Essay: Remoteness And Consolidation Of Supermarkets In Australian Retail Industry.

Discuss about the Remoteness and Consolidation of Supermarket.

The retail sector, in particular, the supermarket & grocery stores industry in Australia is highly competitive. The competition has kept on changing with times and had largely known as the duopoly of Woolworths and Coles. The wide variety of product line and competitive prices has kept on establishing stories of success. However, a rapid growth of Aldi in recent times has not only altered the trend but, also become the reason for declining profit for the industry (Ibisworld.com.au, 2018). One of the reasons for Aldi’s growth has been the discounted price for private-label products. Customers had also responded to it which is the reason that forced Woolworths and Coles to switch over to the same strategy. They also had to consider an expansion of their private-label product ranges. Smaller supermarket chains like Foodworks have also struggled to respond to a changing market trend (Ibisworld.com.au, 2018). Industry revenue is expected to grow up by 3% on an annual basis (Ibisworld.com.au, 2018).

To understand why Aldi is so successful despite the market giants Woolworths and Coles, it is first necessary to understand the driving factors in the industry. An average person looks for three factors such as Product Quality, Convenience of Shopping & Value when they feel like shopping (Singh-Peterson et al., 2016). When looked at the business model that Aldi uses, it looks bit complicated and also hard to understand what it communicates. However, the core strategy of the business model is centered on the three highlighted factors. It means Aldi is fulfilling the needs and wants of its target customers. The three factors have been standardized in Aldi’ model of business and are continuously executed also (Singh-Peterson et al., 2016).

The purpose of this study is to communicate the knowledge related to strategic planning. The purpose is being served in various ways including the external environment analysis and also the industry analysis.

Aldi is a German based multinational company and had entered Australia in 2001. The company had its first store in Sydney and since then has kept on growing with its effective business strategies. However, the excellent performance was noticed in just the last five years. The company has redefined the market competition with its cost-effective business model. It has constantly executed the three essential elements of customer needs such as quality, value and convenience (Knox, 2015). The execution could be possible due to its cost-effective strategies. Cost-effectiveness was a result of constant strategic planning that also includes maintaining a lesser number of SKU’s (Stock Keeping Unit). The benefits of the strategy include lower cost of handling and also higher purchasing power. Exclusive brands of Aldi are accountable for approximately 90% of their shelf space. Hence, Aldi is able to cut down on the supply prices. These are few of the reasons how the company has managed to keep the cost of production lower (Arup, Beaton-Wells & Paul-Taylor, 2017).

External Environment Analysis

Limited range of products was being maintained to focus more on a quality product. The efficient handling of the production cost was actually reinvested in offering lower prices to customers. The choice is actually not a very high concern to many customers. There are customers that prefer getting the reduced range of quality products at competitive price range over a wide range of expensive and low-quality products. Convenience was maintained with the help of opening numbers of branches in the different parts of Australia. The expansion rate is appreciable indeed (Corones, 2015). The store layout is another reason why Aldi is able to cut down on the cost of production. Stores are not open for 24 hours. It helps to save on staffing costs and utility expenses. The number of employees has also been kept low. Employees are trained on multi-skills to support their strategy of keeping a low number of employees. Products are all packaged and hence, it helps to reduce the shelf stocking time of products (Corones, 2015). The checkout process is also very competitive. Customers are encouraged to bring their carrier bags to avoid unnecessary expenses being made on it. The check-out lines are supported with long belts. Hence, accommodating a large number of products which is also necessary to cut down the queues gathered around the place. Packaged products have a barcode in more than one place supporting an efficient check-out process. Customers are encouraged also to package their goods. It helps to cut down the time and also the expenses which could have been required for keeping staffs particularly for packaging (Medlin & Ellegaard, 2015).

The Australian retail grocery sectors have been a point of attraction for the public body and the critique experts. The competitions have been redefined with the effective strategies of Aldi which is always good for customers; however, not so for the country's economy. In course to offer the competitive prices, the supermarket stores have considered being low with their net profit. Such trend has affected the annual growth of the grocery and the supermarket industry in Australia. As reported by the IBISWorld, the industry is expected to grow at 3% annually (Ibisworld.com.au, 2018). Initially, the duopoly of Coles and Woolworths was the reason for criticism and had also produced calls for a reform in the competition laws. It was being felt to analyze any misuse of the market power (Corones, 2016). Improvements have been felt for regulation of planning, liquor licensing and trading hours. Aldi’s success just suggests a low barrier to entry in the industry and also attaining a progressive growth (Corones, 2016).

Impact of Aldi's Success on the Australian Retail Industry

The technological disruption being brought up by new entrants in the Australian retail sector and also the changing dimension of shopping such as the online shopping are al affecting the brands and also the country’s economy. Firms are now being shifted to many innovative moves to solve their incompetency. However, in many ways, such strategies make those problems poorer (Methner, Hamann & Nilsson, 2015). Aldi has redefined the competition and has created the urgency for others to bring much innovation in their business strategies, so that, those firms stay afloat in the industry. Moreover, there is a price war competition in the Australian retail industry which is always good for customers provided that, three factors such as value, convenience, and product quality are met. The fact is not so good for the country’s economy. The competition has affected the annual growth of the grocery and the supermarket industry. The industry is expected to grow at 3% on an annual basis (Ibisworld.com.au, 2018). The profit margin is declining for the industry which is an indirect loss the national economy (de Waal, van Nierop & Sloot, 2017).

Customers are the drivers of industries, in particular, the grocery retail industry in Australia. The extent to which they desire for a service it gets reflected in the decision making of the industry leaders. Woolworths and Coles have long had the duopoly status in the Australian retail sector. However, the fact has been strongly derailed by the German based Aldi. Consumer behavior and the entrants of new retail business have both forced industry’s leaders to consider changing their business model. The attempt to offer a competitive price range to customers has affected the annual growth of the Australian retail industry (Calvo-Porral, Faíña Medín & Montes-Solla, 2016).

Consumer behavior for shopping has given place to innovative strategies which have so far been proved productive to Aldi. However, the cost-effective strategy may not be producing the same effect due to the ever-changing consumer behavior for shopping. Customers, in particular, the Millennials are now being attracted much towards the online shopping platforms. Shopping convenience, availability of a range of products, price comparison option, incrementing usage of Internet in Millennials and delivery at the doorstep are some of the reasons for a booming online shopping platform (Borraz et al., 2014).

On top of all, the changed lifestyle of young generations has largely supported the online shopping platform. The young generations, in particular, do not anymore like visiting physical stores. It does not mean they have stopped going to stores. It rather means they prefer an online shopping platform where they are not required to visit the physical stores. They can browse their desire category of products and find a list of products from different brands. They can also compare for product features and the pricing. Once they decide their choice of products they are simply required to book it for purchase. Their selected product or the list of products will then be delivered to their doorstep (Hosken, Olson & Smith, 2018).

Consumer Behavior and Online Shopping

Additionally, they do not have reasons to feel like visiting stores. For instance, Aldi that offers the cheapest products is still expanding and yet to reach to a wider customer base in the country. The store is still inaccessible to many. It does not make the sense traveling miles to reach to the store for products which could be conveniently purchased on the various online platforms (Price, 2016). Physical stores at present have no answer to the revelation created by the online shopping zones. There is a need for technological innovation that could support a huge change in regards to the physical layout of the stores. Millennials are prone to the technological interface. Hence, suggestions would be for technological and strategic innovation in physical shopping stores (Price, 2016). 

Technological innovation has evidently kept on driving the consumer behavior in the Australian retail market. Initially, the market was dominated by the duopoly of Woolworths and Coles which later on being affected by Aldi. Aldi has driven the shopping behavior with its cost-effective business models focussed to provide value, quality product, and shopping convenience. However, the biggest disruption was being laid from the entrance of online shopping platforms (Luck & Benkenstein, 2015). It has actually steered the market with customers in specific the Millennials thronging to the concept. It has offered the services which have no answers from the physical stores. The ever-growing use of internet has made such things possible. Customers who love technological gadgets have responded to a changed interface (Luck & Benkenstein, 2015).

The innovation has disrupted the industry and produced a necessity to adopt the change pattern of shopping behavior. They must consider introducing the innovative strategies, so that, they are able to pull and retain their customers at their physical stores. There is a need for reducing the wait time of customers. Technological gadgets need to be implemented in the feasible zones to attract the young customers. The shelf layout must be changed to make customers feel the online kind of experience. The number of stores is needed to be increased, so that, accessibility rate could increase (Pantano, 2014). 

There are environmental concerns which are drawing the attention of the national government. Greenhouse gas emission and waste production are the matter of worries for supermarket giants. The supply chain operation which also includes the logistics operation is a resource to greenhouse gas emission. Supermarket brands are under a strict scrutiny of the national government due to its contribution to the greenhouse gas emission. There is a need for effective strategies to effectively reduce the level of greenhouse gas emission (Hosken, Olson & Smith, 2018). They are in a way involved in the production of wastages. Packaging which is an important part of operation contributes to environmental pollution. It effectively contributes to the greenhouse gas emission. Recycling of older products is also a concern (de Waal, van Nierop & Sloot, 2017).

Conclusion

The Australian grocery and retail industry needs to follow certain legal policies or else they may be in danger or scrutinized for violating any of such policies. They are scrutinized under the Competition and Consumer Act 2010 which protect any unfair practice in regards to competition and trade. The purpose is to enhance the welfare of Australians (Corones, 2016). As earlier being stated that the duopoly of Woolworths and Coles have already attracted scrutinized move of the public body. Hence, Aldi will need to ensure that do not come across such obligations. The Greenhouse and Energy Minimum Standards (GEMS) Act 2012 governs a national framework guiding the product energy efficiency in Australia (Corones, 2016). Giant supermarket brands like Aldi may be required to continually deploy thoughts to remain safe from any such obligation. This is also necessary to prove their image as a socially responsible firm.

The Australian supermarket and grocery industry has witnessed a wide variety of stores like convenience stores, specialty grocery stores, and farmer's markets. However, the market is now reaching the saturation stage (Medlin & Ellegaard, 2015). Additionally, the technological disruption does already exist in the form of online shopping platforms. The existing supermarket giants like Woolworths, Coles, and Aldi can only consider improving the shopping interface through incepting a few of technological innovations. Brands can improve the shopping experience of their customers but, only through feasible technological interventions (Arup, Beaton-Wells & Paul-Taylor, 2017). Hence, it appears as if there are no more scopes for a substitute business.

The sheer competition from online shopping giants has produced the necessity for few modifications in the existing store format. Modifications need to be in regards to such as improving the shopping interface, reducing the wait time for customers and increasing the number of stores. Hence, firms with the effective business model may be a possibility. Lidl, for example, has made a knocking entry in the Australian retail industry (Methner, Hamann & Nilsson, 2015). Despite the fact that the market is close to the saturation stage, it has still space available for innovative firms. There are scopes in regards to technological disruption in the store layout to make it appealing to customers in specific to Millennials (Pantano, 2014).

The Australian grocery and retail industry is highly competitive. The competition was redefined by a duopoly dominance of Woolworths and Coles. It was further stormed with an entrance of Aldi in 2001. The cost-effective business model of Aldi has helped the company to establish its own image. At the current moment, Aldi is giving a strong fight to Woolworths and Coles. Actually, Woolworths and Coles are feeling the heat of Aldi (Calvo-Porral, Faíña Medín & Montes-Solla, 2016). The competition reached a different level with the technological disruption of online shopping platforms. It has influenced the shopping behavior of Millennials significantly. It has also attracted the Baby Boomers. The incrementing internet usage has encouraged customers to online shopping. They found this rather user-friendly due to the convenience of shopping, availability of large stocks, comparative study of different brands in terms of product features & prices and the home delivery (Arup, Beaton-Wells & Paul-Taylor, 2017). 

Consumers drive the Australian grocery and retail industry which is also evident through the successive dominion of Woolworths & Coles, cost-effective dominion of Aldi and online shopping platform. Consumers have always been the drivers. Consumers drive it through their behaviors not necessarily confined only to shopping behaviors (Methner, Hamann & Nilsson, 2015). Customers had needed cheapest yet the quality product. Such behavior of customers had given space to discounted stores. When retailers have felt the necessity to provide a convenient shopping experience they had come up with the convenient stores. Aldi had identified the need to offer all those three elements such as value, quality product and shopping convenience under one roof. Online shopping platforms can be regarded as an outcome of incrementing internet usage (Calvo-Porral, Faíña Medín & Montes-Solla, 2016).  

The Australian supermarket brands have been able to manage an effective relationship with suppliers. Hence, they had been able to manage it according to their needs. Till the time, when duopoly of Woolworths and Coles had existed they had been dominating their relationship with suppliers. They were the biggest buyers and hence, they had the advantage (Hosken, Olson & Smith, 2018). Aldi, on the other hand, moved along a different line to manage an effective relationship with suppliers. The first move was to reduce the number of stock keeping units (SKUs). They had also offered a very limited range of products than Woolworths and Coles do. In this way, Aldi was able to reduce the bargaining power of suppliers (de Waal, van Nierop & Sloot, 2017). Few of the exclusive private-label brands were accountable for a 90% shelf space payment (de Waal, van Nierop & Sloot, 2017). In this way, Aldi was able to reduce the cost of production and also the bargaining power of suppliers.

Few factors are worth mentioning due to its impact on the Australian retail industry. The Australian customer landscapes especially the Ethnic Australians and Millennials are shifting towards a new direction. They want fresh, healthy and quality products from a resource other than the online shopping platforms. They are well educated on the impact of business on the global society. This is why they now wish to pay more to brands that they trust as a potential choice for environmental betterment. Brands with a positive impact on society are an emerging demand of customers. A sustainable business with a strong preference for local production is an emerging trend (Methner, Hamann & Nilsson, 2015).

Technological disruption is the other driving force, especially for physical stores. Physical stores have faced tough challenges from the online shopping platforms. Millennials who will be the future customers have a high addiction to online shopping. On the other hand, physical stores in any format are not that much capable to pull back Millennials to the concept. They are also not accessible at every location (Luck & Benkenstein, 2015). These are the few factors to concentrate in future. Until and unless physical stores do not come up with technological interventions they will not be able to establish a strong fight to online platforms.

Aldi has been quite successful in the last five years and also able to give tough competition to Australian supermarket duopoly of Woolworths and Coles. However, it needs to implement some technological interventions in order to redefine the shopping experience and also attracting back the Millennials who are at present significantly disconnected. The company is still expanding its number of stores in Australia. There is a need to open up more such stores to make it accessible in most locations (Hosken, Olson & Smith, 2018). Additionally, customers can be provided with technological gadgets like a computerized interface in stores. This will provide tracking of required areas in stores and also the other useful stuff. The products can be designed on a shelf in a way which is very much similar to the online shopping platforms. An app specially dedicated to stores can also be introduced using which customers will be able to book their desired products which will be delivered to them within the given time period of delivery (Medlin & Ellegaard, 2015).  

The first change which was for a socially responsible business may bring significant changes to the shopping behaviors of customers. Customers especially those who are well-informed of the societal values will look for going to the changed option. It means customer loyalty will increase. This is actually necessary for a sustained business (de Waal, van Nierop & Sloot, 2017).

Technological interventions that have been suggested to compete against the online platforms may also produce necessary outcomes. Millennials may feel like visiting physical stores if it is available to their desired location. The smart technology at stores like computer interface can be a guiding experience for customers. The recommended app may also prove to be an engaging experience. Customers, in particular, the Millennials will roam around the store with the help of guidelines available on the computer interface. It is also time-effective as instant information will be generated. Customers will not require roaming around the stores and searching for their desired products. They will be to their desired location with just a slight work on the interface (Borraz et al., 2014).

Millennials may be delighted also with this new experience and feel like using the service again. The use of app may also give them an experience similar to the online shopping where they can book their orders and get it delivered at their doorstep. It means that they are physically viewing their products. Hence, they will have no doubts on whether the chosen product is exactly the same as it looked like. This is quite possible in online shopping where it is very challenging to judge a few things like color textures, designs, and a real look. However, if supermarket stores like Aldi come up with the concept, customers will actually be able to judge products based on their parameters of needs (Arup, Beaton-Wells & Paul-Taylor, 2017). The product layout arrangement in the line of the online shopping platforms may give the Millennials a feel for online shopping. They will find the products arranged exactly the way it used to be on the online shopping platforms. Hence, habits of browsing the products on the online platforms can also be relived in such physical stores (Arup, Beaton-Wells & Paul-Taylor, 2017).  

Conclusion:

Therefore, the retail and grocery industry in Australia has a declining trend at present. This is largely due to price wars between the supermarket giants. The war has benefitted the customers; however, reduced the profit margin for firms. The annual growth of the grocery and supermarket industry is also being hampered by it. The indirect impact of the circumstances is expected to affect the country’s economy. Aldi has been very successful in the last five years. A strategically aligned business practice is the reason behind its success. The business model that it uses has supplied the three essential needs or wants to customers like value, quality of product and the shopping convenience. Woolworths and Coles have struggled to be in the price wars due to their incapability to reduce the total production cost. Aldi, on the other hand, has intelligently managed to keep it low. The strategy to keep the numbers of stock keeping unit (SKUs) low is one of the intelligent moves of Aldi which has benefitted the firm immensely. However, the online shopping platforms is a serious threat to physical stores and to counter which it needs to consider a few technological interventions as suggested in this assignment. Aldi and other supermarket giants will also be needed to prove their stand in terms of corporate social responsibility (CSR).

References:

Arup, C., Beaton-Wells, C., & Paul-Taylor, J. (2017). Regulating supermarkets: The competition for space. UNSWLJ, 40, 1035-1039.

Borraz, F., Dubra, J., Ferrés, D., & Zipitría, L. (2014). Supermarket entry and the survival of small stores. Review of Industrial Organization, 44(1), 73-93.

Calvo-Porral, C., Faíña Medín, J. A., & Montes-Solla, P. (2016). Relational, Functional benefits and customer value in large retailing: A cross-format comparative analysis. Journal of International Food & Agribusiness Marketing, 28(2), 132-148.

Corones, S. (2015). Regulating unilateral supermarket misconduct as customer/acquirer of goods and services. Australian Business Law Review, 43(5), 400-419.

Corones, S. G. (2016). Applying an Effects Test under s 46 of the Competition and Consumer Act.

de Waal, A., van Nierop, E., & Sloot, L. (2017). Analysing supermarket performance with the high-performance organisation framework. International Journal of Retail & Distribution Management, 45(1), 57-70.

Hosken, D. S., Olson, L. M., & Smith, L. K. (2018). Do retail mergers affect competition? Evidence from grocery retailing. Journal of Economics & Management Strategy, 27(1), 3-22.

Ibisworld.com.au. (2018). Supermarkets and Grocery Stores – Australia Industry Report | IBISWorld. [online] Available at: https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/food-retailing/supermarkets-grocery-stores.html [Accessed 10 Apr. 2018].

Knox, M. (2015). Supermarket monsters: The price of Coles and Woolworths' dominance (Vol. 6). Black Inc..

Luck, M., & Benkenstein, M. (2015). Consumers between supermarket shelves: The influence of inter-personal distance on consumer behavior. Journal of Retailing and Consumer Services, 26, 104-114.

Medlin, C. J., & Ellegaard, C. (2015). Conceptualizing competition and rivalry in a networking business market. Industrial Marketing Management, 51, 131-140.

Methner, N., Hamann, R., & Nilsson, W. (2015). The Evolution of a Sustainability Leader: The Development of Strategic and Boundary Spanning Organizational Innovation Capabilities in Woolworths. In The Business of Social and Environmental Innovation (pp. 87-104). Springer, Cham.

Pantano, E. (2014). Innovation drivers in retail industry. International Journal of Information Management, 34(3), 344-350.

Price, R. (2016). Controlling routine front line service workers: an Australian retail supermarket case. Work, employment and society, 30(6), 915-931.

Singh-Peterson, L., Lieske, S., Underhill, S. J., & Keys, N. (2016). Food security, remoteness and consolidation of supermarket distribution centres: Factors contributing to food pricing inequalities across Queensland, Australia. Australian Geographer, 47(1), 89-102.