ro-Na Dismat made a decision to grow larger through acquisition. In 1997, it accepted an investment of $30 million from the French hardware chain ITM Enterprises, to bankroll acquisitions. ITM took partial ownership of Ro-Na, though the company retained its cooperative structure. Ro-Na had total sales of more than $700 million that year. In 1998, the company changed its name to RONA, Inc. It opened some new stores under the names RONA L'express and RONA L'express Materiaux, and made its first foray into the Ontario big-box battlefield with a 145,000-square-foot large-surface store in a suburb of Ottawa. By 1999, RONA had almost 500 stores under various banners in eastern Canada, and sales had risen to $2.1 billion.

Company Perspectives:

RONA is the largest Canadian distributor and retailer of hardware, home renovation and gardening products. RONA operates a network of 566 franchise, affiliate and corporate stores of various sizes and formats. With approximately 22,000 employees working under its family of banners across Canada and more than 13 million square feet of retail space, the RONA store network generates $4.8 billion in annual sales.

Acquisitions in the 2000s

RONA moved quickly in the 2000s, acquiring smaller chains that gave it a coast-to-coast presence. It equaled or surpassed Home Depot in market share, while taking care to make its stores noticeably different from the American competitor. The lesson of the Canadian hardware industry in the 1990s seemed to be adapt or fail. For example, between 1993 and 2001, 34 big-box stores opened in the Toronto area, while 117 traditional-sized stores closed. Industry analysts expected that the largest Canadian chains would have to consolidate in order to combat Home Depot. RONA began buying. In 2000 the company spent $50 million on a chain of 66 Ontario hardware stores called Cashway Building Centres. The following year, the company sold shares to two Quebec pension funds, Caisse de Depot et Placement and SGF, and let the French firm ITM invest still more, giving RONA another $100 million to spend. With this much cash in hand, RONA bought a chain based in British Columbia called Revy Home Centres. The Revy purchase cost $220 million, and it brought RONA 51 big boxes in Ontario and a chain of stores called Lansing Buildall. For the first time, RONA's territory expanded all the way to the West Coast. The purchase also lifted RONA's total revenue to a level on par with Home Depot Canada.

RONA's stores were consciously different from the blueprint Home Depot brought to the industry. Although many of RONA's new stores used the "large surface" format, they were not the stark warehouse design of its competitors. According to a profile of the company in the Toronto Star (March 10, 2001), RONA wanted to "take the warehouse out of the warehouse concept." Instead, its stores would offer an enticing shopping experience explained by one RONA spokesman in the Star article as "Disney meets home improvement." To advance this concept, RONA used ideas that it found at other successful chains. Its paint departments were modeled in one sense on the coffee shop chain Starbucks. Customers could step into the "paint café" and have a clerk pour them a paint sample to take home and test. Sales clerks also wore radio headsets for communication, an idea attributed to the clothing chain The Gap. RONA did not set up its big boxes in long aisles, but broke the interior into several stores within a store. The company also strove foremost to please women consumers, who made the majority of home improvement buying decisions, offering decorating items including mirrors and picture frames. The trend toward so-called "soft do-it-yourself" products was particularly strong in Europe, and RONA was a leader in presenting soft do-it-yourself in Canada. However, not all RONA's stores were big boxes, and about half its sales still came from small and medium-sized stores.

In 2002, the company prepared to make a public stock offering. Its market share had grown from 7 percent in 1999 to 11 percent, putting it in third place behind Home Depot, with 14 percent, and the Toronto-based Canadian Tire, at 12 percent. It now had coast-to-coast exposure, though it still ran stores under many names, and the RONA brand had the strongest resonance in Quebec. RONA, Inc. debuted on the Toronto Stock Exchange in October 2002. The company was a public corporation, and it set aside its cooperative structure. In 2003 RONA made another large acquisition, buying Reno-Depot for $350 million. Reno-Depot was known for its big-box stores in eastern Canada.

After the Reno-Depot purchase, RONA and Home Depot stood alone as the two biggest contenders in the Canadian hardware market. Half the market was still shared by small independent hardware stores, and the Home Hardware cooperative and Canadian Tire also had a good slice of the market. However, RONA had succeeded in the fierce battle set off by Home Depot's entry into Canada in 1994, and it now equaled the American giant in Canadian market share. RONA's task in the 2000s was to build its brand. In 2004, the company announced that it would boost its market share from around 14 percent to 25 percent over the next three years. Its strategy was to have stores in every segment of the market. It would continue to open large-surface stores as well as small neighborhood stores. The company pulled together its image somewhat in the mid-2000s, attaching RONA to the name of all of its stores. There was still a variety of names in use, however, such as RONA Botanix, RONA Lansing, and RONA Home Centres, reflecting the origins of the companies that had combined. In Quebec, where RONA had a market share of more than 40 percent, the company gained more exposure through a television show called Ma Maison Rona. The show, which was a number one hit in Quebec, pitted families against each other in a home renovation competition. Not only did RONA show ads at the beginning and ending of each episode, but the show featured much footage of the competitors shopping at RONA stores and conferring with RONA design experts, and viewers could log on to an Internet link with the show to vote for favorites as well as ask questions about hardware and remodeling.

RONA seemed to be reaping the benefits of its acquisitions. It ended 2004 with record sales and profits. It continued to open new stores, but same-store sales, a key measure of sales growth at stores open at least one year, was up by more than 10 percent in 2004. This showed that RONA was doing well even without acquisitions and new stores. The company did continue to acquire, as well. In 2005 it spent $100 million on a chain of building supply stores in Alberta, Totem Building Supplies. Totem ran 14 retail stores and two stores just for contractors. Its annual sales were estimated at $260 million. Totem's location was crucial to RONA, doubling its retail outlets in Alberta, Canada's fastest-growing province.

Principal Competitors

Home Depot Canada, Inc.; Home Hardware Stores Ltd.; Canadian Tire Corporation, Ltd.

Key Dates:

1939:: Quebec hardware retailers band together as Les Marchands en Quincaillerie Ltee.
1960:: Quincaillerie Ro-Na Inc. is founded.
1970:: Two firms combine as Marchands Ro-Na Inc.
1982:: The company acquires Botanix.
1988:: Dismat is acquired.
1994:: The company opens the first RONA big-box store in Quebec.
1997:: ITM Enterprises buys a partial share in Ro-Na.
1998:: The name is changed to RONA, Inc.
2002:: The company goes public.
2003:: The company buys Reno-Depot.