Analysis Of Woolworths: Australian Supermarkets Case Study

Macro environmental analysis

Strategic Management is considered to be a crucial aspect of any organization. All the companies functioning in the dynamic business environment need to assess their challenges regularly and ensure that they form adequate strategies to meet with the given set of challenges. The company which has been chosen for the given assignment is Woolworths in Australia. Woolworths is Australia’s leading supermarket company which offers a wide range of services to its customers which include goods, consumer products, home care, food, fruits and other items. The company provides its good in various states around Australia and their underling motto is that they believe that optimum quality is important for opportunities and hence, good products should be present for everyone (Alkhafaji and Nelson,  2013). The company is one of the largest firms in Australia and provides its services the various customer segments like government, communities, businesses and individuals as well and restaurant owners

The report is based on the different challenges as being faced by the organization. These include the challenges related to the changes which have been taking place in the Australian markets like labour problems, increased competition, and adaptation to modern technology and the rise of e-commerce (Woolworths.com.au., 2018). Hence, the report will be analysing the case of Woolworths and will be conducting a brief analysis of the external environment, competitive environment, internal company and then recommend certain strategies.

The Macro environmental analysis can be described as an external analysis mechanism which identifies the different factors which are present in the business environment and have the capability of having a direct impact on the operations of the business. It is crucial to identify these factors so that it becomes easy for the organization to form strategies accordingly (Barney, 2014). In order to conduct the macro environmental analysis, the PESTLE Analysis shall be used. The PESTLE Analysis can be described as a crucial environmental analysis tool which is used to understand the environment in which a business functions. The Pestle Analysis of the Woolworths business environment has been given as follows:

Political- The Woolworths organization in Australia is often described as the flagship company which has enjoyed a long term support from the government. However, since the last two years, the company has been facing problems with respect to the new duopolistic nature of the Australian market (Bettis et al., 2014, pp.949-953). This simply means that as Coles and Woolworths in Australia are the two main supermarkets, the government wants to provide opportunities to the new organizations as well.

Economical- The economy prices in the in country have been falling considerably which has thereby lead to a subdued GDP and the food and retail industry has been impacted due to this. However, due to the premium nature of the market, the super market industry has not been a witness of this drop.

Socio-cultural- Australia has recently become a hub of growth and prosperity. Various expatriates from all around the globe have been coming to Australia and hence, this has driven the growth of the food and retail sector. These expatriates like to shop for their needs in these stores and hence they have large options to choose from with the presence of other companies like Coles, IGA, Metcash and others (Woolworths.com.au., 2018). Hence, many often go for the cheaper and newer options which are available, however, many still prefer brand name over other business aspects.

Industry analysis

Technological- The economy of the country has become highly digitalised and due to this, the investment in the digitalization segment has increased considerably which has bought about enhanced service offerings and prospective customer services (Eden and Ackermann, 2013). Moreover, the implementation of the SAP merchandising system has aimed to improve the efficiency of the markets

Legal- the ACCC has bought about various changes in the legal regulations and thus any company in the industry has to ensure that these legislatives are abided by. Moreover, the recommendations as provided by the NFF also have to be followed based on the mandatory codes.

Environmental- Sustainability is an aspect which is required to be considered and hence, the food retail company like Woolworth’s needs to ensure that it can foray into the energy efficiency and carbon initiatives.

Woolworth’s supermarkets can be stated to be operating in the food retail industry and hence, in order to analyse the presence of various factors which are present in the particular industry, the Porters forces analysis shall be used (Zott and Amit, 2013, pg. 403-411). However, before the analysis a brief description of the life cycle stage of the industry has been provided.

The life cycle of the company can be described as the stage in which the company is out of the four stages. The fours stages through which any company goes through are the stages known as Introduction, Growth, Maturity and Decline. At present, Woolworths can be stated to be in a maturity stage (Ibis World., 2018). This is because, the operations of the company have been present since a long time and the growth of the company has stalled. Moreover, the organization has also been experiencing a low profit phase unlike earlier.

The porters five forces framework determines the attractiveness of the industry using five main factors. These factors are the factors related to the following:

(1) Threat of new entrants

(2) Power of the buyers

(3) Power of the suppliers (Frynas and Mellahi, 2015).

(3)The threat of substitutes

(5) Rivalry between competitors.

The threat of new entrants is considerably very high whereby the industry has the capacity to provide a good investment return.  The Australian supermarket industry has been performing considerably well however, the growth rate of the industry has been diminishing and at present it is 2.4 percent (Hubbard, Rice and Galvin, 2014). The climate can quite challenging and hence, the entrants who want to enter the organization may find it very difficult to enter the industry. This is because there exists a presence of a large number of foreign investment rules, lands and others. Although the barrier is high various competitors like Aldi and Costco have entered the market place.

The power of the buyer can be essentially described as the immense power which exists with the customers. The buyers in the Australian food sector enjoy considerable power because there exists a large variety of options which they can avail (Harrison and John, 2013). The presence of intense price wars and a variety of competitors proves to be very competitive for the organization.

Life cycle stage

The Australian retail food industry has experiences a shift in the structural power for some years and back in the nineties, the power was considerably higher on the side of the suppliers but at present the power of the suppliers is considerably quite low as the multinational food retail chains own a considerably amount of market share which thereby makes their power higher (Jarzabkowski and Kaplan, 2015, pg. 537-558).

The threat of substitutes with respect to the supermarket industry is the competition which the store receives from the convenience stores. There exists a presence of various convenience stores like 7-Eleven and others which although are unable to offer greater variety, but offer a good range of limited products belonging to private brands in the company.

The rivalry in the competitor industry is very high in nature as the industry is quite concentrated. The two main competitors are Woolworths and Coles. However, new companies have been entering the industry like Aldi, Met Cash, IGA and others. Each of them are popular global companies who have been experienced in different markets. With this, they have gained prior knowledge which they are easily applying in the chosen industry and hence it paves way for a cut throat competition (Hill, Jones and Schilling,  2014).

The resources can be described as the components as possessed by the company which can thereby lead to success. Woolworths has an access to a wide umber of resources from which it can choose and attain success (Wright, Paroutis and Blettner, 2013, pg. 92-125). The company has an e-commerce presence in Australia, it has stores in almost every region in the country, and it has many joint ventures as well. The staff of the company is well trained and educated. The organization has access to the best suppliers which thereby makes it easier to source the goods at a cheaper rate.

The core competencies of the company are as follows:

World class supply chain- The Company has an access to various suppliers all around the globe which makes their supply chain very optimum in nature (Wheelen et al., 2017).

Innovation- the Company often comes up with various innovative techniques which assist the organization in ensuring success.

Integrity- The firm maintains integrity in its operations

Marketing and sales- The Company has an excellent marketing and sales strategy.

Branding and market positioning- The market and brand positioning of the firm is very strong

Hence, by making use of these competencies, the organization can attain long term success and apply them to ensure a competitive edge.

The year 2017, has been considerably good for the company and it has been successful in ensuring that it remained ahead of its competitors in the long run. Coles undertook a considerable effort and applied huge discounting techniques in order to ensure that it can make it up to the competition (Vogel and Güttel, 2013, Pg. 426-446). However, these two giant organizations have been facing competition from the other companies like Amazon who just entered the industry. Furthermore, Aldi has now successfully established itself as a major player. Met Cash and IGA Group have also been performing considerably well and hence, the growth attained by Woolworths Supermarket business has gone to 36.8% of the industry.

Porter’s 5 forces analysis

Figure 1:The competition in Australian Supermarket Industry

(Source: IBIS world, 2018).

The business level strategy can be defined as a strategy which is followed by the organization and is a determinant of the organizations strategic direction. The Business level strategy which is followed by the Woolworths Company is the Cost Leadership Strategy. The cost leadership strategy can be descried as a strategy which is generally used by the organization to attain larger sales (Slack, 2015). In this strategy, the company maintains an effective cost system, the use of which will provide the organization with a competitive edge in the market as the pricing is lower than other competitor as present in the industry.

Woolworths is able to make use of the cost leadership strategy by ensuring that it sources its products directly from the local producers (Rothaermel, 2015). Moreover, it has now made use of automation in order to ensure that the nature of operations is successful in nature.

The given strategy although a very comprehensive one in nature, has not been working out very well. This is because, the competition of the firm like Coles and ALDI have been making extensive use of cost strategies as well and hence due to this the Woolworths Company has been losing out on its competitive edge.

To improve this, the company can utilise its brand name instead and go for a unique differentiation strategy whereby thee quality of the product stands out.

Conclusion

Therefore, from the given analysis as presented on the Australian Supermarket Industry, it can be stated that the competition has increased considerably with the entrance of new players like IGA, Amazon and Metcash. Moreover, the Woolworths organization has had a competitive advantage in the given industry since a long period of time, however, now it is facing difficulties with respect to its performance. Woolworths will be required to re-design the strategies as used by the organization and ensure it attains a successive edge in the long run. In the future, it is expected that the competition will become even fiercer in nature.

References

Alkhafaji, A. and Nelson, R.A., 2013. Strategic management: formulation, implementation, and control in a dynamic environment. Routledge.

Barney, J.B., 2014. Gaining and sustaining competitive advantage. Pearson higher ed.

Bettis, R., Gambardella, A., Helfat, C. and Mitchell, W., 2014. Quantitative empirical analysis in strategic management. Strategic Management Journal, 35(7), pp.949-953.

Eden, C. and Ackermann, F., 2013. Making strategy: The journey of strategic management. Sage.

Frynas, J.G. and Mellahi, K., 2015. Global strategic management. Oxford University Press, USA.

Harrison, J.S. and John, C.H.S., 2013. Foundations in strategic management. Cengage Learning.

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

Hubbard, G., Rice, J. and Galvin, P., 2014. Strategic management. Pearson Australia.

Ibis World. 2018. Market Research Reports. [online] Available at:https://www.ibisworld.com/[Accessed 13 Aug. 2018].

Jarzabkowski, P. and Kaplan, S., 2015. Strategy tools?in?use: A framework for understanding “technologies of rationality” in practice. Strategic Management Journal, 36(4), pp.537-558.

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.

Slack, N., 2015. Operations strategy. John Wiley & Sons, Ltd.

Vogel, R. and Güttel, W.H., 2013. The dynamic capability view in strategic management: A bibliometric review. International Journal of Management Reviews, 15(4), pp.426-446.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearson.

Woolworths.com.au. 2018. Woolowrths Supermarket- Buy Groceries online [online] Available at: https:// https://woolworths.com.au [Accessed 13 Aug. 2018].

Wright, R.P., Paroutis, S.E. and Blettner, D.P., 2013. How useful are the strategic tools we teach in business schools?. Journal of Management Studies, 50(1), pp.92-125.

Zott, C. and Amit, R., 2013. The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization, 11(4), pp.403-411.

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