Essay: Analysis Of Australian Retail Sector & Woolworths Group Limited.

You are a group of advisors to the Management Board in your company with Headquarters in Australia. As advisors you are first, required to conduct research on your selected sector/industry covering the previous 5- 10 years. Second, you are required to present a company strategy to your Management Board covering the next 5 years. Third, your Management Board requires that you make a presentation of your findings and strategies, and you prepare a market report.

The market report should, as a minimum, address the following key issues:

1. A description of your company and the industry your company

2. An analysis of the market structure the industry

3. A discussion about the demand and supply conditions for your product(s) or service(s).

4. A discussion about the demand elasticity for your product(s) or service(s)

5. An analysis of a recent event that has (or is likely to have) substantial impacts on your industry/sector.

Market Structure of the Australian Retail Industry

The paper is aimed at discussing the dimensional aspects of an Australian based company in the retail sector. Australia is the one of the world’s largest developed economies. Its highly developed market demand is the driving force of the emerging retail sector. The retail industry contributes 4.1% to GDP and 10.8% to the employment level. Country’s retail sector shows notable diversity in terms of business size, region, competition and retail format. The nature of goods sold by the retail companies denotes the intensity of the market competition.  The analysis of the paper is focused on the performance of the Australian retail market over the last decade. This trend analysis will illustrate the economic performance of the retail industry. In this context, the paper attempts to analyze the company strategy of Woolworths Group Limited which is the largest retail company in Australia. The company majorly operates across Australia and New Zealand. Woolworths is the second largest company in terms of revenue in Australia. Its diversified business covers supermarket, hotel industry, liquor retailing and gaming service. The company owns 80% share of the Australian retail market. Grocery is the specialized sector of Woolworths. As per the findings Woolworths supermarket stores serve more than 20 million customers per week including 3 million customers per day. There has been multiple number of reward program introduced to enhance the customers loyalty towards the company. Meanwhile growing initiatives towards environment friendly retail chain system exhibits its goal towards sustainable development.

Woolworths secures a significant fraction of entire industrial sector in Australia. The company is a large scale chain of the super market and grocery stores. Headquarter of the company is located at Melbourne. Since the foundation in 1924 the retail company has grown exponentially in respect of scale of operations. Its vast chain of operation the firm has been able to form a oligopoly with the help of Coles supermarket. This collaborative strategy has control over 80% of the Australia retail market. The firm is known for its expertise in packet foods, vegetable products, meat and fruits. In addition the organization has expanded its diversified business in household products, health and cosmetic product along with pet supply (Verghese et al., 2015).  As of 2019, the company is reported to operate its business over 980 supermarkets and 40 metro convenience stores. Total revenue of the company is recorded as $60 billion which is 5.3% greater than the previous year (Hepworth & Newman, 2019). Till date more than one million people are directly or indirectly work for Woolworths. Woolworths also holds a large number of private brands which are signified as Woolworths Food range, Macro wholefood market, Essentials, Gold and the Odd bunch.

Overview of Woolworths Group Limited

In order to manage extensive scale of operations the firm is focused on well-established supply chain system and e-commerce sector. Recently, the retail firm has extended its online retail service in the name of “click and collect”. As per the findings, the retail firm has experienced significant growth in foreign direct investment and overseas stake holder (Pulker, Scott & Pollard, 2018). This results in the advancement of the company’s financial strength. Henceforth, it is expected that Woolworths will be able to extend its overseas business through its subsidiaries and extensive retail chain service. Persisting focus on operational standards essential trade policies and co-ordination has led the company to access significant customer demand across the world. In this way the firm operates internationally and has gained notable share of market space.

In 1924, Woolworths has initiated its business offering lowest vegetable selling price provided with money back guarantee program. Since its establishment, the company has been experiencing huge growth in customer demand. Moreover, persistent focus on the forefront innovation has led the company to acquire the largest share in the Australian retail market (Lukic, Kljenak & Jovancevic, 2014). The retail firm has been successful in expanding its business over every state in Australia. Meanwhile, Woolworths has started expanding its experiment in the grocery range in order to store fresh vegetables and fruits in large amount (Haskins et al., 2020). Initiation of the departmental stores is considered as the reflection of its progressive growth in the food retail market.  Moreover, the company is reported to build first cash register machine to keep a record regarding the purchase of the customers. In this way Woolworths enhances its reliability among the customers. The advanced saving system along with the money guarantee program gives strong market impression in the retail market.  

Nonetheless, the company has started acquiring other overseas companies to intensify its market strength in the international market. In 1956, Woolworths begin its food retail in business in New Zealand (Bailey et al., 2015). Purchase of demerged Foodland has come under the company’s ownership extending its business through another fifty stores. As a result, the retail company has become the largest retail chain in Australia. Following the overwhelming acquisition power, its dividend rate gets intensify from ten to fifty percent over the last decade. This advancement in the market share plays the catalyst role to attract the foreign investment for the retail compay (Pearson, Friel & Lawrence, 2014). This reflects the company’s strong revenue generating system. Moreover a significant control over large number of retail stores located at different countries reflects its efficient manpower and management system.

Woolworths' Supply Chain Management and E-commerce Sector

The market structure of the Australian retail industry operates under oligopoly market. According to the economist oligopoly market is comprised of limited number of producers. The exit and entry of the firms are entirely regulated by the participants firms of the market. The oligopoly market structure is considered as the imperfect form of competitive market. As a result, individual firm is unable to influence the market price and demand for the products and services. The concentration ratio denotes to the market share of the firms (Byrne et al., 2019). In respect of the supermarket industry, Woolworths, Aldi and Coles are the dominating retail firms. Woolworths being a major food retail firm in the Australian market, the company monitors the actions of the rival firms and often forms business deal with the competitors to hold the leading position of the market. These firms set the price level through product differentiation strategy. The market giant position is greatly associated with the market strategy of the firms, considering the restriction on the market barriers and cost cutting strategy (Mialon et al., 2016). The presence of price rigidity acts as catalyst role to strengthen the market power of the existing firms. In addition, the group of firms attains to hold the market power through the product innovation strategy and patent rights.

However, the oligopolistic firms, like Woolworths struggles with dead-weight loss due to restricted market activity. Under the oligopolistic market structure, the firm is compelled to share the loss incurred by entire market (Bailey, 2017).  In the context of Woolworths, the retail company always strives to expand its retail business through subsidiaries and retail chain business. The price strategy depends on the cumulative decision of the producers. Data reveals that the company has saved around 1% of the production cost as compared to its competitors due to advanced production technique (Trevena et al., 2015). This improved technology assists the company to produce goods at lower labor cost. The management team always attains to evaluate the customer reviews to modify the features of the products as per the evolving market demand.

Most of the selling products of Woolworths are normal goods in nature. Therefore, change in demand is deeply associated with the change in price and income. Per capita income of Australia is relatively high as compared to other OECD countries. Therefore, persistent growth in the product demand and affordable price structure keeps the upward strength of the company’s supply curve (Kavoosi Kalashami et al., 2017). The development of the departmental stores featured with advanced technology has already stimulated the commodity supply of the market. Apart from demand, less availability of its substitute goods has injected the demand for its fresh vegetables and packaged foods. In Australia, the company has been continuing its retail business for last several years depending on strong customer base (Grimmer, 2019). The customer demand is generally influenced by some external factors, including, customer service and branding power of the company.

Woolworths' Market Share and Revenue Growth

In this regard, it can be inferred that Woolworths has been successful in developing its international brand power across the number of nations. Over the last couple of decades, the persisting focus on the online service has enabled the company to compete with the global competitive market. The Australian retail company is aimed at maximizing the market revenue through efficacy in the production process (Carey, Parker & Scrinis, 2017). The improvement in the production process results the advancement of the quality and quantity of the products. The growing emphasize on the e-commerce not only extends the customer domain also reduces the required time allocated for the production process. According to the market analysts, the progressive analysis of the market demand is the driving force of the company’s prolific market share.

The Australian economy is rich in natural resources. The abundant supply of the vegetables and fresh fruits has empowered the company’s inputs of production. Woolworths is able to have share significant sales growth of around 35% from 2014 to 2019. The company does not need to depend on the overseas countries for the input resources. As a result, this cuts the purchasing cost of the resources and improves the operating profit margin of the company. This in turn, it guarantees the revenue of the company in terms of premium product quality and affordable product price (Berning, 2014). It is observed that growing profit margin helps the organization to focus on the research and development process and thereafter, the production technology is likely to face increasing return to scale accompanied by the optimum usage of the resources. In this way, the set of firms are able to hold strong power on the customer domain accelerating the output growth and customer support service (Tyers, 2015). All these allied features are the integral part of the company’s upward trending supply curve.

The intensive competition in the global food retail market has influenced the company to develop a unique market strategy incorporating new features in the product and services. In addition, the growing environment concerns have urged the company to reduce the dependency on the non-renewable energy products (Lukic, 2016). The company’s initiative to produce the healthy products and zero-wastage food strategy reflects the company’s product sustainability approach to the environment. This sustainability approach is expected to boost the company’s supply in future days. On this account, the management infers that Woolworths will be able to operate its huge extended overseas business collaborating with the other domestic firms.

Factors Influencing Customer Demand for Woolworths

Elasticity defines the changes of demand of goods and services in response to change in price of the products. If change in demand is greater than the change in price, the demand would be elastic, whereas, demand would be inelastic when price changes give negligible impact on demand (Biddle, 2016). Considering the product nature of Woolworths, most of the products are necessary for the consumers. Vegetables, fresh food packaged products, meats and electronic goods are essential for a consumer to lead a standard life. Henceforth, change in price is unable to bring significant changes in demand for those products. In the light of the elasticity concept, the demand for the products produced by Woolworths is inelastic. For instance the company has been able to get experienced with impressive product demand even during economic recession or depression in 2008 (Pulker, Scott & Pollard, 2018). The economist considered that product quality and natural demand account for its inelastic demand. In this regard it is observed that the company often attains to exploit the consumer welfare through the dominating market decision in the domestic retail market.

As per the findings, COVID-19 approaches towards global economic recession due to extended economic lockdown and social distancing approaches. As a result consumer has stopped visiting the retail stores which in turn has lowered the sales volume of the company. Data reveals that the retail is one of the most affected sectors under this pandemic effect. During this challenging situation the retail firm is committed to providing standard customer services emphasizing on price discount policy and home delivery system (Barua, 2020). At this moment the customer flow is relatively less than the general situation. In this regard shopping patterns needs to be changed to grab the accelerated demand for the essential goods. The company has experienced a severe demand shock on its premium quality products which are charged at relatively high level. All the food retail stores have been grappling with less number of footfalls of the customer. Considering the need of senior customers the retail firm has decided to allow 10% discount for the older citizens on the permanent basis. Consequently this will surge the product demand as well as strengthen its market position in the Australian economy. The company has dedicated approximately 5 million as a part of aid to improve the financial condition of the food market and employee support scheme (McKibbin & Fernando, 2020). Till date the size of impacts of the coronavirus pandemic is undefined. Trade restrictions as well as economic lockdown in the domestic economy trigger a great challenge to Woolworths. However the company has been appealing to own its market position through several initiatives like enhancing customer support system, charitable work and donation to the healthcare system amidst this crisis situation.

Woolworths' Growth in the International Market

Conclusion  

In a concluding note the paper states that Woolworths has been continuing its retail business with the help of co-operative strategy under the oligopolistic market structure. It is undeniable fact that the company owns leading market share in the domestic retail market across Australia and New Zealand. Innovative market strategy, advance product quality and commitment towards customer at the fundamental pillar of the company’s prolific success. Over the last couple of decades the company has extended its business in the overseas market through subsidiary or allied firms. The advancement in food retailing market couple with evolving changes in customer demand always encourages the company to improve the quality of products and services. As a result of great efforts for the successive periods the company has been able to get a magnificent success in the online service sector. This has helped the organization to extend its customer domain instead of making huge establishment cost. However the outbreak of coronavirus has led the Australian retail sector to a challenging condition. Under the prohibition of social distancing and economic lockdown, customers are unable to visit the retail store and therefore it down sizes the sales amount of the products. Considering the fact, Woolworths has taken innovative customer sales strategy to grab the customer demand through appropriate product pricing policy, home delivery service and product retail strategy.

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