MGT501 Business Environment

Brief Introduction

Businesses are highly sensitive to the external and internal environmental factors which have the capacity to affect the functioning of the business enterprise. Internal environmental are in the capacity of the organization, and it can exercise some control over the outcome of these internal factors (Dobbs, 2015). However, the organization has least control over the external factors; they can only create proactive strategies to be wary of the unforeseen situation. The external environment provides essential business information to the organization regarding the customers, government policies, and market forces, technological, environmental and economic policies which has the potential to create adverse impact on the organization (Epstein, 2018). The report here will focus on analysis of PESTLE and Porter 5 forces framework and give solution to the selected organization, Woolworths Supermarket. The report will also discuss the responses to the Porter forces affecting the business environment. Within the purview of the report an in-depth analysis of environmental scan for Woolworths will be conducted, which will help the organization in creating better strategies for the future.

Company Background

Woolworths Supermarket is one of the largest Australian supermarket and Grocery chains which is owned, controlled and managed by Woolworths limited. Woolworths and Coles together have created a duopoly together in the Australian market since the year 1924(Business Tech, 2015). Woolworth’s product offering range in the category of Meat, fresh fruits and vegetables, packaged food, magazines, DVD and other goods pertaining to household and home décor.  The company at present has more than 1000 stores and 19 convenience stores in and around Australia and employees over 111,000 people. The company soon after the dot.com and e-commerce bubble started spreading its wings in the online sector. At the very present Woolworths and Coles occupy 80% of the market share, collectively (Woolworths, 2018).

Analysis of the Australian Supermarket Industry

Australian supermarket industry is dominated by a couple of big names and plethora of small domestic players. The industry however can be seen as saturated and almost all the participants practice cost leadership and has less focus on differentiation. This calls for the fact that all the players like Woolworths ad Coles are working towards reducing their cost, while focussing less on providing differentiated good and services to its customers (Hill, Jones & Schilling, 2014). Moreover, the popularity of the private brand labels is increasing akin to the local brands. Australians are buying in big heaps, the private label brands, which are hurting the sentiments of the domestic producers. The industry is growing at a slow pace; the average during 2013-2018 has been 2.5% CAGR.  Price war can be seen as order of the day in the Australian supermarket industry (Hitt & Duane, 2017).

Solution to the PESTLE analysis

This section will focus on the PESTLE analysis which is an external environment force for Woolworths, here the focus of discussion will be towards understanding what role these forces play for Woolworths and how the company can prepare a combative strategy to over the challenges imposed:

Political Forces

The political environment and business have a very close relationship, more so, when the industry has huge role to play in the economic development of the country. The business environment is under a lot of pressure if the political situation in the country is not good, there can be plethora of challenges such as political instability, change in governmental policies, revising tariff for import and export. The analysis shows that although the political environment of Australia is quite stable, the company has to still abide with the competition policies set across for the industry (Kew & Stredwick, 2017).

Woolworths has to focus on using the domestic suppliers or manufacturers which will help the local economy to grow and prosper, will also help in creating a positive image in the mind of the government. At the very same time, the image building exercise will also build a positive brand image in the minds of the customers, who would engage in more transaction with the company, this way political challenge can be tackled effectively.

Economic Forces

The economic factors which have an impact on the business organization are pertaining to economic growth, employment rates, inflation rates, monetary policy and consumer confidence.  These forces have the ability to play an adverse impact on the business organization. After the Global financial crisis, the spending capacity of the Australians shrank significantly; however, the supermarkets did not face any drop in their sales. However, the rise in the sales has not been significant either, which poses challenge in front of Woolworths (Bedward, Xiao & Fu, 2017).

The economic challenge has to be handled at the earliest by Woolworths else the company will incur significant losses and lose its market leader position to any of its competitor. The company can do so, by relying less on the imports and focussing more on the production of good domestically. At the very same time, Woolworths has to come up with a strategy of lowest prices every day to increase its volume sales and reduce the profit margin.

Social Factors

Income distribution, demographic influence and lifestyle factors have a strong role to play in the external environment of social factors. This factor is more important in the supermarket sector as the supermarket has to select and offer the products which will satisfy the social needs of the people. Customers have become knowledgeable and extremely smart when it comes to shopping. Customers are now more focussed on getting a delighted retail experience and inclusion of wide variety of prices so that they can easily afford the products. The social factors in the supermarket are mostly driven by the increase in trend towards the healthy lifestyle and consumption of health based products (Williams, 2015).

Woolworths can overcome these challenges by focussing on the customer journey with them; based on the customer journey they can find a sweet spot which will satisfy the needs of the customers. Moreover, the company has to analyse the feedback given by its customers and make changes accordingly in its stores. Also, Woolworths can create different section for different price slabs, targeting each target audience separately. Stuffing the shelves with healthy, organic and fresh produce will also help Woolworths to target the new and existing customer segment.

Technological Factors

Technology is one of the biggest factors which are driving change in almost all the industries, supermarket industry is not far behind with this change. Evolution of superior technology such as Cashless check out process and RFID are disrupting the business environment. Further to this, the growth in e-commerce has pushed Woolworths to innovate rapidly in this direction (Persson, 2018).

The solution here for Woolworths is to create retail stores on the model of Amazon Go, such high tech advanced retail stores will give customers an experience they have never received. Moreover, the company should use data analytics to track the purchase behaviour of the consumer and according recommends products for them.

Legal Forces

Australian government has created several policies related to taxation, recruitment and employee regulation which form a critical part of the super market industry. It is also an offense in Australia to not comply with the food licencing law, along with this, opening of more stores also comes under the legal purview (Persson, 2018).

Woolworths has been a good citizen during its tenure in Australia; however the company has to ensure that it complies with all the legal regulation and stay aloof from any troubles from the legal compliances.

Environmental Forces

Australia has also signed the Paris treaty for reduction in global warming and under its 5 year long term goals, environmental sustainability is ranked higher. The company has created various laws and regulation to safeguard its environment and is also imposing hefty penalties on the organization which are not complying by the standard set by the country. The country is also pushing itself on the path of using recyclable material and advanced waste disposal system to safeguard its environment.

The challenge can be effectively addressed by Woolworths by focussing more on the recycling activities and disposing all of its waste in a harmless way. Woolworths can also take a CSR initiative to help the environment by planting more trees in and around Australia and put up plenty of recyclable containers for the local inhabitants.

Michael Porter 5 Forces Analysis-Solution to the Problem

The Porter 5 force framework is an excellent framework and it provides information on the market attractiveness and profitability in the industry based on the 5 forces of porter. The section will focus on how Woolworths can tackle the challenges imposed by the Porter 5 forces:

Threat of Entry

Supermarket industry in Australia is highly attractive, has high profitability and has low barriers to entry, which increases the threat of entry in Australia. However, the reducing size of the market and reducing margins restrict the entry of new player in the industry (Fernie, Fernie & Moore, 2015).

Woolworths can play its role in tackling the threat of entry by focussing on increasing its market share, and playing on reduced margin to further reduce the threat of new entrant in the market.

Power of Buyers

Consumers in the supermarket industry has high bargaining power as they have plenty of options to choose from, moreover as the industry is highly competitive and has less focus on differentiation. Thus, customer in the absence of differentiation goes to the store which has the lowest price. In the case of suppliers of products or raw materials, they have less bargaining power as the industry is mostly dominated by large players, with whom it is difficult to have negotiation (Beech & MacIntosh, 2017).

The challenge from the end of buyers can be significantly addressed by Woolworths by bringing differentiation in its 7P of marketing. The company has to ensure that it differentiates its Product, Price of its product, place of selling, positioning of the stores, people, physical evidence and process to create a sense of focussed differentiation amongst the buyers.

Power of Suppliers

Supplier used to occupy a superior position back in the 70’s, but due to the penetration of the supermarkets in manufacturing of products, their power has been reduced significantly. Moreover, the suppliers have less control over the negotiation with the supermarkets, because of their grandiose and deep pockets, thus suppliers have low power in this case (Hogevold, Svensson & Wagner, 2017).

Woolworths however can give impetus to its power by focussing more on the production of its own Private label, that way the company can easily reduce its dependency on the suppliers and achieve benefits of using economies of scale and scope.

Threat of Substitutes

Supermarkets were created to serve as a one stop solution to the growing needs of the customers. Woolworths and other supermarkets give customers a selection from a wide range of products with exclusive deals, offers and discounts, thus supermarkets are irreplaceable. At the same time, convenience stores which serve as competitor to these supermarkets are not big a threat due to their limited capacity (Evans, 2014).

Woolworths which has limited threat from substitutes can further strengthen its position by allowing for more customized offers and discount for its customers. The company should also create loyalty programmes which have significant value to the customers, and not just the perceived value.

Rivalry Between existing Competitions

As mentioned earlier in the report, the Australian supermarket is dominated by big players such as Coles and Woolworths, who have conquered almost 80% of the Australian retail market. Moreover, the rivalry amongst the player exists on the basis of price and both companies are fighting for the same market pie (Mutwa, 2016).

Woolworths can effectively tackle the challenge of competition by increasing spends towards its marketing program, usage of data analytics to create a basket for the customers, work on increasing the experience of the customers and creating a true value loyalty program for its customers.

Conclusion on Summary

The report here is based on Woolworths which is one of the largest players in the Australian supermarket industry, which along with Coles have captured 80% of the market. The assignment here provides an analysis of various external forces impacting the environment; the forces have been derived from PESTLE and PORTER 5 forces framework. The analysis of the Supermarket giant, calls for aggressive marketing strategies, focussed differentiation in its 7P of marketing mix and enriching the experience of the customers by using the tools of data analytics

References

Bedward, T. M., Xiao, L., & Fu, S. (2017). Application of Raman spectroscopy in the detection of cocaine in food matrices. Australian Journal of Forensic Sciences, 1-11.

Beech, N., & MacIntosh, R. (2017). Managing change: Enquiry and action. Cambridge University Press.

Business Tech (2015). Woolworths takes sweets and chocolates off checkout shelves. Retrieved from https://businesstech.co.za/news/general/97057/woolworths-takes-sweets-and-chocolates-o-checkoutshelves

Epstein, M. J. (2018). Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Routledge.

Evans, V. (2014). 25 Need-to-know Strategy Tools. Pearson UK.

Fernie, J., Fernie, S., & Moore, C. (2015). Principles of retailing. Routledge.

Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.

Hitt, M., & Duane Ireland, R. (2017). The intersection of entrepreneurship and strategic management research. The Blackwell handbook of entrepreneurship, 45-63.

Høgevold, N. M., Svensson, G., & Wagner, B. (2017). An interactive model of driving forces between TBL elements-empirical findings. International Journal of Business Excellence, 13(3), 394-414.

Kew, J., & Stredwick, J. (2017). Business environment: managing in a strategic context. Kogan Page Publishers.

MUTWA, A. M. (2016). Strategic responses to investment shocks by selected multinational corporations (MNCs) in Kenya.

Persson, S. (2018). How we live now: The place of class and taste in contemporary Australian art (Doctoral dissertation).

Williams, W. (2015). Investigation into the critical success factors for the implementation of a quick response supply chain strategy in the South African fashion apparel sector. Master’s in Business Administration (MBA), South Africa, University of Stellenbosch, 1-97.

Woolworths Limited. (2018). Annual Report. Retrieved from https://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2016.pdf