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Speaker 1: Welcome to the Fear and Greed summer series. I'm Sean Aylmer.

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Speaker 1: Today I'm talking to Gurabsodi, deputy head of research at

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Speaker 1: Intelligent Investor, for a closer look at one of the

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Speaker 1: most interesting companies on the AX, Where's Farmers. Remember this

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Speaker 1: is general information only, and you should see professional advice

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Speaker 1: before making investment decisions. Grab, Welcome to Fear and Greed.

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Speaker 2: Hi, Sean, thanks for having me.

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Speaker 1: Where's Farmers? Quite the stock diversified, not many of those.

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Speaker 1: It was sort of a conglomerates anymore. It's kind of

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Speaker 1: the last twelve months or so, it's done pretty well,

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Speaker 1: up to thirteen percent or so, but it has come

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Speaker 1: off in the past couple of months.

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Speaker 2: Yeah, people know Wes Farmers very well from their Bunning's

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Speaker 2: monopoly and the Kmart juggernaut. If you're a parent, you

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Speaker 2: know Kmart very well. Has become the default place think

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Speaker 2: anything to do with kids. Anko, Sean, let me tell

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Speaker 2: you about Anko Anko. When they started Ancho, they sent

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Speaker 2: a few reps over to che and the instruction was

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Speaker 2: go follow the Walmart reps because Walmart at the time

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Speaker 2: had a reputation of finding the cheapest suppliers in China.

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Speaker 2: So Kmart sneakily snuck behind Walmart and copied their supply chain,

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Speaker 2: and then they made it better and better and better,

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Speaker 2: and thus was born Ancho. Anko today supplies about twenty

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Speaker 2: percent of all clothing sold in Australia. They are the

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Speaker 2: number one pet care brand, number one. I think it's

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Speaker 2: a toaster brand. There's a whole series of small categories

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Speaker 2: in which Ancho completely dominates the Australian market, and they're

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Speaker 2: now rolling out Ancho product and stores around the world.

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Speaker 2: So West Farmers used to be a story all about Bunnings,

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Speaker 2: and now it is because of the growth of Anco specifically,

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Speaker 2: but Kmart more generally. And then they've got this fertilizer

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Speaker 2: business and they've got this lithium business coming up. There's

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Speaker 2: many more legs in the stool of West Farmers than

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Speaker 2: just Bunnings, and I think that's been the change that's

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Speaker 2: prompted this very large rally, multi year rally. We should

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Speaker 2: say in the West farmersh price.

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Speaker 1: How does West Farmers do it when no one else can?

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Speaker 1: I mean maybe Sole Paths you could argue does it

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Speaker 1: as well. In terms of being a conglomerate, but actually

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Speaker 1: running really disparate businesses and running them well.

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Speaker 2: Yeah, that is the key question, Sean, and your right

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Speaker 2: to point out that West Farmers is probably the last

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Speaker 2: standing conglomerate successful conglomerate in the world. There are others

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Speaker 2: who do it. No one does it better. There is

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Speaker 2: a secret source over in their Perth headquarters. We're not

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Speaker 2: sure exactly what it is, but one of the things

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Speaker 2: they do differently is every business stands alone, so there's

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Speaker 2: no real scaling or benefits that come from efficiency the

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Speaker 2: way most businesses would would join, departments, join, procurement, share

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Speaker 2: hr all. Those resources are actually split and every business

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Speaker 2: has to compete with every other business for capital. So

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Speaker 2: the role of West Farmers is really one of capital allocation.

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Speaker 2: And they have common training, so management gets trained in

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Speaker 2: common themes and in common literature, a bit like a

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Speaker 2: GE used to do. Back in the day. They had

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Speaker 2: a management school and West Farmers had a similar sort

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Speaker 2: of management school. And it's what happens in that management school.

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Speaker 2: You can see it all over the ASX management teams

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Speaker 2: that come out of West Farmers West Summers alumni. They

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Speaker 2: perform very well. That's something we actively screen for. They're

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Speaker 2: always known as good quality managers and there's the secret

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Speaker 2: source is cultural. It's very difficult to replicate. It's hard

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Speaker 2: to even identify unless you specifically know what you're looking for.

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Speaker 2: It's been very successful to date.

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Speaker 1: And women we're spaking about West Farmers without really talking

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Speaker 1: about Bunnings, that we better movet in that one. Yes, indeed,

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Speaker 1: I mean quite the jargonaut.

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Speaker 2: It's almost a monopoly. And I think the journey West

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Speaker 2: Farmers has taken with Bunnings has been one of the

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Speaker 2: most extraordinary retail journeys we've seen in Australia, starting out

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Speaker 2: as really a small business and then rolling out, buying

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Speaker 2: up competitors and now dominating that space. Now. West Farmers

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Speaker 2: claim they only have about twenty five percent market share

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Speaker 2: of hardware, but if you expand your definition of market

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Speaker 2: share to include industry profits, it is far more than

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Speaker 2: fifty percent. They absolutely crush the competition and it's a

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Speaker 2: business where they have used scale really really well, so

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Speaker 2: buying power. They cut up middlemen all along the chain

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Speaker 2: and they deal directly with suppliers. They even use they

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Speaker 2: don't even use distribution center Sewan, so each Bunning's warehouse

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Speaker 2: stands alone as its own distribution center, and that's another

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Speaker 2: way of saving costs. So this has been a very

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Speaker 2: smart operation built for scale from the very beginning, and

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Speaker 2: I would say it's almost impossible now to compete with

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Speaker 2: It's really we're looking the competition now has to be overseas.

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Speaker 2: Online sites is the only way you can compete with

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Speaker 2: West Farmers, and that's why you see them having sausage

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Speaker 2: sizzles and getting involved with community events and bakes, baking

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Speaker 2: and lessons and even pet care because they're trying to

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Speaker 2: entrench their dominance in the face of I would say

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Speaker 2: determined but so far unsuccessful online competition.

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Speaker 1: Finally, we're almost out of time, and I just to

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Speaker 1: remind to all listeners we are not a financial advice podcast.

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Speaker 1: If you want to make an investment, go and find

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Speaker 1: a financial advisor, get some advice. That's what you should

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Speaker 1: always do. Where's can it keep going?

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Speaker 2: We actually sold our West Farmers early well lated in

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Speaker 2: twenty twenty five. I just thought that share price just

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Speaker 2: was looked very toppy. The implied growth out of came

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Speaker 2: out in particular, I mean came I is trying to

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Speaker 2: roll out a new brand, do something different to what

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Speaker 2: they've done historically. So whenever you're doing something different, it

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Speaker 2: involves a lot more risk, and I wasn't sure that

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Speaker 2: the risk was being adequately priced in, so we've actually

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Speaker 2: sold our West Farmer's position. I think it's still expensive, Sean,

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Speaker 2: but make no mistake, this is a outstanding business that

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Speaker 2: should be on every investor's watch list. And it's as

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Speaker 2: it gets cheaper, I think we'd be more interested.

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Speaker 1: Thank you for talking to Fear and Greed summer series,

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Speaker 1: Pleasure Shaw, and thank you that was Gore have Sony,

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Speaker 1: Deputy head of research at Intelligent Investor. Don't forget to

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Speaker 1: follow on the podcast. New episodes every day during our

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Speaker 1: summer series, and regular shows are back from January twelve.

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Speaker 1: I'm Seanelmer, and this is Fear and Greed