Political factors
There are number of macro environmental factors that are influencing the Australian supermarket industry. These influences are having more positive as well as negative impacts on the Australian supermarkets. PEST analysis will be done in order to understand these factors.
Australian political economy is relatively stable and having favorable impact on the business organizations. In addition, the pro business approach of the government is also having favorable impacts on the retail brands (Vandevelde 2017). It is reported that recently the foreign ownership is permitted in the retail sectors of Australia. This is having both positive and negative impacts on the Australian supermarkets due to the reason that permitting the foreign leadership is attracting new global players in the market that is increasing the competition in the market. On the other hand, having the more competition in the market is helping the consumers in having the access to more options. Existing Australian brands such as Coles and Woolworths are facing more competition due to the entrance of the foreign brands and this is affecting their profitability (Davey and Richards 2013).
In addition, the political stability in Australia is also encouraging the foreign retail brands to enter in the Australian market. However, one of the major negative factors in relation to the political environment of Australia is different rules and regulations in different states. It is identified that New South Wales and Victoria are having different sets of regulations regarding the retail industry (Hughes et al. 2013). This may have negative impacts on the existing supermarkets in the Australian market. It should also be noted that Australia is having free trade agreements with number of countries that is helping the supermarkets to have the opportunities to sources products from different countries (Hattersley, Isaacs and Burch 2013).
Social factors are also having influences on the business operation of Australian supermarkets due to the reason that change in the taste and preference pattern of the customers will affect the sales volume of the supermarkets. One of the major social factors is the age groups of the target market. If the major portion of the population is from the younger age groups then products for the younger generation will be in more demand (Ismail et al. 2015). This concept is applicable for the older age groups also. Hence, it is important for the Australian supermarkets to offer products according to the age demography in the target market. In addition, change in the consumption pattern will also affect the business of the Australian supermarkets due to the reason that supermarkets will offer the products in accordance to the level of the consumption of the customers (Sarvari, Ustundag and Takci 2016). For instance, if the customers prefer fruit juices over the carbonated soft drinks then it is important for the Australian supermarkets to offer varieties of fruit juices over the soft drinks. In the case study, it is stated that Australian customers are having preferences mode for the organic foods over the conventional products. Thus, supermarket brands such as Woolworths, Coles and Aldi are stocking with more variants of organic products (Rousseau and Vranken 2013). However, in this case it should be noted that radical change in consumption pattern of the customers will lead to a challenge for the Australian supermarkets in stocking accordingly.
Social factors
Economy of the target market will determine the market opportunity for the Australian supermarkets due to the fact that the more will be the growth of the economy, the more will be the purchasing power of the customers and business potentiality of the supermarkets. It is reported that Australian economy is growing at the rate of 0.6 percent as of 2017. This denotes that business potentiality for the Australian supermarkets is increasing (Manalo, Perera and Rees 2015). However, one of the major economic factors for the Australian supermarkets is attaining the cost leadership. This is due to the reason that majority of the Australian supermarkets are selling fast moving consumer goods. These products are highly influenced on the pricing factors due to the reason that point of differences is less and customers will opt for the options with lowest price available. Therefore, this factor is leading the Australian supermarkets to initiate cost leadership strategy to attract more customers by offering lowest price (Teeratansirikool et al. 2013). However, this factor is also reducing the average profitability of the supermarkets.
Technology is also an important determining factor for the Australian supermarkets due to the reason that technological advancements determine the level of customer convenience. In the current time, online shopping is a major trends for retail markets ad it is becoming more important for the Australian supermarkets to initiate their own online portal (Owolabi, Adelke and Abubaker 2013). This will help them to target the customers through the virtual mediums also. In addition, increase in the customer convenience will also help to increase the rate of customer retention for the Australian supermarkets. In the case study, it is reported that Australian supermarkets are initiating newer technologies such as self checkout systems and online payment systems to increase the customer convenience (Orel and Kara 2014). Thus, the level of technological advancements will determine the competitiveness of the Australian supermarkets in attracting new customers and retaining the existing customers.
In the case study, it is stated that even though there are number of regulations and limitations are emerging in the business of scenario of the Australian supermarkets but still new entrants are entering in the market thus proving the industry attractiveness to the new entrants. Thus, porter five forces analysis will be done to identify the industry attractiveness of Australian supermarkets industry to the new entrants.
End customers for the Australian supermarkets are having upper hand in bargaining due to the reason that they constitute the major portion of the revenue for the Australian supermarkets. In addition, with presence of number of supermarket brands in the market, customers are having number of options to choose from with having same level of offerings. However, on the other hand, growth of the Australian economy and population is also helping the Australian supermarkets to enhance the business potentiality. Therefore, it can be concluded that Australian supermarkets are having increasing opportunities in the Australian market and more opportunities are building that is motivating the new entrants.
Economical factors
Bargaining power of the suppliers is low in the Australian supermarket scenario due to the reason that large number of suppliers is available in the market (Lee and Gereffi 2015). In addition, in the recent time, majority of the Australian supermarkets are introducing private level brands that are further reducing the bargaining power of the suppliers. Thus, the new entrants are having the opportunity of initiating private level brands and take control of the backward integration as well (Schleper, Blome and Wuttke 2017). New entrants are having this opportunity of targeting the customers by private level brands as well as having less impact of the influence of the suppliers. This is also attracting new entrants in the Australian supermarket industry.
Threat of substitutes is high in the Australian supermarket industry. This is mainly due to the presence of number of supermarket brands in the market. In the case study, it is discussed that existing brands in the market are competing against each other by means of offering products in lowest cost possible and increasing the customer conveniences (Luttgens and Diener 2016). In addition, it is also identified existing brands are having number of limitations in terms of product range or conveniences and still earning profits from the market. This denotes that Australian market is having opportunities provided that newer and distinctive mode of competitiveness will be initiated. New entrants can still get succeed in the Australian market by the means of newer competitiveness. For instance, majority of the Australian supermarkets are operating in the mass market. Hence, newer brands are having the opportunities of operating in the premium category with less intensity of competition.
In the case study, it is identified that some of the major threats for the new entrants are the rules and regulations, investment requirement and gaining brand identity. However, in the case of Australian supermarket industry, entry can be made in small scale also. New entrants can have their operations limited in a particular region without expanding across the country (Schwenger,Straub and Borzillo 2014). This will help them to invest less and gain brand identity gradually. This condition together with the market growth is attracting the new entrants. On the other hand, large scale global organizations are not having these difficulties and they can have countrywide operations and tap the growing market in Australia.
If the new entrants can operate in the premium category, then the intensity of the competition will be less for them. This is due to the reason that majority of the Australian supermarket brands are competing with cost leadership. In addition, if new entrants can initiate newer competitiveness over the existing players, then it will further enable them to compete in the market effectively.
Technological factors
Currently, Australian supermarket industry is in the maturity stage as per the industry lifecycle model. This is due to the reason that Australian supermarket industry is having huge number of small and big brands. The market growth rate of the Australian retail industry is also depicting the maturity stage of the industry. This is leading to the saturation of the industry with having minimal potentiality of increasing revenue (Stark 2015). Industry competitiveness gets reduced in this stage due to the fact that a few companies will be able to survive in the market with the decreasing growth rate. In addition, the cost based competitiveness will also be reduced by the existing players due to the fact that probability of attracting new customers is low in the maturity stage. Thus, in this case, existing players in the market focus more on the product quality in order to retain their existing customer base. Thus, it can be concluded that competitive rivalry in the industry will get reduced in the maturity stage as per the industry lifecycle (Horvat and Dosen 2013). It is also to be noted that in the maturity stage of the industry lifecycle, product innovation also get lowered due to the reason that probability of attracting market with newer products is low.
Both Coles and Woolworths are practicing cost leadership strategies in their business operation. This is due to the reason that both of these organizations are offering regular price discounts to attract more customers (Tanwar 2013). In the case study, it is stated that Coles initiated “Down Down” campaign through which, they have reduced the price of more than 6000 products by an average of 10 percent. This shows that the objective of Coles is to target the customers over their competitors by means of offering lowest price in the market. On the other hand, it is also stated in the case study that, Woolworths also initiated a campaign named “price knockdown” through which, they have also reduced the average price of the products. It is also reported that this strategy helped Woolworths to increase their sales by more than 4 percent. The major objective of both the retailers is to increase the customer footfall and traffic and even offering products below their cost price.
However, on the other hand, it is also identified that differentiation strategy is also being followed by them. This is due to the reason that in the case study, it is stated that sales revenue of Woolworths got increased not only for their cost leadership but also for their different store format (D. Banker, Mashruwala and Tripathy 2014). This denotes that service differentiation strategy is also being initiated by Woolworths in order to attract more customers. Furthermore, it is also identified that both the Woolworths and Coles are initiating different technologies to offer differentiated services to the customers. Newer technologies are by them are helping them to offer their products different service quality with having the same core product level.
Industry attractiveness for new entrants
Entry of Aldi and Costco will not be able to pose significant threat in the short term but in the long term, they will surely pose threat to Woolworths and Coles. This is due to the reason that increase in the competitors in the market will lead to reduction in the profitability of the existing players. In addition, it is already identified that Australian supermarket industry is in the maturity stage that denotes that probability of increase in new customer acquisitions is less. Hence, the market share to be gained by Aldi and Costco will reduce the existing market share of Coles and Woolworths. In the case study, it is reported that both Aldi and Costco have entered the Australian market even with having a number of barriers of entry. This denotes the capability of both these brands in competing with the existing players (Luxton, Reid and Mavondo 2015). Both Aldi and Costco are well established in the global market and they are having the financial and resources required to compete in the Australian retail market. Point of differences between these brands is less due to the fact that all these retailers are selling same products of same brands. Thus, in the short term, Aldi and Costco will not pose threat to Coles and Woolworths due to their lower brand value and identity in the Australian market but in the long term, they will be able to pose significant threat once they get the required brand identity. The distinctive and unique business strategy including the service design will help both Aldi and Costco in posing threat to Woolworths and Coles.
References
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