The report aims at putting forward a discussion on competitive strategy in the context of acquisition and structure of the supermarkets of Australia. The report revolves around a discussion about the renowned Australian supermarkets, Woolworths, Coles and Aldi. Woolworths Supermarkets represents an Australian grocery and supermarket chain found in the year 1924(woolworths.com.au 2018). It is one of the largest retailers of Australia and owned by the Woolworths Limited. Coles is also an Australian supermarket chain located in Melbourne and owned by the Wesfarmers. Coles store was introduced in 1914 (coles.com.au 2018) and now operates across eight hundred and one supermarkets across the Australian continent. The supermarket chain presently boasts of having around 100,000 employees. Woolworths along with Coles represents a duopoly structure that accounts for about 80 percent share in the Australian market. On the other hand, Aldi, was a German brand that made its debut in the Australian market and created newer challenges for the existing supermarkets with its strategy of lower cost (aldi.com.au 2018). Here, the report will focus on a proposed acquisition of Woolworths where it claims in acquiring Renaissance Super ICA of St. Kilda. The report also portrays the analysis of this proposed acquisition by Australian Competition and Consumer Commission (ACCC) in presence of Aldi and Coles. The ACCC plays the role of considering the competitive prices of a proposed acquisition in context of the local retail supermarket, local retail market and the state based retail supermarket. Woolworth’s supermarket however holds a second position in Australia based on revenue and experienced a growth in the profit by 37.6 percent in 2017.
The Australian Competition and Consumer Commission (ACCC) put forward guidelines based on which market enquiry took place for the proposed acquisition. This resulted in the anticipation of ultimate decision (Leigh and Triggs 2016). In Australia, the initiation of a proposed acquisition undergoes preliminary scrutiny by the ACCC before the execution of the final decision. The commission presents a Statement of Issue (SOI) for each propositions made. This enables the interested parties in identifying the issues put forward by the commission. The interested parties might range from competitors, customers, stakeholders and shareholders. Besides the commission also puts forward further provision for submission of SOI for merger and other parties as and when necessary. This however acts as helpful platform.
The Acquirer: Woolworths Supermarket
Woolworth’s is one of the largest Australian supermarkets owned by the Woolworths Limited. The supermarket chain sell groceries including vegetables, meat, fruit, packaged food along with magazines, beauty& health products, baby and pet supplies, stationary items and household products. Presently, it operates across close to 1000 stores in Australia (woolworths.com.au 2018).
This supermarket is an Integrated Grocers of Australia (IGA) whose offerings ranged from groceries to fresh produce (iga.com.au 2018). The IGA store also had a liquor section that offered chilled and non-chilled products.
. The targeted supermarket is spread across 1259 square meters in area having facilities of an extensive parking area for sixty-three cars. Besides the redemption scheme of Supa IGA allowed customers with free parking facilities for over an hour. Nero Tadeo Nominees Pty Ltd. owns Supa ICA’s liquor licenses. Mr George Altman controlled the licenses and held the responsibility for owning as well as running two supermarkets under Renaissance Supa IGA.
Aldi Australia:
Aldi is a privately owned supermarket operator that entered the Australian market in the year 2001. The supermarket boosted of owning 300 stores across Victoria, Queensland and New South Wales. This retail supermarket possessed further expansion plans in Southern and Western Australia in the year 2013. Aldi has limited assortment and was characterized by lower prices (aldi.com.au 2018). These discounters put emphasis private levels instead of a huge assortment. Aldi have smaller stores. It is one of the low price discounter operating across Australia and has interstate network.
Coles is one of the foods, convenience and liquor retailer of Australia. Wesfarmers limited later owned the company. Wesfarmers represented a public listed company that had operations in varied sectors like energy, retail, chemical, resource, insurance, industrial sectors and fertilizers.
Metcash Limited
This is the largest grocery store in Australia that distributes products including liquor, fresh produce and hardware to the independent supermarkets. The distribution business of Metcash IGA provides distribution, marketing and warehousing of the grocery consumables to the independent retailers that operates under IGA such as IGA express and Supa IGA and to non-IGA brands like Supabarn, FoodWorks, Supabarn Express and Supa Express. Australia has close to 1400 stores that operate under IGA brands (metcash.com 2018). Metcash is even a wholesaler of the bottle shops under various banner groups that includes IGA liquor like Thirsty Camel, Bottle O, Cellarbrations and to the hardware retailers under the banners of True Value and Mitre 10
Woolworths Supermarket presented acquisition propositions about the business of Supa IGA, its business assets and the liquor license from Nero Tadeo and bring the independent retail small-scale supermarket under the branding of Woolworths (Vidal-Suárez and López-Duarte 2013). Woolworths undertook commercial negotiations with property owner of Supa IGA for acquiring the property.
The Australian Competition and the Consumer Commission (ACCC) took to market enquiries depending on the proposition for acquisition. The commission also accepted further information from the interested parties to ensure assistance in the process of investigation.
The Australian Competition and the Consumer Commission (ACCC) put forward Statement of Issues (SOI) that outlined the concerns regarding the proposed acquisition of Renaissance Supa IGA of St Kilda by Woolworths. Renaissance Supa IGA, the targeted supermarket was located in 64 Fitzroy Street of St Kilda, Victoria.
The preliminary view of ACCC on proposed acquisition would result in reduced competition since it would lead to the removal of a full line and independent supermarket from the local market. Besides, Coles and Woolworths, Renaissance Supa IGA of St Kilda represented the only option for the consumers to shop for the product range of a supermarket (Corones 2014).
ACCC has put forward the concerns of the market participants regarding the loss of unique product offering of Renaissance Supa IGA. The targeted supermarket offers products that not often stocked by large supermarket chains. These products includes bakery and delicatessen, fresh vegetables and fruits, health food and specialty gourmet products and other imported brands and products valued by the consumers(Singh-Peterson and Lawrence 2015). ACCC however mentions that the product differentiation put forward competitor response towards offers made by the rival supermarkets thereby providing additional choice for the consumers. The commission has therefore expressed a concern that the acquisition might lead to the significant reduction of choices for the consumers. As Supa IGA is the sole monopoly in the area, so the acquisition would remove access to the promotions of Supa IGA for the shoppers.
In accessing proposed acquisition, ACCC considers the effect of acquisition by comparing the competitive environment of the future provided the acquisition reaches a situation when it substantially leads to reducing the competition in the concerned market (Collyer 2017). In this situation however, the targeted market represented the profitable business and in absence of an acquisition holds the power of operating as an independent identity for the next few years. The ACCC presents a final assessment that portrays the possibility of Supa IGA in making an exit by the year 2017. The commission also presents merger reviews that revolve around the influence of acquisition in future. However, the shutdown of Renaissance Supa IGA in the longer-term holds importance since it determines the influence on strategic direction, future competitiveness in business and the incentive.
In other words, the futuristic view of ACCC portrayed that entry of independent supermarkets like Woolworths for replacing the offers of Renaissance Supa IGA is quite unlikely in a predictable future.
As per the overview of ACCC on the proposed acquisition, the competitive dynamics can be accessed based on following markets (Chen and Miller 2015):
The commission also considered acquisition based on the retail market of liquor. The liquor division of the targeted supermarket faced competition in the local market from the liquor sales of Woolworths, Coles and the independent bottle shops and the supermarkets. Thus, the impact of the proposed acquisition did not suffice to be sufficiently substantial.
According to the ACCC commission, the competition of the retail market that involved the buying groups or the chains occurred at the state, national and the geographic level (Steward and Gapp 2014). It is often seen that all retailers undertakes competition in attracting customers from other similar retailer located within same area. Competition also exists amongst the larger brands depending on retail offers of most of the stores in a broader spectrum.
While assessing local market for retail, the ACCC identified competitive constraints of the retail offers made by the targeted stores against the ones put forward by acquiring firm. There has been a clear visibility on the fact that the shopper often makes a switch between targeted supermarket and the ones located in and around suburb areas of Middle Park, Windsor and the West of St Kilda for a similar shopping experience (Sutton-Brady, Kamvounias and Taylor 2015). ACCC therefore puts forward that acquisition-taking place in context of local retail supermarket also takes into account the suburbs. Besides, the commission also considered the distance between the supermarket, dimensions of local market, analysis of the work time and the routes of the public transport. Besides, the commission also undertook investigation regarding distribution of catalogue areas of Renaissance Supa IGA of St Kilda. It however found catalogue distribution were made to the households that were located at a distance area of 2km from supermarket. These considerations enabled the commission in putting forward a preliminary overview that the supermarkets located in suburban areas of St. Kilda was capable of providing closer substitutes.
While considering the local market the ACCC should also consider the persistent competition in the broader retail sector. This helps in putting up a competitive constraint on the retail offers put forward by Woolworths across the various local markets (Pollard et al. 2014). Presently, Woolworths standardizes elements on the retail offer via either pricing or state -wide campaigns for marketing across every store, Thus standardization can undergo immense change in response the competitive conditions.
The consideration of the proposed acquisition by the ACCC was done in reference to state based market for wholesale supply and procurement of the products sold in the supermarkets. This is performed on a consistent basis through considering past acquisition of supermarket.
The statement of issues in this case are divided into the two categories are issues that raises concern and the issues unlikely in raising concern (Mihailovic and Marjanovic 2014). The report however focuses on the issues raising concern. These include:
Concentration of the Market:
The concentration of the market is determined by the presence of:
Woolworths and Coles are the closest competitor and market inquiry portrays the target supermarket to be a full line supermarket that had operations in local market (Knox 2015). This means Renaissance Supa IGA of St Kilda is the sole option for weekly shopping by the shoppers in addition to the Woolworths and Coles. Aldi can lead to a price competition amongst the supermarket by offering lower price for its limited assorted products. On the other hand, convenient supermarkets located in the areas surrounding the Renaissance Supa IGA are smaller and do not have an extensive product offering compared to full line supermarkets.
Therefore, it can be said convenient supermarkets having a local presence is unable to produce closer substitutes. However, at a larger target site the constraint of supermarket depends more on the product offerings of the other local supermarkets rather than the offerings made by convenience and the limited assorted supermarkets.
It is found that Renaissance Supa IGA of St Kilda enters into competition with the localized supermarkets through either a price or non-price offering based on the local market. . Rather than ensuring a match for the competitor, the targeted supermarket puts forward a differentiated and unique order. Renaissance Supa of St Kilda is an independent grocery store in Australia with a wide range of product offering. This also allows the independent store in put forward various offers in terms of products, price and promotions (Merrett and Smith 2013). This however leads to the conclusion that supermarkets like Woolworth and Coles represents the closest competitors of the Renaissance Supa IGA
According to past reviews put forward by ACCC, the barriers to entry remain higher in supermarket retailing. Establishment of new supermarket involves considerable lead times and sunk cost. This can however lead to creation of barrier when the market remains already served by the multiple supermarkets especially when they take into account the scaled incumbent. St Kilda is a developed area that puts forward a challenge in finding the accurate site for establishment of whole range supermarket. Further, it does not even allow for the expansion of the smaller format stores. Hence, entry of full like supermarkets thereby leading to the replacement of offers made by Renaissance Supa IGA seems hardly possible in the near future.
Conclusion:
To conclude one say that Woolworths can replace the differentiated offers made by the target supermarket, the acquirer, since the supermarket already has standardized offers that is a part of local market. However, entry of another independent full line supermarket or the expansion of the existing structures with the aim of replacement of the offers of the targeted supermarket seems difficult. Market inquires indicated a generalized perception in relation to personal service and higher quality of the targeted supermarket that holds value to the shoppers not only due to the unique feature in comparison to the standard offerings made by the key chains of the supermarket.
References:
aldi.com.au 2018. [online] Available at: https://www.aldi.com.au/en/ [Accessed 25 Sep. 2018].
aldi.com.au 2018. [online] Available at: https://www.aldi.com.au/en/about-aldi/customer-information/pricing/ [Accessed 25 Sep. 2018].
Chen, M.J. and Miller, D., 2015. Reconceptualizing competitive dynamics: A multidimensional framework. Strategic Management Journal, 36(5), pp.758-775.
coles.com.au 2018. [online] Available at: https://www.coles.com.au/store-locator/searchstores [Accessed 25 Sep. 2018].
coles.com.au 2018. [online] Available at: https://www.coles.com.au/our-range/our-products/liquor [Accessed 25 Sep. 2018].
Collyer, F., 2017. The corporatisation and commercialisation of CAM. In Mainstreaming Complementary and Alternative Medicine (pp. 81-100). Routledge.
Corones, S., 2014. Behaviour v structure: Tribunal’s AGL Energy merger authorisation. Australian Business Law Review, 42(4), pp.313-316.
iga.com.au 2018. [online] Available at: https://www.iga.com.au/ [Accessed 25 Sep. 2018].
Knox, M., 2015. Supermarket monsters: The price of Coles and Woolworths’ dominance (Vol. 6). Black Inc..
Leigh, A. and Triggs, A., 2016. Markets, monopolies and moguls: The relationship between inequality and competition. Australian Economic Review, 49(4), pp.389-412.
Merrett, A. and Smith, R.L., 2013. The Australian grocery sector: structurally irredeemable?. The State of Competition.
metcash.com 2018. [online] Available at: https://www.metcash.com/ [Accessed 25 Sep. 2018].
Mihailovic, I. and Marjanovic, M., 2014. Strategy Analysis and Choice. International Journal of Management Sciences, 4(11), pp.538-545.
Pollard, C.M., Landrigan, T., Ellies, P., Kerr, D.A., Lester, M. and Goodchild, S., 2014. Geographic factors as determinants of food security: a Western Australian food pricing and quality study. Asia Pacific journal of clinical nutrition.
Singh-Peterson, L. and Lawrence, G., 2015. Insights into community vulnerability and resilience following natural disasters: perspectives with food retailers in Northern NSW, Australia. Local Environment, 20(7), pp.782-795.
Stewart, H. and Gapp, R., 2014. Achieving effective sustainable management: A small?medium enterprise case study. Corporate Social Responsibility and Environmental Management, 21(1), pp.52-64.
Sutton-Brady, C., Kamvounias, P. and Taylor, T., 2015. A model of supplier–retailer power asymmetry in the Australian retail industry. Industrial marketing management, 51, pp.122-130.
Vidal-Suárez, M. and López-Duarte, C., 2013. Language distance and international acquisitions: A transaction cost approach. International Journal of Cross Cultural Management, 13(1), pp.47-63.
woolworths.com.au 2018. [online] Available at: https://www.woolworths.com.au/ [Accessed 25 Sep. 2018].
woolworths.com.au 2018. [online] Available at: https://www.woolworths.com.au/Shop/New [Accessed 25 Sep. 2018].
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download