Competitive Strategy In The Australian Supermarket Industry

Write a report on one of the following 5 cases, highlighting key aspects of competitive strategy:

1. Sydney Symphony Orchestra (Case 1)
2. The Movie Exhibition Industry (Case 8)
3. Australian Supermarkets (Case 3)
4. Carlsberg (Case 9)
5. IKEA India (Case 10)

Competitive strategy is known as the long-term strategy of a specific company to attain a competitive advantage over the rivals in the respective industry (Roignant and Trigeorgis, 2011). It is focused on making a protective location in an industry and making a greater Return on Investment. Such sort of policies plays a significant role when the industry is competitive and customers are being offered with almost comparable products (MBA Skool, 2018). This report is being prepared to highlight the strength of the competition in the Australian market and how many players are at the top position. In order to provide detail analysis of the Australian supermarket, some strategies will be explained such as business strategy and acquisition and structure.

The industry of Australian Supermarket said to be as businesses that are retailing food lines and groceries is categorized as an established industry. Companies that are competing in the established industries involve violent cost-reduction creativities, with competitive advantage developing from cost-based in place of differentiation-based factors. The starting of the merchandise of the private labels is one of the initiatives of cost-reduction. Presented by Aldi during a market foray in the year 2001, merchandise of private-label grew to be a famous tactic of cost-reduction adopted by the foremost competitors of the industry (IBIS World, 2018).

Slow growth of the industry is a normal characteristic of established industries. The supermarket industry of Australian attained an average annual growth of the industry of 3.4% in the year 2007-2012 and predicted growth is projected to decrease to 2.4% per annum in the year 2012 and 2017, which result in rising cost-based competition. The regular offering of the merchandise of private-label is predictable, and therefore, product-based wars of price are unavoidable (Lucio, 2018). 

The industry of Australian supermarket basically is said to be a competitive duopoly between Coles and Woolworths, including a shared market share of around 70% is no alien to product-based wars of the price (Conversation, 2011). By targeting the daily commodity items of household (e.g. Bread, vegetables, fruit, and milk), with the determination to reserve sales revenue, violent price wars have exploded between Coles and Woolworth’s. Though, the wars of price on items, like bread and milk, resulting in ‘loss-leaders’ — i.e., goods sold at lower cost (Shop ethical, 2013). Loss leaders are intended to upsurge traffic of store foot and arouse sales, not unavoidably of commodity products, however of more moneymaking product lines, throughout the supermarket visit. Additionally, to both merchandise of private-label and wars of price, Coles started its campaign i.e. ‘down, down’ in 2011, dropping the 10% prices of around 6000 products. In a similar method, Woolworth’s introduced its campaign i.e. ‘price knockdown’, which resulted in increasing its sales around 4.7% in 2011 (Lucio, 2018).

Business Strategy

Political

The political condition disturbs the Australian retail industry and also the performance of supermarket of Australia. For example, the Australian Federal Government has introduced a policy of competition which protects key self-governing companies like Coles and Woolworth’s in eradicating competition. The augmented dominance of the major retailers in the market has made small retailers struggle in the industry.

Economic

A drop in the economic conditions of the market in Australia has affected the Supermarkets performance because there is a decrease in the economic activities in New Zealand and Australia. Besides the decline, the economic pointers like fluctuations in the exchange rate of currency and weakening of dollar have negatively affected the international retail operators of Australia.

Social

The social factors also affect the performance of Australian supermarket in the matter that organizations working in all over Australia have to attain higher communal and public development because the current social trends within customers suggests that they favour extremely socially accountable organization and by taking social initiatives, the retailers like Coles, Woolworth's, and ALDI make major impact on customers.

Technology

The role played by the technological factors influencing the Australian retail industry is significant. For example, Woolworth's has measured the use of the technology of green refrigeration technology such that the consumable products can be kept for the extended time period.

Legal

The legal factor in the way of a carbon tax as executed in Australia has affected the supermarket industry. Along with this, the requirement to operate in a fair way has also influenced the performance of supermarkets because it is necessary to acquire fair policies in attaining the operations of the business.

Environment

The environmental factor is influencing the supermarket's performance in Australia and the whole retail industry is getting affected. For instance, Woolworth's in specific is influenced by this factor in the matter of winemaking businesses and petrol businesses are reflecting negative threats on the environment condition's performance and this has influenced the profitability of these supermarkets.

A business strategy means a set of actions to be achieved to reach the desired ends. It can just be defined as a long-term planning of the business. Classically a strategy of business will take a time period of around 3-5 years or sometimes it can be longer (Business Matrix, 2018). Business strategy is related to key issues of resources, for example, increasing the finance to create a new plant or factory (Business Case, 2018).

Moreover, a strategy of business-level explains how a specific unit of business will perform its function’s to build a sustainable competitive advantage source (Campbell, Edgar and Stonehouse, 2011). Australian supermarkets have adopted different strategies of business to give competition to each other’s competitors such that can attain the market leader position in the market. 

Cost leadership - A business might compete on the basis of price in an attempt to enlarge its base of customer. To become a cost leader, a company regulates its procedure of manufacturing in order to attain working competences so that it can decrease the prices but preserve a definite profit margin (Nordmeye, 2017). The Australian supermarket industry involves various players such as Woolworth’s, ALDI, Coles, etc. all of them want to become the leading brand in the industry. However, in terms of cost leadership, ALDI is the only supermarket who provides products at the lowest cost by adopted a different approach as compared to other company due to cover a major part of the industry.

Differentiation – Businesses execute a differentiation strategy to offer customer value by providing goods with unique features (Stroh, 2014). A business can differentiate its products from its competitors by serving goods of excellent quality or with progressive technical features. The company can also offer unusual services to the customers and swift product innovation (Williams and Williams, 2017). The key players such as Coles and Woolworth's supermarkets offer a variety of products to its customers by comprising private-label merchandise (Financial Review, 2016). They have adopted this strategy in order to attract more and more customer and provide a solution for all the needs under one roof. Corporate banking, great locations, and size provide Woolworth's and Coles an advantage over IGA. The IGA group can convincingly play only in marginal sites. However, on the other side, ALDI follows a different plan because it offers products at lower cost and operates a dissimilar model. It will progressively increase its market share, however, cannot give competition to the main locations this becomes a major resource for Woolworth’s and Coles (Hitt and Ireland, 2017).     

Structure 

In 2010-2011 the Industry of Australian grocery was at the value of $130.6 billion, involving for approx. 10% of the economy of Australia. The overall industry involves two different channels of distribution i.e. the vertically integrated chains (followed by Woolworth’s and Coles) and the independents including wholesaler Metcash and a huge number of usual outlets of small retail, maximum of them are the part of banner groups like Foodworks and IGA (Merrett and Smith, 2018).

At both the levels i.e. retail and wholesale, the industry is categorized by great fixed costs, maximum of which are said to be common costs. The output of retailers and wholesalers is not just the merchandise that they deliver however the services, comprising access, that allows consumers to buy the merchandise. Retailers and Wholesalers add extra value to the products of the manufacturer by conveying and revealing the goods for sale and through other various services which are linked to the sale.

Economic theory offers little assistance in how common costs must be assigned across products. In the exercise, normally the product’s variable cost is utilized as the foundation for defining the value, and a margin is added to cover the common costs along with return on capital. Margins are the set to affect the choice of the customer about the product package, the store choice and the perception of the customers of the level of price. Few groups of products carry average margins, for instance, vegetables and fresh fruit, whereas special items and staple items carry a minor margin. 

The industry of Australian supermarket reflects that Woolworth’s and Coles possess a business model that shows a vertically integrated structure. This may result in an obstacle for the new competitors arriving into the market of Australian supermarket. These two supermarkets perform as a big dominant company in the market, (Woolworths and Coles possess 70% market share) therefore, their power of bargaining can result in a reduction in the earning prices which will reduce costs acquired by the key producers. This places the big retailers in the position to effect and direct agreements with the manufacturers of the food that consequently drive these variations back to the level of the primary producer. Small companies in the market will have to fight against lesser procurement costs by imposing advanced prices to the customer which can result in reducing the interest of the customers in purchasing their goods in association to an inexpensive, same product at the superior retailers.

The industry of Australian supermarket involving grocery market is definitely a challenging or stimulating industry to get into the market dominance of Woolworth’s and Coles and, at a lesser scale, IGA. On the other hand, new competitors into the market, like ALDI in 2001, specified that it can be done.

Acquisitions

As per the ACCC (Australian Competitions and Consumer Council) the Australian industry of Australian supermarket including grocery is conquered by the two main players, i.e. Woolworth’s and Coles, who together possess approx. 70% of the market share (Austlii, 2013). Whereas there are other various competitors in the marketplace like retailers and independent wholesalers comprising a variety of speciality retailers like ALDI and IGA (independent grocery associations); Woolworths and Coles possesses a key influence to regulate prices which in long-term will result in merging through acquisition of small retailers in order to play or close their ways as they cannot compete against strong players in the market. In the short-run, there are profits to customers with lesser prices and superior value for money. But if this dominance or supremacy will remain always in the industry of Australian supermarket might result in a duopoly which can possess some of the severe effects to customers as there will be no other varieties accessible in the market and along with this the opportunity costs will be decreased.

From 2005, Coles and Woolworth’s have decided to work in a Contract for the Acquisition of Self-governing Supermarkets.  The Grocery and Produce Industry rules and regulations also need notification to the ACCC of planned supermarkets acquisitions.

From 2005, Australian Competitions and Consumer Council has studied 93 acquisitions of the supermarket:  from these 93 acquisitions 82 were the offers or proposal from the Metcash (eventually acquired 61 stores); 28 ere from Woolworths (eventually acquired 27 stores); and 2 proposals were from Coles (Australian National Retailers Association, 2008).

The key acquisitions over last decade have curtailed from the disruption?up of the Foodland (2005) and Franklins (2000?01) chains.  All the acquisitions were measured, and accepted, by the Australian Competitions and Consumer Council because ACCC brokered disruptions of the chains these are not counted under creeping acquisitions.  Maximum of the stores that were acquired were bought by self-governing retailers. In 2001, Metcash purchased a maximum of the Foodland chain i.e. 104 stores. In 2005, 81 Action supermarkets were acquired by Metcash in three States. 

The industry of Australian supermarket is extremely competitive. The market is welcoming for the competition. In 2001, ALDI the German retailer arrived in the market and has settled 166 stores with strategies to have 200 more stores in the coming future. In just a few years ALDI has become one of the top retailers in Australia with around $1.5 billion turnovers. According to the report, approx. one million people prefer to do shopping at ALDI stores weekly.

All the players in the market are very much aware of all the elements of the market and are inspired to take actions that can match the competition. They possess huge resource sets and might match any strategic and most planned activities rapidly. They do not have any choice in the market, as this is essential for long-run existence. In this industry and market, any competitive advantage is probably to be provisional (Wells, 2015).

Both Woolworth’s and Coles have tough corporate support, Coles have support from Wesfarmers and Woolworths have support from their corporate group. They involve every possible daily purchasing experience from foodstuffs however to alcohol and overall merchandise. The power of this corporate support is serious in their competition; they are tough behind the scenes. Their list of intangibles and tangibles is coordinated; they are involved in tracking each other methodically and take any inventiveness that the other has introduced.

ALDI is diverse; it has fewer items in every store, less marketing, systems of lower cost and attentiveness on the products that are home-branded. Woolworths and Coles are succeeding in the home brand creativities (Hitt and Ireland, 2017).

Porter Five Force Analysis

Buyer’s bargaining power- The buyer’s bargaining power in the Australian supermarket industry is considerably higher as there are many retail stores and supermarkets that offer basic necessary items to the customers. Along with this customer have many options to choose from, therefore, their bargaining power is higher. 

Supplier’s bargaining power- The Australian supermarket industry is highly focused and there are some giant players that have covered most of the market share. This result in increasing the supplier’s bargaining power at some extent or it can also be said that the supplier’s bargaining power is moderate.

New entry threat- The threat of new entry is considerably low because the big firms have covered the market which has made it tough for new players to enter.

Rivalry among Existing Companies- The rivalry in the industry is high because there are some big competitors such as Coles, Wesfarmers, ASDA, Woolworth’s, etc.

Threat of Substitute- The daily necessity items are very important as well as their consumption. There are no other options accessible to them; therefore, the threat of substitute is lower.    

From the above analysis, it can be recommended that Woolworth's and Coles should give their major focus towards online shopping, and both of them need to continue with the household brands or home brands strategy as it results in larger margins.

In regards to the ALDI Supermarket, it should now focus on differentiation of its offering so that it can compete strongly with the strong players of the market i.e. Woolworth's and Coles. These both the supermarkets have created a duopoly in the Australian supermarket industry by having a maximum number of stores. ALDI should also work to increase its number of stores along with offerings.

In addition, Australian supermarkets should now focus on expanding their business in other countries by increasing their number of stores and online services at affordable prices.

Conclusion

In the conclusion, it can be said that Australian supermarket industry is at its peak as it offers products to the customers at affordable and low cost. This industry is adding major of the portion in the economy of Australia and from that 70-80% market is covered by Woolworth’s and Coles Supermarket. The above report has highlighted major aspects of the Australian supermarket industry. It has explained the business strategy of the whole industry which involves cost leadership strategy and differentiation strategy. Besides this, discussion on the structures and acquisitions of the Australian supermarket industry has been done to know more about the strength and performance of different supermarkets. Further, analysis of the competition has been done which has highlighted the key players and their corporate support in the industry. Moreover, in the end, the recommendations have been to provide that might can help supermarkets specially ALDI to improve its performance and strategies in the market. The above analysis has provided a conclusion that Coles and Woolworth’s are two supermarkets who have gained a leading position in the market however, if any one of them started focusing on the online shopping then that supermarket can win the race. 

References

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