Dominance of Woolworths and Coles
Grocery food retailing is transpiring in different retail formats with a small fraction of wholesaler managed chains, publicly listed supermarket chains, and global operators entering the Australian market. These rival with more than 31,000 specialty food businesses that cut across single shopfronts and multiple franchise operators. In Australia, the grocery retail market has been predominated by a moderately small market, low growth in population and vast distances. This necessitates economies of scale for rational traders to produce food and other grocery stuff to consumers across the Australian market in a regular manner. Like many other sectors in the Australian economy, the grocery sector has traditionally been oligopolistic subject to the republic’s reasonably small population, the long distances between big cities and remote global location. According to Willoughby and Gore (2018), Woolworths and Coles were the leading suppliers that have traditionally dominated Australia’s grocery sector. However, since the arrival of Aldi food Store Company, a low-cost model has emerged in Australia that is winning share and challenging the control of the grocery market by the former (Spellman, 2016). Aldi arrived in Australia in 2001 and had exponentially grown to employ over 8,500 staff across 372 stores at the present times.
Nonetheless, multinational grocery companies are increasingly moving in, tempted by Australia’s comparatively robust economy over the last decade compared with the United States of America and Europe (Koiwanit, 2018). More recently, companies like H&M followed Hollister, Zara, Victoria’s Secret and Miss Selfridge in opening grocery outlets in Australia (Wardle & Baranovic, 2009). All eyes are now on the change in the market as analyst and policy makers in Australia expect all these firms to grapple with the increasing competition. Thus, there will be no room for suppliers to increase prices as they have often done implying lower profit margins for the superstore chains in Australia. In other words, the superstore chains in Australia will no longer dictate the operations of the grocery industry (Moon, Kang, Bae, & Bodkin, 2018). What this means is that going forward, all the grocery retailing firms in Australia are expected to be price takers and will be obliged by the grocery markets to accept the equilibrium price at grocery items sells (Price & Griffith University, 2014). In case any particular grocery firm in the Grocery industry in Australia would attempt to charge even a few coins more than the market price for any specific grocery product, it will not be able to make any sales and would end up closing business for incurring persistent losses.
New Competitors in the Market
Market failure according to Baskin and Olszyk (2018) ensues when the price mechanism is not able to account for all of the benefits and costs that are basic to deliver and consume a good. Wardle and Chang (2014) explain that a market would fail by not providing the socially optimal quantity of products (services or goods). Briefly elucidated, market failure signifies that prices fail to offer the proper signals to economic agents, i.e., both producers and consumers such that the market does not function in the traditional way. In the context of the Australia Grocery Sector, the ALDI’s quick growth since it made its debut in 2001 in Australia has reverberated the sector, with its private-label merchandises turning out to be highly accessible and stimulating perfection in the private-label commodities that are offered by Woolworths and Coles (the earlier entrants in the market). According to Sutton-Brady, Kamvounias and Taylor (2015), the popularity of ALDI can be primarily attributed to its discount strategy on private-label products. The growth of ALDI has necessitated the two established giants in the grocery industry, Coles and Woolworths to cut prices and to increase their private-label merchandise ranges (Shaikh, 2016). Nevertheless, smaller superstore chains, for instance, Food-works, have struggled to remain at par with the competition in an ever price-intense industry. Into the bargain, industry-wide profit margins have dropped over the last five years as players had lowered prices of the grocery products and accepted reduce margins to remain competitive.
Even though more multinational companies like AmazonFresh, Kaufland and Lidl are expected are expected to make their debut in the Australia’s Grocery market in the next six years, smaller local superstore chains, for instance, Food-works, is supposed to continue struggling to remain amid rising competitions in the industry because few firms dominate the market (Baskin & Olszyk, 2018). Owing to these, local companies are closing shops as the cost of sustaining their businesses will be higher considering that the pricing of grocery products is mostly expected to fall as more international suppliers of grocery goods move in to tap the attract Australia market.
Besides, since grocery products are heavily reliant on agricultural activities in Australia, this sector has been the hardest hit by market failure, i.e., few suppliers of grocery products. This is because the few suppliers have a monopsony buying influence over the local Australian farmers owing to reduced margins. This, in turn, squeezing the profit margins of the farmers by the big supply chains which have dominated the market. In case the farmers would decide not to sell to the big superstores they cannot sell their harvests; this would end up putting them in an awkward position. According to Wardle and Chang (2014), volatile supply and volatile or a sharp drop in price result in a fall in revenue for farmers. Accordingly, farmers are forced to close business in cases where prices plummet below cost and thus do not share the same benefits of economic growth that is associated with a growing number of new entrants.
Impact on Local Companies
As earlier mentioned, Australia’s grocery sector has remained oligopolistic for the most prolonged period with two close lives, i.e., Woolworths and Coles dominating the market and thus heavily influencing the prices of grocery merchandise. Even though some international companies have arrived in the market, the two earlier entrant in the Australia grocery industry still dominates the market. The Federal Government of Australia has publicized they will be loosening limitations on international supermarkets arriving in the Australian marketplace. The changes will offer superstores with five years to grow and develop unoccupied commercial land contrary to the current one-year allowance. The new rule is intended to entice international corporations like Costco, Tesco, and Wal-Mart into Australia. According to Estember and Berdan (2017), competition is the only way to reduced pressure on prices. In Australia, Woolworths and Coles have created artificial barriers for new companies. International superstores, Franklins and Aldi, have tried with limited accomplishment to infiltrate Australia’s grocery market and have often complained of legislation that ensures their competitiveness is restricted.
Besides, the Australian Government has also created artificial barriers to entry for businesses which are expected to develop their land within 12 months, which is not a practical necessity for them. By eliminating these entry requirements, the Federal Government is trying to level the playing field by giving such companies a chance to compete. These changes in legislature come amid calls of the Australian Competition and Consumer Commission to investigate grocery prices and rising alarm regarding the state of competition within the sectors. As it stands currently, Woolworths and Coles share nearly 80 percent of the whole grocery market, making it the most concentrated superstore industry in the industrialized world.
Before this new rule by Australian Competition and Consumer Commission, international supermarkets, Aldi and Franklins, have been trying with limited success to infiltrate Australia’s market and had time and again criticized the legislation that has been guaranteeing that their competitiveness is limited. Both Franklins and Aldi and welcomed the new regulations but says that more has to be done as the rules will only provide a short-term fix, since it is a longer-term structural issue. As luck would have it, Franklins have just publicized their first full-year profit in Australia since their entry in 2001.
Changes to the Australian Competition and Consumer Commission legislation are expected to help American retailer Costco whose access into the Australian Grocery marketplace has, up to the present time, been upset by red-tape. The Australian Retail Association have also applauded the changes but criticized their ability to reduce prices. The Australian Retail Association will depend on Australian Competition and Consumer Commission for more details to the governors of grocery pricing, but then again, for now, it can be safely argued that new competitors in Australia’s market will drive down prices as these new players are will be sourcing grocery goods from both local and international suppliers. According to Wardle and Baranovic, (2009), in case of goods are obtained locally, demand for the product is expected rise and prices will escalate accordingly. Meanwhile, Coles and Woolworths did not give a positive impression about the official announcement of the Australian Competition and Consumer Commission. For the two companies, while they accept as valid that Australia’s grocery sector is at present fiercely competitive, they have no problem with new players arriving the market.
Challenges Faced by Australian Farmers
From a personal perspective, agree with the statement that market failures only occur in developing countries and not in the developed countries. For developing nations, there are a collection of many small economies that are primarily dependent on agriculture (primary goods). Thus, the pricing of goods and services is heavily determined by the demand and supply of the agricultural products which are subject to many factors including climatic conditions (IBISWorld Australia, 2004). Since most of the farming goods are obtained locally, demand for the good is expected rise and prices to escalate accordingly thus causing market failure. At the same time, it is common to find such countries opening their markets to lure foreign companies to invest in their economy by offering lucrative deals (Forslund, 2014). In essence, the influx of foreign investors in such countries increases the level of competition forcing the local startups and existing companies to struggle. For those that are successful, they remain in the market but make a handful of profits that can only sustain their operations costs. For the unlucky ones, they are forced out of the market.
Market failure cannot occur in developed economies as their existing comparative edge may lie in producing secondary goods which have a high elasticity of demand (Smyth, 2015). Unlike emerging economies, developed countries deal with manufactured goods. With international growth, the need for the manufacturing of products increases more than the agricultural products in developing countries. Thus, relying on manufacturing sector lead to high rates of economic growth. Besides, developed countries can import goods from international markets contract to developing nations which mainly depend on local goods (Harris, 2016). As stated earlier, an overreliance on local products, causes the demand for the good to rise and prices to escalate accordingly.
Conclusion
As customers distance themselves from the old-fashioned superstore model, grocery retailers are struggling to stay competitive by creating more friendly and groundbreaking grocery shopping experiences tailored to different consumers with a stress on fresh, organic and readymade food selections. As some big supermarket chains have aggressively looked for associations with lowly positioned retailers, other grocery stores have failed to acclimatize. Notwithstanding, the household consider a variety of factors when buying grocery and food commodities. These take account of the location of the store, price, type, and quality of a product, opening hours, queuing time, and entry to car parking. For stores like superstores, price plays a central part in this mix.
On the other hand, smaller stores repeatedly compete by accessibility, with some shoppers ready to pay higher prices for hassle-free spending. This fashion a link between convenience and price that reinforces competition across rival retail outlets in spite of price differentials. That said, the inhabitants of Australia have the opportunity to evaluate different costs and convenience dynamics when determining the type of food or grocery merchandises they buy and the retail outlet from which those commodities are obtained.
References
Baskin, E., & Olszyk, J. V. (2018). Mergers and Expansions in the Grocery Industry: An Amazon/Whole Foods Marketing Case Study. doi:10.4135/9781526445599
Estember, R. D., & Berdan, M. H. (2017). Ergonomic assessment and design improvement of shopping carts for the satisfaction of buyers in grocery stores and supermarkets. 2017 IEEE International Conference on Industrial Engineering and Engineering Management (IEEM), 7(2), 46-78. doi:10.1109/ieem.2017.8289889
Forslund, H. (2014). Exploring logistics performance management in supplier/retailer dyads. International Journal of Retail & Distribution Management, 42(3), 205-218. doi:10.1108/ijrdm-01-2013-0020
Harris, D. (2016). Policy Design and Industry Development Plans: Dairy Industry Experiences in Asia and Australia. Crucial Agricultural Policy, 6(2), 235-271. doi:10.1142/9789814689670_0009
IBISWorld Australia. (2004). Supermarkets and other grocery (except convenience) stores in Australia. Melbourne: IBIS World.
Koiwanit, J. (2018). ENERGY EFFICIENCY AND ENVIRONMENTAL IMPACT ANALYSIS IN GROCERY STORE MARKET IN CANADA. International Journal of GEOMATE, 15(49), 58-108. doi:10.21660/2018.49.3602
Moon, S., Kang, M. Y., Bae, Y. H., & Bodkin, C. D. (2018). Weather sensitivity analysis on grocery shopping. International Journal of Market Research, 1(3), 243-289. doi:10.1177/1470785317751614
Price, R., & Griffith University. (2014). Checking out supermarket labour usage: The nature of labour usage and employment relations consequences in a food retail firm in Australia(8th ed.).
Shaikh, A. (2016). Debates on Perfect and Imperfect Competition. Capitalism, 12(4), 327-379. doi:10.1093/acprof:oso/9780199390632.003.0008
Smyth J. (2015, June 17). Foreign competitors sour Australian grocery sector. Retrieved from https://www.ft.com/content/351943ae-14b0-11e5-a51f-00144feabdc0
Spellman, S. V. (2016). From Grog Shops to Grocery Stores. Cornering the Market, 8(3), 13-46. doi:10.1093/acprof:oso/9780199384273.003.0002
Supermarket Responsibilities for Supply Chain Workers’ Rights: Continuing challenges in seafood supply chains and the case for stronger supermarket action. (2018). doi:10.21201/2018.2494
Sutton-Brady, C., Kamvounias, P., & Taylor, T. (2015). A model of supplier–retailer power asymmetry in the Australian retail industry. Industrial Marketing Management, 51(5), 122-130. doi:10.1016/j.indmarman.2015.05.008
Wardle, J., & Baranovic, M. (2009). Is lack of retail competition in the grocery sector a public health issue? Australian and New Zealand Journal of Public Health, 33(5), 477-481. doi:10.1111/j.1753-6405.2009.00433.x
Wardle, J. L., & Chang, S. (2014). Cross-promotional alcohol discounting in Australia’s grocery sector: a barrier to initiatives to curb excessive alcohol consumption? Australian and New Zealand Journal of Public Health, 39(2), 124-128. doi:10.1111/1753-6405.12291
Willoughby, R., & Gore, T. (2018). Ripe for Change: Ending human suffering in supermarket supply chains. doi:10.21201/2018.1787
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
