PESTEL And Porter’s Five Forces Analysis For Woolworths Group

Overview of Woolworths Group

Woolworths Group is an Australian corporation which operates in the retailing industry. The company is Australia’s second largest firm in terms of revenue after Wesfarmers Limited. The corporation was founded in 1924, and its headquarters is situated in Bella Vista, New South Wales, Australia (Woolworths Group, 2018a). It is the largest takeaway liquor retailer in Australia as well. Woolworths operates in more than 3,000 stores across Australian, and it has hired more than 205,000 employees (Woolworths Group, 2018b). It operates in different locations in Australia, New Zealand and India. Gordon Cairns is the Chairman, and Brad Banducci is the CEO of the firm. This report will analyse external environment of Woolworths Group by using PESTEL and Porter’s five force analysis. This report will evaluate internal environment of Woolworths by using VRIO model. Further, the report will examine issues faced by the firm and provide recommendations for addressing such issues.

Figure 1: Woolworths Group’s Logo

(Source: Woolworths Group, 2018b)

PESTEL Analysis

A PESTEL analysis is defined as an analytical tool that assists corporations in strategic planning. It is an acronym for political, economic, social, technological, environmental and legal factors (Jurevicius, 2013).

Figure 2: PESTEL Model Analysis

(Source: Business to you, 2016)

P: Political Factors

Woolworths Group maintains a positive political relationship with the government of Australia and New Zealand which allow it to operate between both organisations effectively. The firm receives government’s support because it provides employment to 205,000 employees. The economic stability in Australia ensures that Woolworths Group is able to work effectively. However, radical change in political disturbance can negatively affect its operations (McCarthy & Murphy, 2013).

E: Economic Factors

Mainly, Woolworths Group operates in Australia market, and the country’s stable economic condition is suitable for its growth. However, in 2016, the firm reported a loss of $1.235 billion due to a reduction in sales which occurred due to fierce competition and recession. High unemployment rate in Australia also negatively effects Woolworths Group’s operations since it is difficult for the company to hire talent employees (Griffith, Rodgers, Thompson & Dart, 2009). 

S: Social Factors

Woolworths Group focuses on providing high-level services to its customers by offering quality products. The firm closely monitors change in customer preferences and market trends while formulating its business strategies. Growing awareness regarding healthy lifestyle is positive for the firm since it offers high-quality products to satisfy its customers’ demand (Richards, Kjaernes & Vik, 2016).

PESTEL Analysis of Woolworths Group

T: Technological Factors

Woolworths Group uses different technologies to improve its operations such as self-checkout methods, online shopping facilities, Visa Pay Wave and others (Budmar, 2011). The firm use technology to improve its operations in order to maintain efficiency and effectiveness in the operations. Furthermore, it also uses IT system for improving the overall experience of its customers. The firm also uses RFID technology in its supermarkets for managing its operations and improving overall efficiency. However, the corporation failed to effectively implement its online shopping services which caused a major delivery system outage that made it customers angry (NEWS, 2017).

E: Environmental Factors

Woolworths Group complies with environmental regulations implemented by the Australian government to ensure that it reduce its carbon footprint. The company takes part in environment-related initiates for reducing environmental damages. The firm has planned to establish a circular economy approach by 2020 which focuses on improved recyclability, use of natural refrigerants, zero food waste and reduction in carbon emission (ASX, 2017). 

L: Legal Factors

Woolworths Group complies with different legislative regulations implemented by the Australian government relating to taxation policies, employment laws, workplace safety act, discrimination act and others. Furthermore, the firm has to check the quality of its food products to ensure that they are not hazardous for customers’ health (Hobbs, 2010).

Porter’s five force framework is referred to a tool that is used by marketers for analysing competition of business. The model assists in assessing strengths and weaknesses of an industry. (Hernandez-Espallardo & Delgado-Ballester, 2009)

Figure 3: Porter’s Five Forces Model Analysis

(Source: Joly, 2015)

The threat of new entrance for Woolworths Group is not significant because of high barriers to market entry. Firstly, setting up a new business in retailing industry require a substantial amount of investment and the enterprises have to ensure that they maintain excellent quality in their operations. Furthermore, the organisations operating in Australian retailing industry such as Wesfarmers, Coles, and Woolworths are dominating market leaders that make the entry for new business difficult. However, the launch of Amazon’s online shopping services in Australia from 2017 poses new threats for the enterprise (Carey, 2017).

Woolworths Group offers high-quality products to its customers at the relatively high price, and it faces fierce competition from Coles and Dick Smith. There are no additional charges for customers to switch the company, and they can easily select substitute products of Woolworths Group. Coles also offers rewind price strategy to its customers that increase the threat of substitute for Woolworths Group. The launch of Amazon’s online retailing services in Australia is another direct substitute for the firm because customers can easy purchase a wide range of products from the online website of Amazon (Sridhar, 2010).

Porter’s Five Forces Analysis of Woolworths Group

Due to fierce competition in the retailing industry, a substantial number of market shares are taken by the majority of leading firms. Therefore, suppliers have high bargaining power in the retailing sector. Furthermore, Woolworths Group focuses on providing quality products to its customers, and seasonal changes have a significant impact on the supply of food. The firm offers 100 percent fresh vegetables and 99 percent fresh meat to its customers, therefore, effective relationship with suppliers is crucial for the firm (Dos Santos, 2011). 

In Australian retailing markets, customers can choose between wide varieties of products between different price ranges. For example, Coles offer low priced products to its customers, whereas, Woolworths Group offers quality products at relatively high prices. Customers also have the option to purchase a wide range of products online from Amazon directly. Furthermore, there are no additional charges for switching between different corporations; therefore, bargaining power of buyers is significantly high (Keith, 2012).

Woolworths Group faces high competition in the retailing industry from already established brands such as Coles, Dick Smith and Wesfarmers. Due to fierce competition, the corporations reported a loss of $1.235 billion in 2016 which negatively affected the firm’s financial position (Boyd, 2016). In terms of revenue, the company is Australia’s second largest enterprise after Wesfarmers. However, new competitors are quickly capturing Australia’s retailing market such as ALDI and Coles. Therefore, competitive rivalry is substantially high in retailing industry in Australia.

Internal Environment Analysis

VRIO Model Analysis

The VRIO model analysis is an analytical technique which is used by marketers to evaluate a corporation’s capabilities or resources which assist in analysing its sustained competitive advantage. It is an acronym for value, rarity, imitability and organisation. The VRIO analysis model can be used by a firm to evaluate its internal capabilities and resources and find whether they can leverage such resources to generate sustained competitive advantage (Andjelkovic Pesic, Jankovic Milic & Stankovic, 2013).

 

Figure 4: VRIO Model Analysis

(Source: Vcomply, 2017)

Resource: Quality Brand Image

Value – Woolworths Group was founded in 1924, and it is one of the leading organisations in Australia. The firm is well known in Australia and New Zealand because it offers high-quality products to its customers. The firm offers 100 percent freshly grown fruits and vegetables to its customers. Australian appreciates quality products offered by the firm which are also grown in Australia (Luiz, Bowen & Beswick, 2011). Therefore, a positive brand image of providing high-quality products to its customers provides a competitive advantage to Woolworths Group.

VRIO Analysis of Woolworths Group

Rarity – Most of the competitors of Woolworths Group including Coles and ALDI focuses on providing lower-priced products to customers. They did not focus on the quality of the products; instead, they offer relatively lower quality products at low prices than compared to Woolworths Group.

Imitability – In order to offer high-quality fresh food products to its customers, Woolworths Group has established an effective supply chain management. It maintains a positive relationship with local farmers who provide fresh and Australian grown fruit and vegetables to the enterprise. Other competitors may face difficulty in changing their low-cost focused supply chain to offer quality products to customers.

Organisation – Woolworths Group uses its quality brand image while marketing its products and services to its customers. It has established a positive brand image across Australia and New Zealand. Therefore, the quality brand image provides a sustained competitive advantage to Woolworths Group and provides it above average returns.

Resource: Effective Supply Chain

Value – Woolworths Group has established an effective supply chain in Australia and New Zealand which enable it to manage its operations in more than 3,000 stores effectively. The company use technology to improve the operations of its supply chain management in order to ensure that each store is getting an appropriate supply of products. Woolworths Group’s supply chain also deals with local farmers who provide freshly grown fruits and vegetables to the firm. It enables the firm to offer high-quality products to its customers.

Rarity – The supply chain management of Woolworths Group focuses on quality of products whereas supply chains of Coles and ALDI focus on costs reduction.

Imitability – It is substantially difficult for Coles and ALDI to establish a quality supply chain because they have to change their business structure and it requires heavy investment.

Organisation – Woolworths Group is able to effective manage more than 3,000 stores across Australia and New Zealand based on its quality supply chain. It also ensures that the firm is able to offer quality products to customers. Therefore, it provides a sustained competitive advantage and above average returns to the company.

Resource – Large number of store

Value – Woolworths Group has established more than 3,000 stores across different locations in Australia and New Zealand.

Rarity – The competitor of the firm, Coles, has opened more than 801 stores in Australia.

Imitability – Although Woolworths Group has the largest number of stores, other competitors are catching up to them, and they are also investing in opening new stores in Australia.

Resource: Online Sales

Value – Woolworths Group offers its services through online medium to its customers across Australia.

Rarity – Other competitors such as Coles, ALDI, and Dick Smith also offers online shopping facility to their customers. 

SWOT Summary

Strengths

• Positive brand image of offering quality products
• Effective supply chain management
• A vast network of stores
• Availability of online shopping
• Effective supply chain management

Weaknesses

• High competition
• High pricing strategy
• Lack of innovation

Opportunities

• Investment in Online services
• Offering of lower priced products
• Collaborate with local firms

Threats

• Entry of giant retailers such as Amazon and ALDI
• Change in government policies
• Risk of cyber-attack on online website

Woolworths Group’s Issues

Following are different issues face by Woolworths Group while operating in Australian retailing industry.

• Entry of new online retailer Amazon and expansion of other retailers such as ALDI and Coles poses new threats for Woolworths Group.
• The firm has failed to use innovation to introduce new strategies and policies. The use of traditional methods results in the reduction of its profits.
• The online services of Woolworths Group are not able to handle heavy flow of customer due to which their website crashes. Additionally, it also poses the threat of cyber-attacks.
• The company only offers high price products to its customers whereas its competitors such as ALDI and Coles offer relatively lower prices on products. Therefore, Woolworths Group is unable to attack price-conscious customers (Knox, 2015).

Implications and Recommendations

Following recommendations can assists Woolworths Group in addressing is business issues and improving its profitability.

• The firm should improve its online services to face the competitor from Amazon. The company should improve the reliability and security of its online websites.
• The corporations should introduce new lower pricing strategy for its customers, so it is able to attack price-conscious customers and provide tough competition to Coles and ALDI.
• Effective supply chain management is one of the strengths of Woolworths Group. The company should use it to collaborate with other local retailers in Australia to expand its business operations and generate a competitive advantage over others (King & Thobela, 2014).

Conclusion

In conclusion, Woolworths Group has generated a competitive advantage due to effective supply chain operations and offering high-quality products to its customers. The firm has a positive brand image of offering quality and fresh products to its customers. The external environment of the firm is analysed in the report by using PESTEL and Porter’s five forces analysis. The internal environment analysis of Woolworths Group is conducted in the report by using VRIO analysis. Based on these analyses, the firm is facing different issues in the retailing industry such as heavy competition, lack of pricing strategy, lack of innovation, poor online services, and risk of hacking. Various recommendations are given in the report for Woolworths Group which includes improvement of online services, expansion of supply chain, and the introduction of lower pricing strategy. 

References

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Woolworths Group. (2018b). About Us. Retrieved from https://www.woolworthsgroup.com.au/page/about-us/