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One major social trend is the increasing consciousness toward health and well being, reflected in a
movement towards organic product and healthy alternatives. This trend offers an opportunity for
Woolworth’s as a currently there are few players in the market offering organic food, and sales of organic
foods are set to rise over the long term(IBIS 2009). It also continues a potential threat in that farmer’s
markets and niche supermarkets which specialize in such produce will thrive in the environment.
Woolworth’s through its acquisition of Macro Whole foods in early 2009 have at the same time exploited
an opportunity in the marketplace and neutralized a threat.
Another social trend would be the increasing number of consumers who are time-poor. Consequently,
there is a higher demand for ‘time convenience’. i.g. the ability to patronize a store when consumers have
the time. The ability to provide fulfill this need has been facilitated by deregulation in trading hours. In
addition, Woolworth is providing further convenience through expansion of its product range and the
certain of a ‘one-stop-shop’.
Economic Factors
The current economic climate has resulted in lower spending levels, especially with discretionary goods.
Hence, consumers are switching to private label brands for cost savings. Subsequently, supermarkets are
increasing their private level offerings. This enables them to compete on the basis of price while realizing
the higher margins. Provision of private labels also enables the supermarkets to compete on the basis of
choice convenience, i.e. offering a low -cost alternative.
Technological Factors
Political Factors
Government has a direct impact on the supermarket industry both in regards to legislating trading hours
and through the monitoring and regulating functions of the Australian Competition and Consumer
Commission (ACCC),the Commonwealth Government, the Trade Practices Act (TPA) and the Foreign
Investment Review Board(FIRB).
High rivalry
Low bargaining Moderate to high
among
power of suppliers barging power of
existing
buyers
competitors
Low threat of
new entrants
Threat of substitute
The threat of substitute is high as Woolworth faces many indirect competitors, such as convenience
stores, specialist grocery stores and farmers markets. Evidence suggests these direct competitors are
viable substitutes to Woolworth and pose serious threats in the future “Convenience stores have also
experienced an expansion in product offerings and would be competing directly with supermarkets in the
provision of choice convenience and ‘one-stopping shopping’. With the increasing trend towards healthy
alternatives, farmer’s markets selling organic products are also poses a potential future threat. However,
the threat posed by specialty stores is perceived to be minimal with the rise of increasingly time-poor
consumers.
A high degree of rivalry exists in the land is a direct result of the small number of major players in the
market and their lack of perceivable differentiations due to the generic nature of the services and products
provided. Therefore, competition is primarily based on price, but other competitive factors include
product choice and store location. Two main drivers of an increase in future rivalry are the entry of
American retailer Costco, as well as the turn-around of Coles, in which the replacement of senior and
middle management is set to make it more competitive and far more dangerous threat in future.
The bargaining power of suppliers used to be very low. With Woolworths and Coles controlling more that
80% of the market many local Australian producers have an extremely limited selection of intermediaries
to choose from. Therefore in many cases, Woolworths and Coles in major purchaser, perhaps even the
only purchase of a producer’s production. Even major international brands such as Kellogg’s Nestle do
not dare to upset either retailer, such as the power of their market-share. However, this is set to change,
with the entry of Costco and the expansion of Aldi, along with the Federal Government and ACCC’S
recent push to lower competition barriers in the industry. Thus the bargaining power of suppliers is set to
be “moderate” in future due to a potentially larger selection of intermediaries to consign to.
Whilst low, the buying power of consumers is also set to increase in future. Once again, the aggressive
push by the Federal Govt. and ACCC to lower competition barriers and allow new competitors to enter
the market is set to increase consumer choice, consequently increasing consumers bargaining power.
Further driving the increase of consumer bargaining power. Further driving the increase of consumer
bargaining power would be the rise of price comparison websites such as
grocery.bestpricedirectory.com.au which enables consumers to compare prices and choose alternative.
Both factors are set of bring consumers future bargaining to a more moderate level.
The threats of the new entrants are very low and are set to remain unchanged. Insidious combinations of
local zoning laws and leasing aggrtements with landloards have resulted in an artificial scarcity of grocery
store sites. As such this has deterred many new entrants from entering the market, especially overseas
players interested in the Australian grocery industry. This is further aggravated by preferential treatment
for Woolworths and Coles by landlords, due to their numerous pulling powers in terms of consumer
traffic.
Furthermore potential entrants to the Australian grocery market must compete with Woolworth and Coles
tremendous economics of scale. Thus the investments in infrastructure, and facilities would be massive,
and the expertise to manage them all would be specialized and rare. Thus very few firms have the
expertise and recourses required foe such a significant undertaking and only a few overseas players such
as Costco and ALDI are able to do so.
Woolworths efficient distribution network in both a resources and a capability in its in-bound and out-
bound logistics. A culmination of tangible and intangible assets such as technological capabilities and
supplier relationships, it is highly valuable as it was the significant costs-savings achieved throughout its
entire logistics network that enabled Woolworths to achieve a higher EBIT over Coles. The level of cost
saving benefits provided is non-sustainable by any other resource it is also difficult to initiate as the level
and scope of the technological capabilities involved is highly specialized and staggering. However,
Woolworth should posses an unfavorable public image or sell products undesirable to consumers,
possessing an efficient distribution network would be irrelevant. Thus, by itself an effective supply chain
is insufficient as a distinct competency, and must be supported by others competitive advantages.
Brand Reputation
Woolworth reputation as the fresh food people was built over many years. This was done via positive
consumer experiences with its product which can be attributed to its stringent quality assessment
procedures throughout its supply chain as well as its Fresh Food People advertising campaign. Hence, this
brand reputation is valuable. As it provides meaningful differentiation to its competitors , and has directly
contributed to higher levels of customer satisfaction. It is also non-sustainable, as the benefits provided
cannot be matched by any other resource. However, it is neither rare, nor hard to copy, with most of its
rivals also claiming to sell fresh food. More importantly, fresh food and quality products have come to
become a basic expectation of consumers. Thus this reputation is not a distinct competitive advantage;
rather it is a point of parity that Woolworths must possess in order to compete.
Despite recessionary pressure and rising inflationary rates, Woolworths is still able to achieve growth
rates at higher than projected levels. This can be attributed to Woolworth’s effective top management, in
particular CEO Michale Luscombe. Further, the establishment of relations between Woolworths and Wal-
Mart’s top management is a significant factor perceived as enabling Woolworths to compete effectively
with Costco in future, an American retailer that just entered the market.