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Australian Supermarket Industry Analysis

Essay by   •  November 28, 2018  •  Case Study  •  2,182 Words (9 Pages)  •  65 Views

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INTRODUCTION:

The Supermarket industry comprises the biggest food trade network in the United States, which include conventional goods like dairy items, groceries, seafood. Woolworths and Coles are the major players in this context. Coles Supermarkets Australia Pty Ltd is an Australian supermarket, marketing, and customer help franchise, whose parent company is Wesfarmers. George Coles established the company in the year 1914, in Collingwood. Coles oversees about 807 stores all over Australia, with its headquarters in Melbourne. The Woolworths Supermarkets is another Australian grocery retailer franchise that was set up in 1924. It is under Woolworths Limited and primarily deals in marketing groceries. They also trade with domestic and healthcare merchandises and stationery articles. Woolworths runs 1000 stores all over Australia. Woolworths and Coles together regulate approximately 80% of the supermarket industry and there is a constant business rivalry between these two companies. According to ‘Supermarkets and Grocery Stores in Australia’ report by IBIS World, Australian supermarket industry is aggressively competitive and concerted. Sometimes, these two companies get intimidated by Metcash brands, but recently, a German company named Aldi has ascended as their biggest competitor. Thus, the analysis of the changing scenario of the supermarket industry calls for revised and unique strategic policies for both Coles and Woolworths.

MACROENVIRONMENTAL ANALYSIS USING “PESTEL ANALYSIS”:

COLES

WOOLWORTHS

POLITICAL

The policies introduced by the Federal government hampered the functioning of Coles since it inhibits them from expelling rival establishments.

The lowering of the competition barrier adversely affected the Woolworths since it is an autonomous company.

ECONOMICAL

Due to the financially vulnerable nature of the country, consumers can spend lesser money on products. Thus, Coles has offered huge discounts on goods. Many of its rival companies have duplicated this strategy. This has led to a “Price War”, where only large establishments with extensive capital funds can survive.

The following factors drastically reduced the international manoeuvres of Woolworths: Deterioration of the financial condition in Australia and New Zealand, wavering exchange rates of currency and declining value of Australian dollar. 

SOCIAL

As the consumers favour reliable corporation, Coles has implemented several socially beneficial initiatives like focussing on the food insecurity concern and enhancing cancer care for all the people. Thus, it acquired the title of the “Fairtrade Retail Chain of The Year”.

Woolworths has a poor reputation regarding its suppliers being treated improperly. This led to a backlash and protests among the suppliers, who retaliated by providing inferior quality goods. Hence, the company must mend its relations with the suppliers urgently.

TECHNOLOGICAL

Technological progressions have been noticed in Coles as it has provided its consumers with online sites, self-checkout and electronic payment services. Implementation of cloud framework and three-branched attitude towards data regulation verifies its improvement.

Woolworths implemented the SAP-based marketing platform to boost its sales. The technological advancement of the company is very prominent by its adoption of the “green refrigeration technology” for storage of goods for a considerable extent of time.

ENVIRONMENTAL

Coles has established several environmentally friendly markets and launched many biodegradable products. In 2018, it banned the supply of non-biodegradable plastic bags to customers.

The gasoline and winemaking industries are causing serious damages to the environment which led to the downfall of business profits in these sectors. Thus, Woolworths is now embracing renewable resources of energy and go-green concept. It has also prohibited the single-use plastic bags.

LEGAL

Coles have been involved in serious legal altercations with Australian Competition and Consumer Commission (ACCC) due to its immoral demeanour in 2011 in its transactions with several dealers.

The carbon tax levied by ACCC has also affected the profitability of the company. Also, NFF advised them to employ rigorous compulsory codes.

INDUSTRY ANALYSIS:

The life cycle of a business is segregated into five phases: commencement, progress, stagnation, the peak of success, and regression.

1) Pioneering Phase: Demand is inadequate because customers are not yet aware of the performance and attributes of a newly launched product. Establishments at the start-up period expected to get low profits and returns from their investments

2) Growth Phase: Slowly the product gets noticed by the consumers leading to an increase in the industry's profitability. There is a reduction in the prices of the items to attract more customers and bear with the increasing demands.

3) Mature Growth Phase: When an industry reaches this stage, the growth is no longer exponential. It faces strife competition from other ventures and profit returns diminishes.

4) Stabilization/Maturity Phase: The companies reach a saturation point where its products have become well known among consumers and there is a constant demand. The companies devise new strategies to prevent the entry of new establishments and maintain its profitability.

5) Deceleration/Decline Phase: The decline stage is characterized by decreasing growth as customers prefer other alternative options over the existing ones.

According to a report, the Australian supermarket industry is expected to grow by 2.2% in the coming years, mostly due to the growing requirement among consumers for good quality food items like organic vegetables and fruits.

  • Porter’s Five Forces Analysis: It proposes that industry attractiveness is concluded by analysing five interconnected aspects: 

(1) Bargaining Power of Buyers: The negotiating skills of customers in the Australian market is considerably higher since there are numerous stores and shops, thus providing the customers with a wide range of products to choose from. 

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