Rona (TSX:RON) will replace Tim-BR Mart in distributing Ace branded products, non-Rona branded goods and lumber to independent dealers, including 102 in Quebec.
Luc Rodier, Rona's executive vice-president retail, agreement sends a clear message to Rona's dealers that the company is once again looking for growth following a period of downsizing.
"When you go through a turnaround like we did in the company, attracting dealers in the last three years was not our main focus...We are now focused on growth and that's why that move is so strategic for us," Rodier said.
Rona will have to compete with Tim-BR-Mart and Home Hardware to attract and retain the Ace dealers. But it will be armed with a big weapon since the stores will only be able to access about 2,500 Ace branded products through Rona.
Ace products won't be available in Rona stores but the Boucherville, Que., based company will have access to Ace Hardware's import program from China.
Rodier said that could result in cost savings for Rona even though that's not the primary goal of the agreement.
"Can we put our volume together to have better pricing, better conditions? That's what we're starting to look at," he said in an interview.
Gaining access to Ace's strong web portal, which dealers use to build their own advertising flyers, should also allow Rona to learn some lessons to improve its own site, Rodier added.
The agreement is expected to add $150 million to $200 million in annual revenues for Rona if it signs up all the Canadian Ace stores.
Rona's first opportunity to sign up new dealers will be the end of August, when the current supply agreements are up for renewal.
Rona CEO Robert Sawyer said the agreement will leverage its existing distribution infrastructure.
"Today's announcement is a clear indication of our commitment to continue to develop and improve our network of affiliated dealer stores in Canada," he stated in a news release.
Rona will also work with Ace Hardware's parent company to develop the Ace brand, which will be helpful in areas of the country where Rona has a limited presence.
Ace Hardware CEO John Venhuizen says the combined strengths of the two firms will provide a "compelling proposition" for independent hardware and lumber dealers, along with Canadian consumers.
Irene Nattel of RBC Capital Markets said the agreement won't likely have a material impact on Rona's results in the near-term, but should help it to confront the challenges that it has faced outside Quebec in attracting dealers.
"The addition of well-known brand Ace as part of the Rona distribution/dealer family should enhance Rona's attractiveness to small dealers, potentially enabling Rona to better leverage its existing infrastructure," she wrote in a report.
Rona operates a network of more than 500 corporate, franchise and affiliate stores under several different banners. It serves 276 Rona independent dealers and 200 TruServ Canada dealers from eight distribution centres and generates $4.2 billion of annual sales.
Illinois-based Ace Hardware has more than 4,850 locally owned hardware stores around the world, and is the largest hardware co-operative in the industry.
On the Toronto Stock Exchange, Rona's shares closed up seven cents to $12.04 in Tuesday trading.
Follow @RossMarowits on Twitter
Note to readers: This story replaces an earlier version that said there were 100 stores in Quebec.