UNSW Business School, AGSM

Title: Assignment 2: Individual Analysis

Author: Richard Tassone (z3454258)
Unit: Strategic Management of Business and Technology MBAX9113
Date of Submission: 6th of July 2016
Word Count: 1589

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Richard Tassone, (z3454258)
Assignment 2 Individual Analysis

Introduction
This assessment of the Coles Supermarket (Coles) strategies is part of the individual
group Assessment 2 which encompasses analyses of both internal and external
strategic components. This individual report specifically focuses the following
strategic elements of:

The Macro Environmental Context using PESTLE Analysis

Intellectual Capital, Brands and Intangible Assets using a VIRO

Analysis

Coles share of the Australian grocery market is approximately 32%, generating an

operating revenue for 2015 of $38.2 billion an increase of 2.2% over 2014, (Roy
Morgan Research, 2015) & (Westfarmers, 2015). There have been significant
pressures forcing rapid evolution of the grocery industry. These pressures include the
arrival of new players such as Costco and Aldi, the increase in online shopping
participation, the politicisation of business practices and industry sector regulation.

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Assignment 2 Individual Analysis

Macro Environmental PESTLE Analysis

Political Factors
Prevailing influential political forces are associated with market dominance of Coles
and the perceived influence derived from this market share.

The Coles/Woolworths duopoly controls 70 to 80% of the grocery retail sector

(Beaton-Wells, 2015), which raised public and thus political concern as to the misuse
of market power and the suitability of current competition laws.

The other dominate political force is the risk that market dominance may be (or has
been) unfairly applied as unconscionable, misleading or deceptive conduct or the
misuse of market power when dealing with wholesalers and suppliers. This ground
swell of concern, represents a genuine risk to forecast sales and more importantly a
prospective inroad for competitors who could take market share.

Coles have taken a strategically proactive step of becoming a signatory (along with
other retailers) to a voluntary Code of Conduct which sits under the mandated
Competition and Consumer Act 2010, (ACCC, 2015).

Economic Factors
Customer purchasing power is the most influential economic force the Coles must
account for strategically, particularly when the volatile economic climate leading to a
swing in consumer confidence and reduction in purchasing power, (Roy Morgan
Research, 2016).
This new found consumer fiscal interest has led to the shift towards private labels in
order to save costs, (Hattersley, 2013). Thus Coles private labels now are not only
price comparative (which they always have been), but now socio-economic forces
cast private labels a viable low cost alternative for a much larger percentage of
customers.

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Assignment 2 Individual Analysis

Furthermore, this change in consumer sentiment will bolster the Coles ability leverage
with brand name suppliers for better unit rate costs now that alternatives are
increasingly attractive.

Social Factors
The most influential social forces evident are associated with an increasing awareness
towards health and wellbeing in conjunction with a growing demand for time
convenience.
There has been a gradual shift in consumers preferences towards organic or health
products. Consumers are starting to discriminate between products which can provide
transparency in the food chain, people what to know exactly where their food has
come from and what is in it, was is sourced locally and sustainably, (Miller, 2016).

This represents a major opportunity for Coles to tap into an available market with an
increasing appetite for products. Coles has strategically identified this growth
opportunity and has rolled out the Focus on Freshness growth strategy based on a
holistic approach integrating price, availability, quality and supplier relationships to
deliver a better in store concept to respond to consumer demand in this sector.
The increasing convenience demand from consumers lead to Coles Express stores
catering for essential grocery items. However, the longer term strategic response
has been Coles Online Shopping. The online platform provides virtually an
unlimited opportunity for Coles to expand their online services and realise increased
efficiency through greater integration into the value chain.

Technological Factors
Technological forces have influenced the Coles strategy in two areas, 1) infrastructure
and 2) sales platform. Infrastructure encompasses supply chain logistics, live
monitoring of stock levels and operational parameters. Sales platforms encompass a
departure away from brick and mortar stores to the online sales platform.
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Technology influence on Coles infrastructure has resulted in a strategic restructuring

with an aim of simplification of stock management and logistics to reduce capital
costs tied up in inventory, warehousing and inefficient logistical operations permitting
the implementation of a just in time delivery system. Furthermore, technology
influences have enabled live analysis of the whole value chain in a high level of
resolution, including the examination of consumer demand and preference,
(Hattersley, 2013).

Legal Factors
The legal forces influence on strategy is considerably less variable. Influential legal
forces are associated with human resources, safety (both employee, public and food)
and business activity (which was addressed as a political factor).

There have been instances of questionable legal forces on private brand strategy.
Where private brand labels are very similar in design and colour of established
brand names.
It could be construed a combination of advantageous shelf placement favouring the
private label, Coles mimicking of product label design and positioning could be seen
as an exploitation of a legal weakness of label intellectual property rights.

Environmental Factors
The influence of environmental forces on strategy is not particularly evident. This is a
function of the Coles operations not having a significant direct impact on the
environment. However, what influences that arise are evident in the strategic
corporate responsibility associated with waste reduction and environmental initiatives
around energy consumption resulting from refrigeration, climate control lighting of
stores and transportation.

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Assignment 2 Individual Analysis

Intellectual Capital, Brands and Other Intangible Assets - VIRO Analysis

Asset

Valuable

Rare Difficult/Costly

Competitive

to Imitate

Implications

Brand Reputation

Yes

No

No

Competitive Parity

Effective Top

Yes

Yes

No

Temporary
Competitive

Management

Advantage
Logistics/Supply/Value

Yes

No

Yes

Competitive Parity

Chain
Brand Reputation:
The brand image of Coles Supermarkets has been developed over decades through
positive consumer experiences, during a time of limited competition. Current
competitor forces offer high quality and fresh produce at similar price so rarity and
imitation presents concerns. Brand reputation does not offer competitive advantage
but rather comparative parity.

Effective Top Management:

Executive management has steered Coles through the recent unstable economic
climate to constantly achieve higher growth rates than its competitors. The current
effectiveness of top management is a clear differentiator of Coles from the
competition. This resource is non-substitutional and in the retail sector relatively rare
and hence valuable. However, the advantage is only temporary in that the cost
reduction/simplification strategy is not difficult to imitate, as evident with the arrival
of low cost competitors such as Aldi & Costco.

Logistics/Supply/Value Chain
The Coles value creation mechanism generates customer value through a combination
of competencies encompassing supply economies of scale and partnerships with /
influence over suppliers, logistics - efficient logistical systems, supported by
intelligent application of advanced technologies. The strategy is very costly to
replicate due to the capital resources required, but they are reproducible as evident by
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new entrants in the sector such as Costco and Aldi. Consequently, no real competitive
advantage can be secured.

Concluding Discussion
The Coles business level strategy is the generation of customer value through lower
prices, improved quality and fresher produce. This value is generated through a
simplified superior supply chain which allows cost minimisation through economies
of scale, collaboration with producers, use of existing efficient logistical assets all
supported by the application of advanced technology, allowing the optimisation of
stock levels.

The strategy has been delivering successful outcomes for 5 years, however the
magnitude of the growth has been decreasing as improvement on improvement
becomes more difficult to realise. The return on capital employed for the last 5 years
averages at 9.46% or 10.2% over the last 3 years. The EBIT average growth of 6.4%
last year (2014), 9.3% year before (2013) and 13.1% year prior (2012), (Westfarmers,
2015). All during a period where the Coles retail sector market share only grew 2%.
Thus improved performance is mostly derived from the impact of strategy to increase
financial performance through realisation of business efficiencies.
This increase in business efficiency provides Coles with a self-funded financial
resource which has assisted the pursuit of opportunities beyond customer value.
These opportunities include diversification into liquor, fuel sales and financial
services such as branded credit facilities and insurance. This diversification allows
the development of alternate revenue streams not readily affected by retail
competitors such as Aldi and Costco.

It is apparent that the approach of targeting cost minimisation to deliver customer

value is a successful strategy that the local competition Woolworths is yet to achieve.
This approach of targeting customer value as a strategic outcome has yielded a period
on period increase in revenue and profits. When considering rival corporations such
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as Aldi and Costco, the current strategy places Coles in a superior position than
Woolworths to fight off competition while maintaining market share.

Strategic Options
One of the more strategically important opportunities is online shopping. The
embracement of e-commerce in Australia is increasing rapidly, with over $16 billion
in online retails sales in the year to January 2015, (NAB, 2015).

The global grocery sector is showing a trend of significant increase in online shopping
supplementing brick and mortar store revenues, (Nielsen, 2015). Coles must
accelerate the integration of the online store into the business, rather than treating it as
a add on element to account for the demand from the fringe element. Failing to do
so could result in Coles becoming the retail equivalent of Kodak or Nokia, once
leaders in their field, who were left behind.

However, continued focus must be maintained on the development of meeting

consumer demand for fresher, organic healthier product options, in conjunction to
delivering value to customers. Failure to maintain these underpinning criteria will
least to a rapid loss of customer base and revenue.

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References
ACCC, 2015. Food and Grocery Code of Conduct, s.l.: s.n.
Beaton-Wells, C., 2015. Supermarket monsters can be agents of change. [Online]
Available at: https://theconversation.com/supermarket-monsters-can-be-agents-of-change44303
[Accessed 1 July 2016].
Hattersley, L., 2013. Supermarket power, own-labels, and manufacturer counter-strategies:
international relations of cooperation and competition in the fruit canning industry..
Agriculture and Human Values, pp. 1-9.
Miller, B., 2016. Top trends consuming the food industry in 2016. [Online]
Available at: http://www.wiley.com.au/blog/2016-consumer-trends-driving-food-industry/
[Accessed 30 June 2016].
NAB, 2015. Online Retail Sales Index: In depth report January 2015. [Online]
Available at: http://business.nab.com.au/online-retail-sales-index-in-depth-report-january2015-9980/
[Accessed 1 July 2016].
Nielsen, 2015. The Future of Grocery. [Online]
Available at:
http://www.nielsen.com/content/dam/nielsenglobal/vn/docs/Reports/2015/Nielsen%20Global
%20ECommerce%20and%20The%20New%20Retail%20Report%20APRIL%202015%20(Digital).
pdf
[Accessed 1 July 2016].
Roy Morgan Research, 2015. The ALDI effect: Australias changing supermarket scene.
[Online]
Available at: http://www.roymorgan.com/findings/6297-aldi-effect-australias-changingsupermarket-scene-201506220132
[Accessed July 2016].
Roy Morgan Research, 2016. ANZ-Roy Morgan Consumer Confidence. [Online]
Available at: http://www.roymorgan.com/findings/6870-anz-roy-morgan-australianconsumer-confidence-june-28-2016-201606281414
[Accessed 30 June 2016].
Westfarmers, 2015. 2015 Annual Report, Perth: Westfarmers.
Westfarmers, 2015. Full Year Results Presentation, s.l.: Westfarmers.
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