Critical Analysis Of Strategies Used By Woolworths: Macro Environmental And Company Analysis

Macro Environmental Analysis

The supermarket and grocery industry are one of the most competitive industries in Australia. The expansion of existing supermarkets and the entrance of new chains of supermarkets have put all the companies to be in strong competition in order to make a dominance in the market. The sudden rise of ALDI in Australia has led the industry giants Woolworths and Coles, to cut off prices and make a global presence. Woolworths is one such supermarket industry who has struggled and has managed to take a higher place in the market.

Woolworths is a public retail company, founded in 1924, is listed on top of Australian Stock Exchange. It started its business from Sydney’s Imperial Arcade. Through its strong strategies and processes, Woolworths has made itself accessible to over a large percentage of people. The company’s marketing strategy aims to provide access to a wide range of products at reasonable prices. This report aims at discussing macro environmental analysis, product, distribution, company’s analysis, its resources, capabilities and core-competencies. The end of the report shall determine the strengths and strategy used by the company so far to make itself well established in the market.

The Australian supermarket Industry is a duopoly between Woolworth and Coles. The company comprise 70% share of the market. Their main target is the household items, goods etc. to capture major portion of the revenue. Salient trends in macro environment will be discussed and how they will affect the profitability of Woolworth in future.

• Socio-cultural factors: – One of the major factors affecting the industry is the increased consciousness of the people towards their health and wellbeing. Due to this, they are moving towards organic products and some healthy alternatives. There are very less companies that are offering organic products, so it’s a golden chance for Woolworth to promote its industry and spread its market. It can increase its long term sales by promoting various good strategies. Another factor would be the increasing number of customers who are time poor. Changing age and population not only affects the location decisions for a company but also has a major effect on the products available in the market. More population growth will result in the construction and making of new supermarkets.
• Economic Factors: – The current economic strategy of high cost product has led to a low level of customer, especially with the daily essentials and household goods. As a result, the customers are getting attracted towards products with low costs. This way, the bigger supermarkets are giving chance to small chains to make their place in the market. Provision of private labels also gives a chance to the supermarkets to choose a lost-cost alternative.

According to Australian Competitors and Consumer Council, the ACCC, the Australian supermarket industry is being dominated by two players, Woolworth and Coles. They together contribute 80% of the market share. There as various competitors in the market of the same field, like the wholesalers and retailers, for e.g., IGA and ALDI, Coles and Woolworths play a major role in controlling cost prices. This as a result will force the smaller companies to merge with the bigger ones or they will shut down as they will not be able to compete. In the short term, customers will be highly benefitted as the cost of the products will be pretty low. If this dominance continues in the supermarket industry, there will be nothing left to compete as the both the tough competitors will keep their product prices low to stay in the market and as a result, the opportunities will lessen down (Windapo, 2018).

Coles and Woolworths have more stores than their other small competitors. They are widespread across many towns and have a better availability of products across the country. If these companies have a major dominance, as it can be seen form the data, the other companies will never be able to compete. Currently the market is running, keeping in mind, the needs of the customer, but the companies have not set the prices according to it. They have kept set prices which offer them profits and the customer anyhow has to accept and acknowledge the market price of the product. There is a common phenomenon, the more the product is sold at any particular store, the fewer prices it is. It comes up with the best offers. The costs linked with the wholesaler give more bargaining power to the customer. Similar can be said for Woolworth and Coles who are the market leaders and people love to buy products from their stores instead of their competitors. Giving low prices satisfies the customer initially, gradually giving a marginal benefit to the company. Also, the companies have used technologies which give benefits to the customer on banking transactions before or after the shopping are done. They get bonus points on every purchase. This makes the customer do more and more shopping in order to get more bonus points which becomes profitable to the company (Yu & Shunko, 2017).

Industry Analysis

We shall discuss the profitability of Woolworths in the Australian supermarket industry.

1. Threat of Substitutes: -The Company is highly subjected to threats because of many other competitors in the market. Woolworths has many indirect competitors like, wholesalers, retailers etc. they are putting serious threats in the future.
2. Rivalry among competitors: – There is a high degree in the market, with other tough competitors. This happens because of small companies which are giving a feeling of competition in the market. The competition is based primarily on price, location of the supermarket, and the choice of the product(Boari, 2016).
3. Bargaining power of suppliers: -Initially, the bargaining power of suppliers is very low. As we already know, they contribute 80% of the market. Woolworths is the major producer in the market, in fact the largest producer in this field. Some international brands like do not dare
4. Threat of New Entrants: -The threat of new entrants is very low, and the set remains unchanged. The main dominance goes to Woolworths giving a tough competition in this field. The investments in this field would be massive, and the small companies cannot bear this massive competition.
5. Bargaining power of Buyers: – The buyer power of costumers is set to increase in near future. As the companies is keeping a low cost product, and gives a better availability of the stores, the percentage of the buyers’ increases. It gives chance to the consumer to compare the prices and choose the cheapest alternative(Hampton & Stratopoulos, 2015).

Porter’s five forces analysis. [mindtools.com]

The internal environment analysis is very important to decide its growth in the market. It decides the company’s strengths and weaknesses. If the strengths, and relationships are analyzed which form a value chain, it can be a source for uncovering potential sources for competitive advantage for the company. For e.g., the company’s poor performance in 2011 forces the retailers to view their business model again and rectify the problems. Internally, if the company is strong, it can achieve a good stay in the market (Asad, 2012).

• Resources: – The survey of year 2008 reveals that the company almost had 3000 stores spread in Australia, New Zealand employing almost 180,000 people. This shows that the tangible and intangible resources are very strong. It has efficient management and innovation skills, with a good brand reputation, and best quality product(Devinney, Yip & Johnson, 2010).
• Capabilities: – The organization’s skills to put their innovations into practicality are referred to as the capabilities of the company. Since 1924, the company is running successfully. It means it is capable enough to use its employees and resources efficiently.
• Core-Competencies:-

1. World class supply chain: – the company has an efficient supply chain which has led the company gain competitive advantage in the market.
2. Branding and Marketing: – Woolworths has utilized strategies in marketing the product by giving attractive offers at reasonable prices.
3. Innovation: – Woolworths has implemented various programs such as, re-fresh, the new idea program, petrol retailing.
4. Integration:-Woolworths has vertically integrated some of its supplies by producing its own inputs to increase its market power and to respond to its private level trend(Gupta, 2013).

• The VRIO framework: – The VRIO framework of any company describes the capabilities and internal resources and also tells whether the company will have a long sustainability in the market (Min, Min, Jang, Han & Kang, 2016).

1. Valuable: – The first case explains whether the resources are adding value to the company and defending the company against threats. If it is yes, the resources are considered to be valuable. They will definitely increase the customer value for the company. Those resources which do not meet, lead to competitive disadvantage. So, it is necessary to keep evaluating the resources depending on the changes in external and internal factors.
2. Rare: – Resources that are owned by very few companies are considered to be rare. This combination of rare resources gives an advantage to the company. Competition starts when most of the companies are using the same product.
3. Costly to Imitate: – If the resources are not in abundance or is owned by the organization, then it is difficult to imitate. Imitation happens in two ways: duplicating the product or substituting the product.
4. Organized to capture value: – The resources have no advantage to the company if they are not properly organized. The management policies, processes and organization structures must be well planned so that there is least risk of imitations. Then the company has great competitive advantage.

The VRIO framework model [Strategic Management Insight]

Currently, the grocery industry in Australia is turning competitive from the time Aldi has entered the market.Woolworths‘s toughest and strongest competitor is Coles Supermarkets. It was founded in 1914 and operates in supermarket and grocery industry. It generates revenue of $33.9 B less than Woolworths (Huang, Dyerson, Wu & Harindranath, 2015).

Competitor analysis [chegg.com]

This competition will intensify with coming time because customers are always attracted towards products which have a low price value. The increasing number of purchasing options will split the purchases resulting in marginal profits. But it will be a tough time for other supermarket industries to compete with the already established Woolworths because of its widespread availability of stores. They even stay open for late so which never gives a chance to the customer to go for other options. Their marketing strategies are strong which are tough to compete.

Woolworths, the biggest food retail in Australia drives various business strategies to make good profits and ensures its long sustainability in the market (Shelegia, 2012).

• Profitable Customer relationships: – For the company, the customer satisfaction comes first. They believe in being loyal to their customers, increase customer loyalty, retention and spend. They have combined customer bases where the problems and complaints of the customer are duly taken care of(Dégardin & Roggo, 2015).
• Integrated Competitive Strategy: – The Company uses cost elements and different elements to compete, with its efficient supply to cut costs, and build image to produce good quality product.
• Corporate strategy: – Wools worth’s vision is to deliver customer satisfaction, each and every time. The key strategy implies low cost products, better quality and services, in house experiences etc. To achieve this, the company does the following:-

1. Re-establish marketing campaign
2. Accelerate leadership in food and liquor
3. Break sales growth point.
4. Act on portfolio to maximize shareholder value(Cornell, 2013).

The reports present long term and short term recommendations for the company.

• Short term Recommendations: – To see the company achieve greater heights, Woolworths should invest a lot more in the advertising. Also, the company should create advertisements which show the publicity of the company, of how health and good the products are. How their healthy meals fit into the customers’ everyday routines. This would heighten the company’s progress which increase purchase likelihood. More importantly, the advertisements will focus on products that are available at reasonable prices, giving a widespread coverage to the company’s visibility.
• Long term Recommendations: – Woolworths must focus on customer convenience and an enjoyable shopping experience. Strategies should be made to renovate and refurbish the stores, such as light music, charming employees to help the customer and attractive offers available at the stores. These things will give a great shopping experience to the customer and will sustain for longer time with the brand. Also, it is recommended that the company should invest in different types of businesses to promote itself. As there is lot of competitors in the supermarket industry the profit is likely to fall in future. The company must put its hand in other dimensions too, so that the profit continues to increase. The sales growth of the company will tend to increase if the company experiments in home and hardware business.

Conclusion

It is recommended that Woolworths must keep planning more strategies to enhance its business according to the prevalent political conditions. It is also recommended that the company must enhance its support from skilled employees by way of additional training and development. It is concluded from various analysis that Woolworths is a strong supermarket industry and is difficult to compete. The new emerging companies will have to do a lot of hard work and plan various strategies to come at par with Woolworths.

References

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