Industry Market, Competition And Segmentation Analysis Of Coles

The industry market for Coles and current trends

• Company

Coles is the second largest retailer in the grocery industry in Australia. The company operates mainly in the retail and departmental supermarket chains. The supermarkets and grocery stores industry is one of the most competitive in Australia since it offers a ready market for the products.

• Product/ Service 

The retailer operates several products within the retail industry but grocery is the most popular product that the company sales under the private label Coles fruits and vegetables. The retail industry especially the grocery market buyers spent ninety billion dollars at supermarkets in 2017 making it one of the competitive products in the industry (Clemons, 2018). To survive the fierce competition in the Australian industry, the company has been forced to adopt different strategies to overcome competition from other retailers like Woolworths and Aldi.

• Consumers

As a retailer, the company operates with retail consumers who mostly buy domestic products for use at home. However, the most utilized product is the grocery product line used by most middle income consumers within the country.

The growth of Coles’ supermarket can be traced back to the year 1914 when it was founded and has now grown to over eight hundred and seven supermarket chains throughout Australia. The growth has been seen in the acquisition of a different business that then been branded to Coles as a way of expanding and taking over the Australian retail industry. Together with Woolworths, they account for eighty percent of the Australian market. Since then the retailer has been expanding its business chain slowly to ensure that it competes well. According to IBIS World (2018), the retail industry in Australia had a revenue of $102 billion with an annual growth of three percent. In 2017, the retailer achieved a 4.65 overall growth in convenient stores growth and 2.0% growth in sales for food and liquor. The year also ended with the opening of the 800th supermarket in the country which has seven hundred brand products on the shelves (Thomson, 2017). This is due to the commitment to deliver Australia’s best food offering to customers through quality and prices.

Figure 1: Australia’s supermarket sector market share source: IBIS World 2018

According to Coles (2018), the grocery, bakery, fresh produce deli, meat and meal solutions teams scooped fourteen gold, forty-three silvers and thirty-one bronze medals that were added across categories. Despite the grocery industry being high in the country, consumer patterns are changing due to the need to focus on more healthy foods. This is changing the purchasing patterns of customers and is forcing retailers to adopt the organic approach.

PEST analysis

The retail macro-environment in Australia is characterized by high competition and external forces that make retailers to adopt strategies for surviving. PESTLE analysis is a framework for describing external environment factors within an organization to give an overview of the different factors that need to be put in place to understand the growth and decline of the market (Wedel & Kamakura, 2010).

Table one: PEST analysis of Coles

Politically the government has taken steps to reduce the duopolistic nature enjoyed by Coles and Woolworths as retail giants. This effort has been made by the Federal government through the Australian Competition and Consumer Commission through steps to reduce the market entry barrier that will lower competition between the two players thus allowing easy entry (Swier, 2005). This will increase the bargaining power of customers which in turn affects the overall profitability of Coles.

Economically, the economic downturns in the country have made customers price sensitive. This has forced the retailer to increase products and reduce the prices as way of responding to the changing needs of customers. The challenge here is that even other retailers like Woolworths are also cutting their prices to attract more customers. This has been termed as price war in the country especially between the two major retailers (Faul, 2016). However, the Australian Consumer and Competition Commission intervention will increase the bargaining power of suppliers in case the duopolistic nature of the retail industry is changed.

Socially, the changes nature of doing business has forced the retailer to adopt different marketing strategies like the use of social media to ensure that it reaches out to all customers. The rise of social media in the country has created online platforms for purchases goods which created new avenues for doing business and reduces the regular customers that the retailer used to enjoy (Brook, 2018). This calls for the need to invest in social media platforms to maximize customer coverage and reduce the margin of competition.

Technologically, the retailer has to adopt the changing technologies in the country. However, expensive they are. For example, online marketing has changed the way transactions are done. This has made Coles to operate both retail and regular stores to satisfy both levels of customers. As the levels of technology change, they present both challenges and opportunities that need to be addressed for future operations.

Legally, issues of compliance with the ACCC regulations have forced the retailer to address its business strategies to ensure that they are in line with the requirements of the commission. This means that the nature of competition and business operation has to change in line with the new laws (Sims, 2016). As the new regulations create more room for market entry, the outcome will be increased bargaining power of suppliers and buyers. This means that Coles has to strategize to ensure that the business interests are protected.

Competitor analysis

Competitor analysis is a marketing tool that analyses the strengths and weaknesses of current and potential competitors that a business may face. The outcome is a defensive and offensive strategic context that determines the opportunities and threats that exist within the market. Since this is an internal analysis, it compares organizational abilities with others within the industry (Faul, 2016). Coles operates in a highly competitive retail industry with the grocery product line being among its best products in the market. Rice & Martin (2018) suggests that the Australian industry has been heavily transformed by competition in the industry through price wars. Since retailers are selling the same groceries across their supermarket chains, they adopted the pricing strategy as a way of attracting customers. This is driven by the economic challenges in the country and the low spending habits in the country. Further, due to increased number of retailers with the entry of Aldi’s, the bargaining power of customers seems to be increasing as they compare prices across retailers.

Table two: competitor market share analysis

Source: (Pash, 2017)

The Australian retail industry and grocery products are duopolistic with Woolworths being the leader and Coles the second. This competition is fierce with intensive pricing with most products on the shelves being matched. According to Clemons (2018) suggests that the price differences between the two major retailers has a difference of only one percent. Despite the grocery line suffering an inflation of 2%, price wars between the two retailers have reduced the inflation to 1.8% which keeps on changing as the two retailers engage each other in the retail war.

The strengths that Coles enjoys in the Australian industry is market share dominance due to its second largest share in the market. This leads to increased market share which has led to better sustainability and environmental friendly businesses in the country. Further, the retailer is working with local farmers by buying its groceries locally as a way of promoting farmers and making locals purchase its products (Coles, 2018). The retailer is highly recognized in the country with its current efforts in supporting cancer campaigns in the country. Further, the use of private labels has boosted its business operations since customers value brands labels. This strategy has been adopted by other retailers like Aldi’s and Woolworths who have also adopted the private labels strategy. This is achieved through ensuring that manufacturers design products with private Coles labels which makes them more appealing customers.

Further, Mudditt (2018) argues that the availability of the retailer in the country and a stable market share presents opportunities for expanding its retail enterprise beyond groceries. This is seen in the expanding liquor market which is controlled by Woolworths. However, Coles controls 20% of the market share which is a huge opportunity if private labels are used in the liquor business line. This can lead to a higher market share and increased competition with the industry players.

However, there are challenges in entering other sectors where there are established competitors. Despite the fact that the government is regulating the sector through the Consumer Commission, entry barriers are still high. On the other hand, regulation on the price wars means that the retailer has to establish better strategies in making profits and cutting costs experienced in the sector.

Market segmentation is a way of grouping customers into subgroups based on shared characteristics that they possess.  These common characteristics revolve around shared needs, common interests, or even lifestyle that can be defined by demographic characteristics (Pride, et al., 2018). This leads to identification of high yielding segments where the organization concentrates its marketing efforts on. Since Coles operates in the retail section, then most of its customers are segmented along business to consumer lines which thus groups the customers according to demographic variables that exist among them. Demographic segmentation groups customers according to age, income, family size or status. The strategy assumes that consumers who have similar profiles have same purchasing patterns, lifestyles and interests. Coles’ consumers are segmented demographically and geographically across the country. Since the consumer has outlets across the country, it targets every individual that uses the products that they sell.

The biggest consumer demographic segment of Coles’ grocery products is the female segment age between twenty to 65 years who prefer cooking at their homes. Most of these people have kids and come from all races in the country. This forms the primary target market that consumes the products. This market forms majority of the people in the country who are regular consumers of grocery items. These consumer profile falls in the median income category who are generally the largest group of the Australian population (KPMG, 2014). The changing nature of consumers and the need to consume organic foods has pushed most people to shop specifically for what they need. Since groceries differ from other products within the retail shops, it means that customers have to make personal shopping by taking their time to select the products they want from the shelves. Australia is one of the countries with the highest obesity levels which has led to the need for people to adopt healthy lifestyles. This means that the demographic nature of the consumer population is shifting more to lifestyle rather than only income. It is no longer the issue of affordability, but rather the issue of how healthy is the product being sold. This has made the retailer to stock more of organic products for the changing customer needs (Bailley, 2013). In addition to that, the need for sourcing the food items locally has been pushed by most Australia producers who want the retailer to buy products from within the locality. The need to embrace the local economy has pushed Coles to ensure that it meets the needs of the local community that it operates by stocking what exist locally rather

Since this population is spread across the country, Coles meets the needs of these consumers by having over eight hundred supermarket chains across the country for maximum coverage of the consumers. The demographic nature of the consumer profile that the retailer sales to is spread across the country in different cities and localities. This means that these customers have to be reached to by opening up a retail store that will offer convenience. This is the strategy that the retailer has used and the justification for opening up new retail stores across the country (Bailley, 2013). Once a target population has been established in a particular geographic location, Coles has always ensured that the population is reached out through opening a retail outlet. To overcome competition from Woolworths and Aldi’s, spreading retail stores across the country is a business strategy of reaching to consumers directly.

As the nature of competition keeps on changing and new opportunities come up, Coles has an opportunity in a secondary market which is coming up slowly. First, the secondary segment is coming in under the online buyers who are avoiding the long queues and challenges of shopping from supermarkets. This presents the utilization of new technologies to create online shopping platforms where buyers can order directly (PWC, 2014). Further, there are new opportunities that are developing in the secondary market where other products the retailer is investing in other products like liquor as a way of competing with others within the market.

Coles relies heavily on the needs of customers for decisions that are made within the organization. Since the primary segment control the operations of the organization, there is need to consider the suggestions of customers in developing new solutions for the organization. According to Kembrey (2018) Coles has a customer interaction strategy through surveys and suggestion box that allow customers to raise the issues that fall within customer experience. By identifying niche audience and tailoring customer surveys to capture their specific needs, Coles has accomplished its strategy of gathering customer experience through social media, through the use of simple clean bright red style and putting social links on the top of its websites (Coles, 2018). The retailer allows customers to interact on Facebook, Twitter, YouTube, Google+, Pinterest, and Instagram to enhance its brand through customer experience and suggestions. By increasing customer experience, Coles ensures that every need that customers raise online is taken care of through implementing these strategies.

Positioning statement: To Coles as the cheapest in the market and offering a broad range of products to meet the needs of custpmers

Conclusion

From PESTLE analysis the retail industry seems to be suffering from high government regulation as a way of protecting consumers. This strategy is focused on reducing the duopolistic advantage of Coles and Woolworths thus creating low market entry challenges to newcomers and at the same time creating higher bargaining power of customers and suppliers. The outcome is rescued advantage that Coles has thus the need to diversify and extend its retail chain to other areas like the liquor chain which is not concentrated unlike the grocery sector. Therefore, Coles has to develop strategies that will lead to gaining competitive advantage while at the same time complying with the requirements of ACCC. The online retail industry is also taking Australia by storm which has created new market segments that the retailer can engage its resources in to create better ways of creating more income.

References

Bailley, M. (2013). Consumer Profiles and Behavior in Australian Shopping Centers . The International Council of Shopping Centers, 18(2).

Brook, B. (2018, June). Aldi and IGA given low ranking in supermarket healthy eating report. Business Insider.

Clemons, R. (2018). Which supermarket has the cheapest groceries? Choice.

Coles. (2018). Coles 2017 year in review. Coles.

Coles. (2018). Corporate responsibility. Retrieved from Coles: https://www.coles.com.au/corporate-responsibility

Coles. (2018). Customer service. Retrieved from Coles: https://www.coles.com.au/customer-service

Faul, J. (2016, November). Aldi’s Presence Makes a Return to Duopoly. Morning Star.

IBISWorld. (2018). Supermarkets and Grocery Stores – Australia Market Research Report. IBIS World.

Kembrey, M. (2018, June). Why shoppers are turning to Coles and Aldi over Woolworths. The Sydney Morning Herald.

KPMG. (2014). What is happening in retail and the Australian consumer goods market? 

Mudditt, J. (2018). Spotlight on Australia’s supermarkets and grocery industry . Retail World.

Pash, C. (2017, October). Hot competition is back in Australian supermarkets. Business Insider.

Pride, W., Ferrell, O., Lukas, B., Schembri, S., Niininen, O., & Cassidy, R. (2018). Marketing Principles. Asia Pacific: Cengage.

PWC. (2014). The rapid growth of online shopping is driving structural changes in the retail model. PWC.

Rice, J., & Martin, N. (2018). Company results: how competition is transforming Australia’s retail sector. The Conversation.

Sims, R. (2016). Enhancing Competition in the Retail. AFR Retail Summit. Melbourne.

Swier, G. (2005). The nature of competit. ACCC Regulatory Conference. 

Thomson, J. (2017, October 25). Coles boss John Durkan’s work to find growth won’t get much easier. Here’s why. Financial Review.

Wedel, M., & Kamakura, W. (2010). Market Segmentation: Conceptual and Methodological Foundations. Springer Science & Business Media.

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