Discuss about the Price Of Coles And Woolworths Dominance.
Coles Supermarkets Australia Pvt Ltd is an Australian Supermarket chain. It is engaged in the arena of supermarket, retail and consumer services. It is based in the state of Melbourne and is headquartered in the same place. It was founded in the year 1914, in the town of Collingwood in Melbourne and is owned by its parent company, the retail giant Wesfarmers. It is engaged in the task of producing and distributing various kinds of bread & bakery, fruit & vegetables, meat, seafood & diary, eggs, meals, drinks, liquor, health and beauty and various other diverse ranges of products. It is engaged in the business of providing quality household items to the Australian masses, through its wide range of distribution outlets in the form of its widely acclaimed supermarket chain, across the Australian sub-continent (McCarthy and Murphy, 2013).
Coles was originally established with the objective of catering to the needs of the Australian masses. The retail giant Wesfarmers had taken a gamble after the downfall of Coles, to invest in the supermarket chain. The gamble had ultimately paid off and now Coles accounts for almost 80% of the Australian market. It has reached at this stage, because of the incessant and faithful service it has rendered to the Australian masses. One of the biggest reasons for the immense amount of success is because of the inherent objective of the Coles Management team, which was later imbibed into each and every employee of Coles. The aim of providing to the people of Australia, a shop which they can trust for ensuring delivery of quality products, services and value. The overall objective of catering to the household requirements of the Australian masses is what has kept the company going.
Marketing structure of Coles Supermarket is among the largest among the retail and supermarket segment. Cole food and grocery market has been very active in the segment of food and retail sector. The market has seen quite a lot of ups and downs, but the dominance of Coles and few other firms has been constant. The particular market structure of the Australian supermarket is ‘oligopolistic’ in nature. Woolworths Group has led the market by a mammoth market share of about $32.2 billion (35.7% market share), closely followed by Coles with a $30 billion (33.2%). While other companies like Aldi, IGA are far behind with $11.9 billion (13.2%) and $8.4 billion (9.3%) respectively. There is the presence of few dominant firms and the type of product being delivered is similar in nature. It is because of this that the barriers to entry in the Australian retail and supermarket segment are very high. In this particular market, the companies, (Coles, in this case) are the actual price makers, because of the dearth of excessive competition and each are dependent of the pricing strategies of the fellow firms. This has been the scenario of the Australian retail and supermarket market, where Coles holds a significant place.
Cole’s supermarket has been a consistent performer in the Australian retail and supermarket segment. It has only been behind retail giant Woolworths in the super market segment. As mentioned earlier, Coles has a market share of roughly around 33% of the super market segment. It is just behind Woolworths in this case. In terms of monetary value, the retail subsidiary of Wesfarmers has a market size of about $30 billion and is again behind Woolworths which has a market size of $32 billion.
According to the reports of IBIS World, it has been concluded that the Australian super market industry is expected to grow by a rat of 2.2% in the financial year 2017-18. It is largely due to the rising demand for premium quality of food products, mostly demands of organic fruits and vegetables (Richards, et al., 2013). The resurgence of Woolworths in the food division of Australia, has had a tremendous impact on the Australian super market segment. The trend of t this resurgence would continue for the rest of the 2017-18. The company has refocused on the food segment because of its bad performance in its hardware business. However, the company has drastically reduced its prices, in order to effectively compete with Cole and ALDI. Notably, Cole’s performance in the supermarket segment as it has continued to face insurmountable amount of pressure from ALDI and Woolworths. The news of the entry of US retail and online giant Amazon has also sent shockwaves in the Australian retail sector, as a result of which Coles and Woolworths have initiated expansion of their online business segment.
The Australian retail and super market segment is mainly of oligopolistic nature, with the dominance of few prominent firms. Notably, Woolworths, ALDI and IGA are some of the most prominent firms competing in this segment (ABC News., 2018). A pictorial representation of the current competitive scenario of the Australian retail and supermarket segment has been provided below:
(Source: Roy Morgan, Australia, 2016-17)
There are a variety of barriers to the entry into the Australian supermarket and retail segment. These barriers to the entry of new firms are one of the primary reasons for the continuation of the oligopolistic market. The presence of few firms has made this a lucrative industry, which is managed and owned by a small number of dominant firms (Knox, 2015). There are various kinds of barriers to entries which are prevalent in this scenario, such as cost of entry, presence of existing goodwill, economies of scale, dealing with suppliers, characteristics of consumers and presence of various kinds of convenience stores. Foreign giants are increasingly making their presence felt in the Australian retail and supermarket segment, particularly Amazon and Alibaba, because of their financial might and global goodwill.
The target market of Cole consists of mainly median income earning consumers, and is of lower middle age. They have the tendency to buy more during the presence of larger pantry stockings trips. On analysis of the demographic of the consumers, it can be seen that the advent of the women consumers is more than their male counterparts and the larger number of consumers are of Caucasian origin. There is always a way, to increase the target market, which is, by the expansive use of the advertising medium, by introducing products of the newer market segments, catering to the demands of the new group of customers, apart from the target market ones of the middle age groups of consumers. By opening new outlets and by expanding the product range, there is a possibility of increasing the target market of Coles.
Coles has been widely successful in the grocery section of its supermarket and retail section. It is on the basis of the initial success of the grocery section, upon which the performance and the subsequent growth of the company has stood. In the case of the new marketing opportunity the publication of the famous ‘Coles magazine’ in its mobile application platform, the ‘Coles app’ would be a game changing marketing opportunity, in the age of online transaction and growth. The company has received much of its acclaim from its magazine success apart from its grocery and super market business. It is a unique kind of product, which would be providing improved kind of marketing prospects to the retail company.
In the case of market penetration, this would be a highly successful affair. The company already provides its magazine in printed and soft cover forms and also in the form of its website, of ‘Cole’s magazine’. The company already has a well-established brand name of its magazine and this strategy pertains to the expansion of the magazine in its online mobile section. This strategy has been devised in order to milk in the opportunity of the already established brand of the company’s magazine. It is the most read magazine in the Australian sub-continent with a monthly readership of 4.1million. The mobile application platform is a robust platform for expanding its reach to all the age groups apart from its traditional customers and target groups.
The product would be developed on the basis of the writers of the magazine, which already exists because of the already existing product of the famous magazine. The mobile application needs to be created. The cost of creating such an application would depend on the type of application which would be developed by the company. Coles already has a tech savvy app for the purpose of ordering its grocery products. The company must develop the same quality app for this purpose, which should cost around, $171,000 including the development, testing, app administration, infrastructure, features, and design and planning costs. The cost of publishing and including the cost of the magazine into the mobile application platform would consist of the costs for the development. The details of the cost of app development have also been provided below:
(Source: Contus, 2018)
The market of magazines relating to information about health issues, food products about the benefits of organic and natural food items, which is provided by these magazines highlights the importance of such magazines. Moreover, the market for mobile application users, which is based on the internet applications. Since the complete takeover of the marketing forums and businesses by internet mediums, the development of the magazine market through online mediums of mobile application, is a lucrative idea. The company would be able to take advantage of this idea with the realisation of this mobile magazine idea.
In order to successfully initiate and launch the mobile application of the magazine, it is necessary to follow all the relevant principles of ethics and the laws related to privacy. The company would be very much careful during the purpose of launching the application, as it wants to prevent any kind of violation of the privacy laws and the ethical principles. The company would differentiate between personal information, sensitive information and health information, while creating the contents of the magazine and uploading them on the mobile application. It would adhere to all the privacy policies of the Australian government.
All the information about the fixed cost, variable costs, contribution, contribution margin along with the break even units and amount has been provided below, along with a graphical representation of the same.
Here the unit of anticipated sales of the app magazine has been taken amounting to 30,535 units and the contribution margin being 0.56. Thus the company must earn around $281,000 in order to break even.
According to the, Australian anti discrimination law, “ it is illegal to differentiate on the basis of a number of secluded attributes including age, disability, race, sex, intersex status, gender identity and sexual orientation in certain areas of public life, including education and employment” (Ag.gov.au, 2018). The company would not differentiate between its employees on the basis of these grounds, who will be entrusted with the job of creating and maintaining its mobile application for its magazines. To ensure this, active co-operation and indulgence of the HR department would be ensured and a feedback portal would be provided to the employees to voice their opinions and suggestions. In association with this, it would be specifically looked after by the HR dept. that the employees both the present ones and the prospective ones are given equal opportunities to prove their worth.
References:
ABC News. (2018). Woolworths widens the gap on Coles as ‘down, down’ looks down and out. [online] Available at: https://www.abc.net.au/news/2018-02-23/woolworths-beating-coles-in-supermarket-battle/9479544 [Accessed 1 Jun. 2018].
ADMA. (2018). Code of Practice. [online] Available at: https://www.adma.com.au/compliance/code-of-practice [Accessed 1 Jun. 2018].
Ag.gov.au. (2018). Australia’s anti-discrimination law | Attorney-General’s Department. [online] Available at: https://www.ag.gov.au/RightsAndProtections/HumanRights/Pages/Australias-Anti-Discrimination-Law.aspx [Accessed 1 Jun. 2018].
Coles.com.au. (2018). Coles Supermarkets. [online] Available at: https://www.coles.com.au [Accessed 2 Jun. 2018].
contus.com. (2018). Contus – A SMAC Driven Digital Transformation Company. [online] Available at: https://www.contus.com [Accessed 1 Jun. 2018].
Gain.fas.usda.gov. (2018). [online] Available at: https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_Canberra_Australia_12-18-2017.pdf [Accessed 2 Jun. 2018].
Knox, M., 2015. Supermarket monsters: The price of Coles and Woolworths’ dominance (Vol. 6). Black Inc..
Legislation.gov.au. (2018). Trade Practices Act 1974. [online] Available at: https://www.legislation.gov.au/Details/C2010C00426 [Accessed 1 Jun. 2018].
McCarthy, B. and Murphy, L., 2013. Who’s buying organic food and why? Political consumerism, demographic characteristics and motivations of consumers in North Queensland. Tourism & Management Studies, 9(1).
Richards, C., Bjørkhaug, H., Lawrence, G. and Hickman, E., 2013. Retailer-driven agricultural restructuring—Australia, the UK and Norway in comparison. Agriculture and Human Values, 30(2), pp.235-245.
Scutt, D. (2018). The ‘new world’ Coles is entering is very different to the one it left a decade ago. [online] Business Insider Australia. Available at: https://www.businessinsider.com.au/coles-listing-wesfarmers-supermarket-competition-aldi-amazon-2018-3 [Accessed 2 Jun. 2018].
The West Australian. (2018). Is Amazon planning fresh food attack on Coles, Woolies?. [online] Available at: https://thewest.com.au/business/mergers-and-acquisitions/coles-woolies-rattled-after-amazons-whole-foods-market-deal-bombshell-ng-b88511138z [Accessed 2 Jun. 2018].
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