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Environmental Analysis Of Woolworths

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Question:

Discuss about the Environmental Analysis of Woolworths.
 
 

Answer:

Introduction

The Woolworths is a company that operates the grocery and retail business. It is the largest company in Australia and has further expanded to New Zealand. Woolworths was established in 1924 and has a significant market share of about 40% in Australia and is ranked 2nd out of 2000 retail companies in Australia (IBIS world, 2016). In 2016, the company had around 205,000 employees and the number is expected to increase as the company continues to open more branches. It has invested in many portfolios and operates supermarkets, Thomas Dux, food for less; petrol; liquor; general merchandise; home improvements and hotels and gambling. There is a fierce rivalry between Woolworths, Aldi, Coles and others where both deals in the retail business. However, the ever-changing business environment especially the external factors are a great challenge for the company. The problems are identified through the PESTLE analysis, and both the political, economic, social, and legal factors have significantly affected the company performance.

It is, therefore, imperative for the management to maximize the opportunities and its strengths to remain competitively strong. However, by analysing the internal environment of Woolworths, it is quite clear that optimizing on the company’s positivity has been the primary strategy that has resulted in the significant growth. In getting a complete picture of Woolworths regarding the internal and external environment, PESTLE and the Porters Five Forces have been explored.

 

Industry analysis

The grocery industry has significantly created employment for many people in Australia. As the employment rate increases, unemployment level reduces. Thousands of people have hired to work in the stores, located at various points in Australia. The industry has therefore improved the Gross Domestic Product (GDP) of Australia and spurred more economic developments. The lifestyles of individuals have improved as they can meet some of their dreams from the income earned from employment (Byrne, et al. 2016). The recent reports published by the Australian Bureau of Statistics (ABS) stressed the contributions of the retail and grocery industry in building the Australian economy (ABS, 2016). For instance, in 2015, the retail and grocery industry contributed to 2.2 percent increase in the GDP (ABS, 2016).

Currently, the grocery industry in Australia is a fiercely competitive since the entrance of Aldi in the market. Apparently, Aldi has posed a threat to Woolworths’ differentiation strategy by applying pricing strategy. This strategy involves the offering of quality products at a low price. This strategy, however, has affected the market share that has been enjoyed by Coles and Woolworths for a long period (Pash, 2016). However, this competition that has been posed by the German Owned Aldi through price war has not significantly affected Woolworths and Coles profit. For instance, the company projects that for the next five years, the annual returns to grow by 4.1% to reach $105.1billion and a forecasted growth of 2.9% profits in 2016-207. This data simply shows how Woolworths is competitively strong in the industry (IBIS world, 2016).

In 2015, it surfaced that Aldi is stealing some market share from Woolworths where its graph increases every year. However, Woolworths has managed to withstand the market pressure for long, though the performance of 2016 dropped s shown in the graph (Woolworths Sales report, 2016). A significant investment of $90 billion has given Woolworths the opportunity to greatly invest in technology and hire qualified staff. From the study by Roy Morgan, the market share of Woolworths has reduced to 37.3%, whereas Aldi has risen to 12.1%. For Coles, the market share slightly increased from 31.8% to 32.5%, while IGA retained its market share of 9.7%.

The external environmental analysis of Woolworths

The external environment can be classified into two categories: the macro- environment and the micro environment. The micro environment is those factors that directly influence the organisation performance. They include customers, suppliers, intermediaries, competitors and the public.  On the other hand, the macro environments are those factors that affect Woolworths from outside. They include:  economic, social, technological, legal and demographic factors. Therefore, Porter five forces and the PESTEL analytical tools can be applied in the assessment of how macro and micro surrounding (Hanan, 2016).

The porter five forces

This tool examines the current situation and performance of a company. The areas that are assessed include the following.

Bargaining power of buyers: in the Australian retail trade, consumers have a wider variety of products and services to select. It is due to the availability of supermarkets and retail stores that provide necessity products to customers giving buyers high bargaining powers.  With the entrance of new players in the market that has consequently spurred stiff competition hence giving more powers to buyers (Porter and James, 2015). 

Bargaining power of suppliers: the retail trade being competitive, a significant number of the market share is taken by the majority. Therefore, suppliers have high bargaining power in the industry. In addition, the supply in foods is affected by the seasonal changes. In case the supply reduces due to changes in season, the suppliers usually have more powers. Woolworths Limited will adopt an efficient supply chain management to achieve their goal of customer satisfaction.

Threats of new entry: new firms which want to enter into the retail industry find it difficult because larger companies have already dominated the market. Hence, threats to new entry are considered to be lower to a company like Woolworths. This new entrance for instance Aldi has affected the profitability level of Woolworths (Mike, 2016). Perhaps, sales could have increased in the future where the market is now shared by close rivals.

Rivalry among existing firms: the Woolworths main competitors include Cole supermarket, Aldi, Asda, and more (Malcolm, 2015). They usually compete for high market share, and this makes the rivalry to be higher in the Australia retail trade.  This completion has affected the profitability level of Woolworths. The profitability has reduced because some of the customers that used to purchase products from Woolworths have now preferred shopping from competitors stores (ABC News, 2016).

 


The threat of substitute: these are products that can serve an alternative purpose as the existing one. The substitute products are always available (Low, 2015). To thwart this, Woolworths has embraced diversification and has offered consumers an opportunity to choose from the variety of products offered. Currently, it is also adopting the pricing strategy in Australia and in the international market, Woolworths is applying differentiation strategy to win consumers. These strategies will consequently result to increased sales hence profit maximization (Woolworths Limited, 2015).

Therefore, Woolworths should the understand these five forces and formulate viable strategies to enhance quality, provide what customers needs, employ sophisticated marketing strategy, control suppliers to be a cost leader and above all, it should totally incorporate technology in its processes. As a result, it will manage the competition and expand further (Kotler & Keller, 2016).

Legal-political factors

Apparently, it is imperative that all business organizations have no otherwise but to abide by legal provisions of the land fully. Woolworths has, however, instituted rules and policies in place that guides its staff to align with the constitutional imperatives of the land. They, however, understand the consequences of contravening the legal requirements and even employ law experts to advice when the management is uncertain of a particular matter. Moreover, Australia and New Zealand are countries that enjoy a long period of political stability (Tanya & David, 2015). The Economic relations inked between these two States have created a Conducive environment for the efficient operation of Woolworths.

However, the Woolworths performance has been affected in various ways. The political forces had negatively impacted the retail industry in Australia received a set blow when the government recently launched a campaign that aimed to block the developed companies like Woolworths from eliminating smaller retailers through unfair competition for the market. Therefore, the fair business policy enacted by both Australia and New Zealand Competition and Consumer Commission has significantly affected the performance of Woolworths. But because of the managements’ capability in establishing effective strategic measures, the company has managed to thrive in the industry and further command a significant market share (Woolworths Limited, 2016).

Technological factors

The technological breakthrough that is currently experienced has significantly affected how most businesses conduct their operations. Today, technological harnessing and innovations is a common trend that organizations are applying to sharpen their competitive edge. Woolworths has employed the technology in most of its operations. The Woolworths has used the green refrigeration technology to store perishable products. Also, the self check-out machine utilized by the company to scan, weigh and make payments significantly assisted in reducing the costs (Stannage, 2106).

 

Economic factors

These factors primarily deal with the performance of the country’s economic performance. It can be regarding the consumers’ purchasing powers, the exchange rates, inflation, among others. If the customers’ purchasing powers are too weak, the performance of the company is negatively affected. Also, the existence of inflation tends to raise the price of various products hence affecting the users buying behaviour.

Social factors

These factors include the demographic patterns and individual beliefs, norms, attributes and so on. It particularly covers people religion, language, gender, sex, age, population size, norms, etc. The demographic aspects in Australia keep changing. Consumers vary their demands according to technological changes, implying that they prefer consuming current products. Also, they consider purchasing products from organization leading in corporate social responsibility practices (Michel and Kannan, 2016).

Conclusion

Wrapping up, a keener analysis of Woolworths Limited internal and external environment through PES

TLE and Porters Five Forces apparently reveals that dynamic business environment has been a challenge. The growth and expansion focus have enabled it to enact strategic plans that align with both short and long term objectives. Furthermore, the unfavourable environmental metrics has also been a great challenge to the company that have affected the profitability level. Though the company still anticipate for more profits but the fact remains some of its customers have opted for cheap competitors’ products. The strong commitments towards ensuring that the customers are provided with the right products and creation of a healthy working environment to for the employees are part of the factors that have contributed to Woolworths’s success.

 

Recommendations

It is recommendable for Woolworths to:

Continue with establishing operational strategies that are in line with the industry requirement and within the organization ability. Then the management should give full support to ensure the strategies are implemented accordingly.

Invest in research and development as well as support creativity and innovation. These are the requisite that works hand in hand with technology and gives the company a competitive edge against rivals.

Lastly, the management should invest in imparting the relevant skills to the workers through training programs, mentorship, coaching to keep them informed of the company expectations.

 

References

ABS (2016) National Accounts, Quarterly Reports

ABC News, (2016) Woolworths posts $1.2b loss: food, petrol sales slump. Retrieved from:

www.abc.net.au/news/2016-08-25/woolworths-results/7783378

Byrne D., Fernald, J. and Reinsdorf, M. (2016) Does the United States have a Productivity Slowdown or a Measurement Problem? Brookings Papers on Economic Activity, March.

Hanan A.  (2016). An Exploratory Paper on Strategy Implementation: Industry Look at Some of the World’s Most Profitable and Most Innovative Companies, volume 17, issue 4

IBIS world, (2016). Supermarkets and Grocery Stores in Australia: Market Research Report. Retrieved on 19th Jan, 2017, from https://www.ibisworld.com.au/industry/default.aspx?indid=1834

Kotler P & Keller (2016) Marketing Management 15th Global Edition published by Pearson Education Australia Pty Ltd.

Pash, C.  (2016). Aldi opens its battle with Coles and Woolworths in South Australia: Business Insider Australia. Accessed on 19th Jan, 2017, from: https://www.businessinsider.com.au/aldi-opens-its-battle-with-coles-and-woolworths-in-south-australia-2016-2

Low, C. (2015). Woolworths trails Coles on grocery prices: Macquarie analysis

Show, Sydney Morning Herald accessed 1st Feb, 2017, from: https://www.smh.com.au/business/retail/woolworths-trails-coles-on-grocery-prices macquarie-analysis-shows-20150708-gi7iyz.html

Malcolm, K. (2015). Supermarket Monsters: The Price of Coles and Woolworths' Dominance. Red back

Michel W. and Kannan, P.K. (2016). Marketing Analytics for Data: Rich Environments Journal of marketing, volume 80, issue 6. P. 97

Mike King, (2016).  ALDI is stealing market share from Woolworths Limited, The Motley Fool, Retrieved on 1 Feb, 2017.

Porter, Michael E., and James E. H. (2015).  "How Smart, Connected Products Are Transforming Companies." Harvard Business Review 93, no. 10: 97–114.

Stannage, T. (2106).‘Marketing help: Marketing Strategies that work.  Business Consultancy Services, weblog post, retrieved 19 January 2017, from: <https://timstannage.com.au/marketing-help/>.

Tanya, S.B., & David, G.  (2015) Strategic Management: PEST analysis. Volume 12

Woolworths Limited (2016). Annual report 2016: Retrieved from <https://www.woolworthslimited.com.au/ annual report/2015/files/Woolworths_AR_2015.pdf>.

Woolworths Limited (2016). Annual report 2016: Retrieved from <https://www.woolworthslimited.com.au/ annual report/2015/files/Woolworths_AR_2015.pdf>.

Woolworths Sales report, (2016).  "Full Year Results - Financial Year 2015, Page 21" (PDF). Retrieved 1 Feb 2017.

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