Strategies For Woolworths: Cost-leadership And Growth

Company background information

The main objective of this report is to identify the needs for strategic options to the current business of Woolworths. It is because the retail sector in Australia has become very competitive and that Woolworths does not also have a good global business strategy. These all create the necessity to analyze the strengths of the current business of Woolworths and recommend the need to adapt to new strategies.

The organization under analysis is Woolworths. The company was found in 1924. It is headquartered at New South Wales in Australia. It is one of the biggest supermarket retailers in Australia. It along with Coles has long enjoyed a duopoly in the Australian retail industry. However, Woolworths now faces threats from the rising popularity of Aldi and from its existing strategies that are less competitive than those of its competitors.

The study covers a brief background of Woolworths followed by identification and justification of strategies being adopted by the company. Afterward, the study evaluates the strategies of Woolworths to recommend the company the ways to identify the need to adapt to new strategic options. It concludes this report by summarizing the important findings.

Key findings include but not limited to like the ‘Project Refresh’ strategy of Woolworths is less effective than of Coles’ ‘Price Rewind’ strategy. The paper recommends Woolworths to undergo a ‘Strategic Analysis’ to identify the various strategic options. Once, the options are known, Woolworths can pick the one or few from those strategic options. The study says that these options need to be implemented in the Woolworths’ operations to produce the expected outcome.

Woolworths Supermarkets, which is one of the biggest grocery stores in Australia is a subsidiary company of Woolworths Limited. The company was founded in the year 1924. Woolworths is headquartered at New South Wales in Australia (Woolworths.com.au, 2018). Woolworths holds a unique reputation in selling various kinds of groceries, packaged food, fruit, meat etc. The number of locations where the company operates is close to 995. The revenue earned by Woolworths till the year 2015 is AUD42.132 billion. The total number of employees working for Woolworths is close to 111,000 (Woolworths.com.au, 2018). Product lines also include DVDs, magazines, health and beauty products etc. (Woolworths.com.au, 2018).   

‘Woolworths’ faces the competition from Coles and Aldi that recently grew to popularity in Australia. ‘Woolworths’ along with Coles follow the ‘cost-leadership’ strategy to remain competitive in terms of pricing. Recently, it has shown interest to the ‘focus-strategy’ as well. Their mission is “to provide the family of ‘Woolworths’ a wellbeing with competitively priced savings on fresh foods, vegetables, groceries, packaged foods and fruits”. Their vision is “to be the preferred provider of retail services” (Woolworths.com.au, 2018).

Identify and justify a strategy chosen by the company

Business-level strategies

Business-level strategies are in general of three types such as cost-leadership, focused differentiation and differentiation.

 A cost-leadership strategy is adopted to offer products at cheapest prices in a given market segment. Focused differentiation is the most suitable business-level strategy while aiming a specific market segment by either offering the lowest prices or by offering unique products’ attributes. A differentiation strategy is about offering unique values to customers in a particular market segment by distinguishing the offers from competitors (Serra & Kunc, 2015).

‘Woolworths Supermarkets’ follows the ‘cost-leadership’ approach. ‘Pricing’ has always been an essential and fundamental part of Woolworths’ business-level strategy. ‘Woolworths’ along with Coles have dominated the Australian retail industry with their cost-effective approach. However, price-based competition has now become more severe with Aldi emerging as a potential threat to cost-based competition (Grimmer, 2018).

Aldi is racing past to Woolworths in terms of cost-leadership by following a distinguished business model. ‘Woolworths’ follows the ‘every-day low price’ strategy whereas Aldi, a ‘weekly discounted offers’ (The New Daily, 2018). ‘Woolworths’ stores are bigger than the Aldi’s. It is to support an accommodation to a large product line. Hence, the pressure is more on ‘Woolworths’ for avoiding both an excess and shortage of products. Since ‘Woolworths’ follows the ‘every-day low price’ strategy, they are putting an added pressure on their forecast capability. Hence, chances of an occurrence of the ‘Bullwhip Effect’ is more in case of Woolworths than in Aldi’s.  

The bullwhip effect is a phenomenon, which defines instabilities in the various stages of the supply chain. It means that growing and reducing market demands can significantly impact the inventory management (Wang & Disney, 2016). Business follows a forecasting strategy to identify the demands and consequently, arrange the anticipated raw materials and resources. However, it sometimes becomes challenging and forecast can also fail. For example, ‘Woolworths’ follows the ‘every-day low price’ strategy to retain its cost-leadership. However, in doing so there are high chances for both overstocking and understocking of inventories. Therefore, exaggerated orders due to inappropriate forecast can result in inadequate inventories. An excess of inventory is itself a burden on the company’s financial capability, if consumer demands do not meet with the forecast, this may even lead to wasted resources (Udenio, Fransoo & Peels, 2015). Hence, the bullwhip effect suggests that ‘Woolworths’ might lose to Aldi in terms of holding the cost-leadership position.

Corporate level strategies can broadly be classified into three types such as growth, stability and renewal (Durand, Grant & Madsen, 2017).

Business-level strategies

Companies are into a ‘Growth’ strategy when these are aiming to enhance their customer base, market shares and neutralize the impacts of competitors. The purpose can be achieved by adapting to a number of strategies such as the follows (Engert, Rauter & Baumgartner, 2016):

• Expanding into a new market with new products and services to enhance the customer base and market shares
• Following a product-differentiation strategy to offer products better than competitors and thereby acquiring more customers and market shares
• Following a vertical integration to control the supply chain operation and so, controlling the production and enhancing the quality of the product. Consequently, customer satisfaction level will increase.
• Adhering to a horizontal integration to enhance the resource capabilities. It is generally done through a number of collaboration options like merger & acquisition, joint venturing, strategic alliance etc.

A ‘Stability’ type of corporate strategy encourages to sustain the business performance by being in the same market and maintaining the earned values. Examples include maintaining the market share, continuing to serve the same consumer group and sustaining the existing organizational performance (Lozano, Carpenter & Huisingh, 2015).

‘Renewal’ is a strategy, which companies normally follow when their businesses are declining and need a resurgence. Two most famous types of renewal strategies are turnaround and retrenchment strategies (Lloret, 2016).

Until recently ‘Woolworths’ has been following a ‘stability’ type of corporate-level strategy. It recently considered to switch over to a ‘growth’ strategy seeking a strong counter to Aldi. Aldi in the past few years has been very impressive with its new business model that enables to offer quality and fresh products ata most affordable prices. Aldi adopted a ‘weekly discounted sale’ over ‘everyday discounted offers’ of Woolworths. It paid off as Aldi was able to effectively manage the supply chain operation. Aldi’s forecasting capabilities are much more superior to that of Woolworths. Consequently, there are minimal wastages and hence, profitability margins are comparatively higher (Woolworths.com.au, 2018).    

As a solution to the highlighted problem, ‘Woolworths’ has planned to come up with a different strategy to bring innovation into products and services and to be the cost leader. A ‘Lean Retail Model’ will be adopted to improve business value and the customer service. Expected results of this switchover will be a much lower price, greater innovation and more gripping offers (Sorescu, Frambach, Singh, Rangaswamy & Bridges, 2011).

Networks, partnerships and alliances are done for many reasons such as to enhance resource capabilities, expand market presence, boost the customer base and strengthen the market dominion (Lewis, Tierney, Colla & Shortell, 2017).

Safeway’s acquisition was a significant move for ‘Woolworths’ as it helped the company to expand its market presence, increase the number of stores and the customer base. ‘Woolworths’ later on rebranded all its Safeway stores (Woolworths.com.au, 2018).

Apart from the Safeway’s acquisition, ‘Woolworths Supermarkets’ has not been into significant alliances. ‘Woolworths Limited’, rather has entered recently into an alliance with ‘Caltex’ (Woolworths.com.au, 2018).  

A global strategy is a process to enter the international markets and competing with the globalized leaders (Hotho, Lyles & Easterby?Smith, 2015).

Corporate-level strategies

‘Woolworths Supermarkets’ unlike the international retail giants such as Wal-Mart has a very minimal presence at the global level. Apart from its operations in Australia and New Zealand, ‘Woolworths Supermarkets’ has its presence only in China. In China, it does not have the physical stores but rather has an online store. With the help of Chinese e-commerce giants Alibaba, ‘Woolworths’ has launched its e-commerce website on the Alibaba’s Tmall Global online site (Woolworthsgroup.com.au, 2018). Since Australian products are highly popular in China for its quality, there are high chances for that the Woolworths’ move to open up an e-commerce store will be a success (Hotho, Lyles & Easterby?Smith, 2015).      

Strategies so far being adopted by ‘Woolworths’ has been successful in increasing service levels, market shares and customer base. The company is continually engaged in developing programs and strategies to boost its markets shares and the customer base. For example, ‘Woolworths’ has deployed ‘Woolworths select’ to include its own private brands in the product line. It was done in response to the growing customer issue for the products’ quality of private label brands (Woolworths.com.au, 2018).  

The fresh-food-people strategy has won the company significant profits. Woolworths was able to build up its strong brand image with this creative move. The long-term strategies of Woolworths are also paying off as it continues to expand its market presence such as in New Zealand and China and increase its customer base, number of stores and market shares. In New Zealand, there are plans to open up 15 to 25 supermarkets to the Woolworths’ chain of stores (Woolworths.com.au, 2018). However, there is a need to carefully monitor the market expansion and effectively use the growth strategy to ensure that every plan is placed in the right areas.  

The McKinsey 7?S model follows a theory that for an organization to perform expectedly well it is necessary that 7 Ss of the model are strategically aligned with the operation. Moreover, these 7 Ss must be mutually reinforcing. These 7 Ss are strategy, structure, systems, staff, style, skills and shared values. It indicates that all 7 Ss will have the shared values and hence, operations would be in control (Gökdeniz, Kartal & Kömürcü, 2017).

It is evident from the aforesaid-section that the McKinsey 7?S model will be helpful in evaluating the different strategies being chosen by Woolworths. The model should help in identifying the potential internal issue in the company, help understand what all could be changed to resolve the issue and how the possible outcomes will affect the existing system, strategy and all.

First of all, ‘Woolworths’ need to consider a change in its internal and external operation in response to the changing needs of consumers with passing days. The change could be time consuming and expensive as well; however, there is no other option than to undergo changes both internally and externally to attain a sustainable business. McKinsey 7?S model identifies a number of areas to be addressed by Woolworths to reduce barriers to the sustainable business. The four areas of Woolworths, which the McKinsey 7?S model will focus on are as follows (Gökdeniz, Kartal & Kömürcü, 2017):  

Structure: ‘Woolworths’ follows a multidivisional structure to allow an independent operation to all its stores. All its stores operate independently and differ from each other in terms of the range of offering and pricing. The strategy helps the company to boost its market shares and elevate the growth. The company is constantly focused on stores’ developments. As a result, a fresh-food strategy was adopted to redefine the taste and quality. Additionally, stores are becoming more spacious and fresh. The level of convenience for shopping will now increase for customers.  

Staff: ‘Woolworths’ staffs are constantly being given the training to provide them with a platform to groom their expertise skills. It follows a variety of modes for the training such as job training and apprenticeships. This is how the company is able to create a learning environment and promote the knowledge management. The McKinsey 7?S model suggests that ‘Woolworths’ should further invest in training and development programmes to promote the internationally acknowledged standard for customer service. This will help in improving the skill sets and competencies in employees. The human resource management in ‘Woolworths’ will need to play a very vital role to ensure that they follow the most updated and universally accepted guidelines for the training and development. Since the HRM at ‘Woolworths’ is largely focused on improving the quality of service with the help of skilled employees, they should certainly be able to perform at the international level.

Style: The style under the leadership of Roger Corbett has proved to be extremely successful for the company over the past 20 years. Roger Corbett was responsible for strategies such as ‘project fresh’ and ‘low price strategy’. Nevertheless, both of these did earn huge monetary benefits and accolades to Woolworths. The CEO was responsible for making the Woolworths’s supply chain as more efficient, effective and entirely customized. This helped ‘Woolworths’ the competitive edge over its competitors and the ability to produce products at low costs.   

Shared Values: ‘Woolworths’ shared values are taken care of by its stakeholders who are its shareholders, management, directors, suppliers, employees, government and the community. Since they have separate managers at their different stores, issues are easily resolved. These managers are the decision makers and are held accountable for any issues that happen at its different stores. However, managers need to show a rapid response to emerging trends to remain ahead in the competition.

The fresh-food-people and low-cost strategy was a success; however, ‘Woolworths’ need to work on product differentiation for a fact that the company has not been able to differentiate from competing companies. Since the market is standardized, there are high threats of substitutes. Woolworths need to target a new market segment and the consumer base by differentiating its offers from the competitors (Salazar-Ordóñez, Rodríguez-Entrena, Cabrera & Henseler, 2018).

There is a need to monitor the entire strategies of Woolworths to bring in the new ones, which is much more competitive than the existing. For example, ‘Project Refresh’ needs to be updated to be able to compete against the Cole’s hugely successful ‘Price Rewind’ strategy.

Existing strategies should focus on many issues like resources, financial and ethical issues. There is a need to have ideas and roadmap to successfully expand into the global market. In New Zealand, it needs to follow a differentiation strategy to offer distinguished products. Not just in the international market but also in Australia, ‘Woolworths’ need to follow a differentiation strategy on an urgent note to offer meaningful products at low prices to customers.

‘Woolworths’ follows the ‘Project Refresh’ strategy, which is less effective than of Cole’s ‘Price Rewind’ strategy in the current business environment. In order to compete against Coles in particular, ‘Woolworths’ must improve its control on the supply chain operation to manage risks and reduce the overall costs of operation.  

‘Woolworths’ should also work on its global strategy as the company still has a very minimal presence at the global platform. With exceptions in China and New Zealand, ‘Woolworths’ is nowhere in this world. On the other hand, Wal-Mart and Costco are hugely successful even in global countries.

The recommendation will be for a ‘Strategic Analysis’. A strategic analysis will help to identify and analyze the current strength of the business and understand the external factors that may influence the business. A strategic analysis along with strategic choice are the important components of the strategic management (SM) implementation stage (Papulova & Gazova, 2016).   

Factors to be considered for a strategic analysis are as follows (Papulova & Gazova, 2016):  

Table 1: Internal Factors

Table 2: External Factors

Table 3: Devices and Techniques used in for a Strategic Analysis

• Establishing the long-term goals
• Producing the strategy options
• Selecting the strategies
• Choosing the best and most feasible option to accomplish the mission and proceed with the implementation

In summary, the recommendation is broadly divided into four categories. At first, it says to set long-term goals. Then, it suggests going for identifying the strategy options by using suitable external analysis techniques. These techniques help to identify the strength of the existing business and the influence of internal and external key factors on the business. It thereafter recommends choosing the most feasible and appropriate to the needs ‘Strategic Options’.

The last stage asks to implement the chosen strategic option to improve the business performance. The implementation stage is the most challenging face of this entire ‘strategic analysis’ cycle. Woolworths may be needed to consider a number of changes in its existing strategies such as recruitment & selection, training & development, leadership style and others.

Conclusion  

In summary, this can be concluded that ‘Woolworths’ needs to undergo the change in respect to its different strategies. The change is required to be prepared both physically and technically for the adoption of suitable business strategies. The change in business strategies is required because in recent times ‘Woolworths’ faced a massive competition from Coles and Aldi. Woolworths does not also have a very good international presence as enjoyed by Wal-Mart and Costco. In addition, Aldi is giving a tough competition to Woolworths with the help of its cost-effective model. These all are alarming threats and should be noticed on an urgent basis. A sustainable existence in Australia and New Zealand and a successful global expansion are the current business needs of Woolworths. An appropriate and strategic preparation towards implementing suitable strategies is all what Woolworths mainly requires at the current business scenario.

References 

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