WOOLWORTHS LTD 12
WoolworthsLtd Strategic Management
WoolworthsLtd Strategic Management
Headquarteredin Bella Vista, Woolworths Ltd is considered the largest and mostprofitable supermarket chain in New Zealand and Australia (WoolworthsLtd 2015). The company employs nearly 190,000 people in more than3,000 locations across New Zealand and Australia. Woolworths Ltd has156 supermarkets in New Zealand, 840 supermarkets across Australia,and 22 retail stores in India in a joint venture agreement withsupermarket chain Tata from India. It operates as a petrol, food,liquor, general merchandise and consumer electronics retailer, andalso operates in the gaming and hospitality sector.
WoolworthsLtd has six business divisions (Woolworths Ltd 2015). The first oneis Australia food and liquor, which operates grocery stores, such asWoolworths’ supermarkets and Thomas Dux and liquor stores, such asWoolworths Liquor and Langton’s throughout Australia. The secondone is New Zealand supermarkets, which operates under the followingbrands, Countdown, Fresh Choice, Foodtown, and Woolworths throughoutNew Zealand. The third one is petrol, which operates more than 550petrol stations jointly with Caltex. The fourth one is Big W, whichoperates more than 160 Big W department stores at a discount price inAustralia. The fifth one is consumer electronics, which includesTandy Consumer Electronics and Dick Smith Electronics Powerhouse.Finally, the sixth one is hotels, which operates more than 280licensed venues and gaming across Australia.
Thesupermarket industry in Australia is one of the most fiercelycompetitive. According to a research conducted by Roy Morgan Research(2015), the rapid growth of the ALDI supermarket company from Germanhas significantly changed the Australian supermarket industry. ALDI’smarket share has tripled from 3.1% in 2006 to 11.6% in 2015. WhileALDI market share has tripled, Woolworths’ market share has reducedfrom 40.3% in 2006 to 38.5% in 2015. Similarly, Coles’ market sharehas also reduced from 37.0% in 2006 to 31.8% in 2015.
Even though ALDI has the least market share in the industry, itsrapid market share growth is partly due to its private-labeledproducts, which are sold at a discount price. As a result, this hasforced the two well-established industry giants, Coles and WoolworthsLtd, to expand their ranges of private-labeled products and reduceprices. In spite of the reduced prices, the revenue in the industryhas remained strong. Therefore, while there is a positive projectedgrowth in revenue in the industry, competition between ALDI, Coles,and Woolworths Ltd will be what will determine its direction.
Thevision statement of Woolworths is “we, as passionate committedretailers, understand and lead our customers throughout excellenceand a deep knowledge of our products and services and the world welive in” (Woolworths Holdings 2009, p.5). It adequately addressesthe main aim of the supermarket, which is to understand customerbehavior in order to provide them with products and services thatmeet their needs. An improvement to the vision statement is toinclude the word “Australia” to address who the retailer isaddressing. Therefore, the vision statement will be “we, aspassionate committed retailers in Australia, understand and lead ourcustomers throughout excellence and a deep knowledge of our productsand services and the world we live in”.
Woolworths’mission statement is “to deliver to customers the right shoppingexperience each and every time” (Hubbard, Rice & Galvin 2014,p.37). It adequately addresses the main aim of the supermarket, whichis to provide customers with a memorable experience every time theyshop so that they can make repeat purchases. One improvement to themission statement is to include the word “low cost” to attractmore customers. Therefore, the mission statement will be “todeliver to customers the right shopping experience at a low cost eachand every time”.
Theobjective of Woolworths is to optimize network efficiency and improvestock return while at the same time making sure that its customersserved by156 supermarkets in New Zealand and 840 supermarkets acrossAustralia find the value for money for the products they purchase. Itadequately addresses the main aim of the supermarket, which is toprovide customers with value for their money when they purchaseproducts.
Toachieve its vision, mission, and objectives, Woolworths isprioritizing four strategies that include extending leadership infood and liquor acting on portfolio in order to maximize the valueof shareholders maintaining track record of building new growthbusiness and putting in place the enablers for a new period ofgrowth (Woolworths Ltd 2012).
Itis essential for Woolworths to understand and analyze the influenceof the internal environment on the achievement of business strategiesand profitability. This can be attained by conducting an analysis ofthe environment to investigate the success of the strategies that arepresently being pursued by utilizing SWOT analysis. SWOT analysis,which is a helpful framework used for analyzing the effectiveness ofthe current strategies in an organization by examining strengths andweakness, and the opportunities and threats, helps an organizationminimize threats, focus on strengths, and take advantage ofopportunities in order to gain a competitive advantage overcompetitors (Schermerhorn 2009). The following is a SWOT analysis ofWoolworths.
Woolworthhas received awards that has made customer trust it. In 2012, thecompany was voted the sustainable retailer of the year by BRM AMPAustralia retailer and given the rank as the biggest online retailerin New Zealand and Australia in terms of the range of products,business size, prices, and services (Woolworths Ltd 2012). Due tothis, the company is likely to attract potential customers whorequire a supermarket retailer that provides services and products ofdifferent varieties at affordable prices.
In 2015, Woolworth was the market leader in the supermarket industryin New Zealand and Australia with a market share of 38.5%, followedby Coles, with a market share of 31.8%, and ALDI, with a market shareof 11.6% (Roy Morgan Research 2015). At the end of the 2015 financialyear, Woolworths made a net profit after tax of $2,453.3 million(Woolworths Ltd 2015). Its position as the market leader and itsstrong financial performance enhances its ability to expand in thesupermarket industry by opening more stores.
Inabilityto maintain higher prices
Thegovernment of Australia has restricted Woolworths move to keep higherprices for its products in conjunction with Coles. This implies thatWoolworths cannot earn as much as it wants to support its highergrowth levels. Due to this, the company in the future is more likelyto see its net profit after tax reduce significantly.
Limitedgeographical market share
Themajority of Woolworths’ business is in New Zealand and Australia.This puts it at a disadvantage because international retailers maygive it a stiff competition by using its vast financial resources toreduce prices of products in order to gain a significant marketshare. One retailer that is doing this is ALDI from Germany. Since itentered the Australian supermarket industry, the company has gainedsubstantial market share from 3.1% in 2006 to 11.6% in 2015 (RoyMorgan Research 2015). As a result, Woolworths in the future is morelikely to lose its market share.
Movingto online retailing
Theintroduction of technology in the supermarket industry has reshapedthe way business is conducted throughout the supply chain. Thesupermarket industry is now approached differently by the developmentof digital commerce over the Internet. After Woolworths moved itsbusiness online across New Zealand and Australia, Big W’s onlineshop experienced a significant increase in transactions by 10% duringthe 2012 promotion (Woolworths Ltd 2012). Therefore, there isadequate opportunity for Woolworths to increase its net profit bymoving all of its businesses online.
Growthin the health food sector
Accordingto the United Nations (2010), the population of the world is forecastto reach 9.1 billion in 2050. This implies that to feed all of them,there needs to be an increase in 70% in food production (UnitedNations 2010). Therefore, there is an opportunity for Woolworths touse its market leadership position and its vast financial resourcesto open more stores around the world to serve the growing populationand increase its net profit.
Competitionfrom Coles and ALDI
Woolworthsis facing stiff competition from Coles and ALDI in Australia. Thecompany’s strategy to lower product prices in order to attract morecustomers is matched by Coles and ALDI. Although Woolworths isleading with a market share of 38.5%, there is a threat that itsrivals, Cole, with a market share of 31.8% and ALDI, with a marketshare of 11.6% may reduce its market share substantially in thefuture (Roy Morgan Research 2015).
Theexternal environment is full of uncertainty. Thus, it is vital forWoolworths to analyze and understand how business strategies andprofitability are influenced by the external environment. This can berealized by carrying out an analysis of the external environment toassess the success of the current strategies that the company ispursuing by using Porter’s Five Forces analysis. Porter’s fiveforces assess the current position of the level of competition in anindustry and the way various factors affect its performance(Schermerhorn 2009). The following is Porter’s Five Forces analysisof Woolworths.
Threatof substitute products and services
Thethreat of substitute is considered to be high because Woolworths isfacing many indirect competitors, such as farmer’s markets andconvenience stores. These indirect competitors are a serious threatto Woolworths in the future. With the trend moving from unhealthyfood towards healthy ones, farmer’s markets that sell organicproduce pose a serious threat. Convenience stores have expanded,offering a “one stop shopping” for its customers just likeWoolworths. There is a threat that convenience stores may attractcustomers and reduce Woolworths’ market share.
Rivalryexists among the competitors in the retail industry in Australia.This is due to the small number of major players in the industry andtheir inability to differentiate the products and services. Thus,competition is mainly based on price. If Woolworths reduces itsproduct price, Coles and ALDI also reduce their product price. WithALDI supermarket increasing its market share rapidly and Woolworthsand Coles reducing their market share rapidly, the competition is setto become even fiercer among the three major competitors as they tryto gain and maintain market share.
Bargainingpower of suppliers
Thesuppliers have a lower bargaining power over Woolworths and Coles.With Woolworths and Coles having more market share a majority of thelocal producers in Australia have a limited selection of retailers tochoose from. Thus, Woolworths and Coles are the major purchasers ofproducts from producers. However, this is going to change with theFederal Government of Australia commitment to lower the barriers ofcompetition and the expansion of ALDI supermarket from Germany.Therefore, at the moment, the bargaining power of suppliers is low,but in the future, the suppliers will have a higher bargaining powerbecause of the possibility of new entrants.
Bargainingpower of customers
Eventhough the customers have a lower bargaining power, this is set toincrease in the future. This is due to the push by the FederalGovernment of Australia to lower the barriers of competition in orderto allow new supermarkets to enter the market. As a result, thebargaining power of customers will increase. Further increasing thebargaining power of customers is the increased ability of customersto make product price comparisons between websites. As customers getto choose the cheapest products, their bargaining power increaseswhile the bargaining power of retailers reduces significantly.
Threatof new retailers
Thereis no threat of new retailers in the Australian retail industry. Thepotential retailers will have to compete with the economies of scalesthat Woolworths and Coles enjoy. Hence, the investment in facilitiesand infrastructures will be massive, and getting an experiencedmanager to manage them will be challenging. Only a few overseasretailers, such as ALDI, have the investment and the ability to getan experienced administrator to manage.
Asdiscussed earlier, the strategy of pricing is the most importantfactor in the Australian retail industry. As such, one of Woolworths’organizational strategies is cost leadership. The otherorganizational strategy is product differentiation.
Costsleadership strategy is considered as a combined set of actionsdesigned to deliver and produce services or goods at a lower cost inrelation to competitors, with features that customers require (Peng2013). Woolworths has implemented a low cost policy known as“sale-up/cost down”. This policy has been successful in loweringthe price of their products. The issue with this policy is that thecompetitors, such as Coles and ADLI, use the same low cost policy toprice its products. Therefore, Woolworths will need to develop a newstrategy to lower the cost of its products.
Thecompany should consider a low cost policy that focuses on cuttingoperating costs, such as using just-in-time strategy to manageproducts in a supply chain in order to reduce wastage by making theproducts arrive at the retailer at the required time. To successfullyaccomplish this, Woolworths will need to a replenishment program thatpredicts the amount of products that are required at each of itssupermarket stores across Australia. As its mission statement statesit, the strategy has the advantage of reducing the overall costs bycutting wastage and deliver to customers the right shoppingexperience each and every time they shop by reducing the price ofproducts.
Productdifferentiation is considered a strategy where businesses offerproducts that are different from competitors (Peng 2013). The maincompetitors in the retail industry in Australia offer the sameproducts that Woolworths is offering to customers. Therefore,Woolworths needs to offer differentiated products to its customers.In order to accomplish this and fulfill its vision, the company needsto continue to provide a fresh range of healthy meals to customers atreasonable prices through advertising to create awareness tocustomers with deep knowledge of its healthy products. This is likelyto make Woolworths synonymous with healthy consumption. This couldprove a differentiating factor that could give it a competitiveadvantage over Coles and ADLI.
Woolworthsis considered the biggest retailer in New Zealand and Australia. Asit can be seen from the analysis of external environment fromPorter’s Five Forces, the company is facing high competition in anindustry with a high threat of substitute services and products. Itcan also be seen from the SWOT analysis of Woolworths’ internalenvironment that it has strengths and weaknesses, and also threatsand opportunities that it should consider when creating competitivestrategies. Therefore, the company can implement cost leadership andproduct differentiation strategies to take advantage of the availableopportunities and minimize threats from its weaknesses.
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