Business Strategy Of Coles Supermarket: Analyzing The External And Internal Environment

Background of Organization

Business strategy is the art and craft of formulating, implementing and evaluating the cross-functional decisions, which enables an organization towards achieving its long-term objectives (Blackburn et al., 2013). This study will evaluate the business management of Coles Supermarket. It is popular Australian supermarket, which is actually a subsidiary of Australian conglomerate Wesfarmers. This study will analyze the external environment of the organization though PESTLE analysis. The competitive environment of Coles Supermarket will also be evaluated through Porter’s Five Force Analysis. On the other hand, the study will assess the internal environment of the organization, which contributes in its sustained competitive advantage. Based on the issues identified in the external and internal market environment, the study will provide suitable recommendation to the organization for overcoming those issues.

Coles Supermarket is a leading Australian supermarket and retail chain headquartered in Melbourne, Australia. Coles is actually a subsidiary of Parent company Wesfarmers. Wesfarmers is a leading Australian Conglomerate operating in several industries. The organization was founded in the year 1914. Being established in 1914, the organization operates almost 801 supermarkets throughout Australia (Coles Supermarkets, 2017). The organization has also re-branded some BI-LO Supermarkets in Australia. Moreover, the organization operates in all big cities of Australian market like Sydney, Melbourne, Brisbane and others. The organization is considered as large sized retail supermarket having employees of more than 100,000 employees. The organization has wide ranges of product portfolio like baby products, bakery, dairy, fresh fruit, Coles Mobile, Meat, liquor, gift card and many more (Coles Supermarkets, 2017). Increasing inclination of customers towards shopping from supermarkets has increased the business scope of Coles Supermarket. Coles Supermarket has hold almost 80% of Australian market together with its rival Woolworths (Phillipov, 2016). However, in food retail, Coles has hold 37% market share in Australian supermarket.

Figure 1: Market Share of Coles in Australian Food Retail

(Source: Bailey & Bailey, 2016)

According to Beaton-Wells and Paul-Taylor, (2017), Australian retail supermarket is can be considered as the most beneficial in terms of rising demand, ample suppliers and government support. However, since more than 70% of the market share is consumed by Woolworths and Coles, hence government has decided to reduce entry barrier by providing subsidy to new market players, thereby raising the buyer bargaining power. Political stability of Australia also creates favorable business environment for the Coles Supermarket.

James (2016) pointed out that frequent economic inflation rate can hamper the pricing strategy of Coles Supermarket. This is an opportunity for retail supermarket industry to expand. On the other hand, Sanin, (2015) highlighted that Australian economy is quite strong with riding GDP including stable interest rates and low inflation. Therefore, it can be said that cost of procurement, manufacturing and supply of commodity is done in very less price, which indicates retail industry growth in future.

External Environment Analysis

Number of immigrants is constantly increasing in Australia with 68% skilled migrants and 32% family visa streams, which is creating the demand for commodity, which is opportunity for retail industry expansion (Jones et al., 2014). However, Price (2016) pointed out that more than 67.66% of Australian families are nuclear, due to which bulk selling is highly impacted for retail industry. Supermarkets are not able to provide categorized discounts, due to which people are buying from local retailers. Finally, rate of health-conscious people is increasing due to which sales of packaged goods has decreased a lot in the past three years, which is a threat for the industry.

Corones (2015) highlighted that rise in automated machinery, automated cash counter and logistics automation has reduced the cost resource consumption and floor maintenance process in Australian retail supermarket industry. Coles uses KUKA robotic system for ensuring process automation and thereby creating sustainability. Moreover, as per Cameron et al. (2015), use of online platforms for direct home-based ordering from retail supermarket has also increased the sales pattern, creating opportunity for market expansion.

Australian Competition and Consumer Commission (ACCC) along with Australian Food and Grocery Council (AFGC) is protecting consumer interest by ensuring accurate credence claims, product safety, carbon content and fair competition. However, enforcement of Food and grocery code of conduct has created challenges for supermarket giants related to unfair trade tactics, Active Retail Collaboration (ARC) program and alleged unconscionable conduct towards trading (Biddle, 2017).

Philpott (2014) pointed out that the nature of retail mega-giants is impacting on the culture and tradition of Australia, the working pattern, health and standards, livelihood of farmers, animal welfare and community amenity. However, Chimhundu et al. (2015) highlighted that retail supermarket industry is trying to reduce the impact on environment by green packaging and reusable packets, thereby ensuring sustainable environment.

Figure 2: PESTLE Framework

(Source: Price et al., 2014)

Figure 3: Conclusion based on Macro-Environment Analysis

(Source: Biddle, 2017)

While considering the viewpoint of Gunn and Mont (2014), it can be said that bargaining power of suppliers is quite less in Australia concerning the retail supermarket industry. The industry is a duopoly, where the main players are Coles and Woolworths. Hence, suppliers do not have the opportunity to deal with different market players. This situation has created a boon for Coles as it is being able to supply products in bulk and distributing those in higher price even after offering discounts. On the other hand, Cameron et al. (2013) highlighted that due to less bargaining power, niche marketing is not possible and there is pretty less innovation. However, once the government starts creating opportunity for new market players, the duopoly will be under impact from intense competition.

PESTLE analysis

According to the viewpoint of Pantano (2014), due to the loyalty, brand value and reputation of the duopoly of retail supermarket, the consumers do not have enough opportunity to buy items from new retailers. This has created opportunity for Coles to keep the price of products almost same as Woolworths and not to reduce sales as there is no other competitor. The comparison of price and product distribution by Coles is nowhere decided by considering consumer perception.

Walter et al. (2016) pointed out that the retail supermarket of Australia has to face huge threat from substitute brands. The competition might not be from retail giants, however, Cao (2014) opined that local retailers provide similar dairy or packaged items in much reasonable price. Therefore, Coles might need to increase the variety of suppliers so that such substitute items can be sold and consumers can be retained.

While considering the viewpoint of Corones (2015), it can be said that the threat from new market entry is quite low in the retail supermarket industry of Australia. This is because both Coles and Woolworths are holding the maximum market share and even growing rapidly. In such a situation, new market entry will certainly not able to establish its branches in top cities within short time span. This will require huge capital and other resources which can only be possible if government helps in expansion. ACCC is working on stabilizing the market competition by helping market entries, which will compete Coles in next five years.

Earlier it has been highlighted that Coles and Woolworths are the top retail supermarket giants in Australia. However, some of the next best supermarkets are IGA, ALDI, Supa IGA, BI-LO, Coles Central, Star Mart, Shop-Rite and Friendly Grocer (Philpott, 2014). All the mentioned supermarket chains are specific in their categories such as fashion or groceries, however Coles deliver all types of commodity categories.

From the five-force analysis it is prominent that Coles’ main competitor is Woolworths and both provide same type of products. Since competition is low Coles can continue to offer same products in same price but in future through new market entry, it might face challenges in market share.

Figure 4: PORTER Five Forces Framework

(Source: Gunn & Mont, 2014)

While summarizing the competitive environment of Coles Supermarket, it can be said that the organization faces less threats from the new entrants. It requires huge investment for the new entrants for entering in retail industry. Furthermore, high brand image of the reputed organization like Coles, Woolworths and others imposes big challenge for the new entrants towards entering in the industry. However, the organization faces huge threats from the substitutes like local grocery shops. On the other hand, there is tough competition in retail industry among the major market players like Coles, Woolworths, Wesfarmers and others. Hence, the Coles Supermarket faces tough competition from other competitors in this industry. Furthermore, availability of several retail chains and supermarkets has increased the bargaining power of the customers.

Porter’s 5 Forces Model

Resource/Competencies	Valuable	Rare	Inimitable	Organized	Competitive Advantage
Strong Distribution System	Yes	Yes	Yes	Yes	Sustained Competitive Advantage
Capability to Leverage IT	Yes	Yes	Yes	Yes	Sustained Competitive Advantage
Diversity of Product	Yes	No	No	Yes	Competitive Parity
Guest Service	Yes	Yes	No	Yes	Temporary Competitive Advantage
Strong Brand Image	Yes	Yes	Yes	Yes	Sustained Competitive Advantage
Good Price Positioning	Yes	Yes	Yes	Yes	Sustained Competitive Advantage
Dedicated Human Resource	Yes	No	No	Yes	Competitive Parity

Table 1: Internal Environment Analysis

(Source: Corones, 2015)

According to Beaton-Wells and Paul-Taylor (2017), strong distribution system of Coles enables leads it towards effective inventory management. Hence, the organization can reduce cost of business operation leading to cost leadership in the industry leading to sustained competitive advantage. On the other hand, Sanin (2015) opined that Coles supermarket has strong capacity of leveraging information technology towards providing superior customer service. The accessibility of online services has increased the customer volume of Coles Supermarket. Furthermore, the organization has diverse range of product portfolio, which meets several customer needs in relation to retail products. However, such products can be easily imitated by other organization. Hence, such product portfolio can only provide competitive parity to the organization. Biddle (2017) pointed out that strong brand image of Coles Supermarket throughout Australia attracts huge customer group. Such strong and unique brand image provides sustained competitive advantage to the organization.  

Increasing inflation rate of Australia has huge impact on the supply cost of Coles Supermarket. Moreover, increasing inflation rate often increase the price of the commodity and products to be supplied at the organization. Hence, it increases the cost of supply chain of the organization leading to increased organizational cost.

Increasing trends of nuclear family in Australia is majorly leading to small purchase in the retail supermarket.  However, the organization provides discounts and offerings only on bulk purchase and not on small purchase. Hence, the customers are ultimately not gaining any discounts and offerings in their small purchase, which leading to customer dissatisfaction.

The organization is wide ranges of product portfolio for attracting customers. However, it has lack of diversified products, which is unique from those of other supermarkets in Australian market. Therefore, such lack of product diversification prevents the ultimate success of business, while deterring customers from several categories.

Coles Supermarket has adequate numbers of talented employees for dealing with customers and other departments. However, changes in consumer purchasing behaviours requires updated selling tendency for the sales persons of the organization. In such situation, the organization has lack of proper knowledge management programs for updating the talents and skills of the employees as per changing consumer behaviour. 

Increasing inflation rate is increasing the cost of overall supply chain of Coles Supermarket with increasing price of the commodities supplied from the suppliers. In such situation, the organization should build strong relationship with the suppliers for getting attracting discounts of the supplied products. It is reduce the ultimate cost of the supply chain leading to reduced organizational cost.

Coles Supermarket should provide attractive discounts and offerings even on small purchase by the customers. It will definitely satisfy the customers having changing purchasing pattern of small purchase. Therefore, discounts provided on small purchase will ultimately enhance the customer loyalty of the organization

Coles should concentrate on diversifying their product category. Moreover, the organization should diversify their products beyond only the retail products. Diversified product portfolio will attract different type of customers meeting their diversified product needs. 

Coles Supermarket should concentrate on proper knowledge management for upgrading and developing the knowledge level of the employees as per changing business requirement. Moreover, the organization should provide training to the employees for enhancing their knowledge on based on changing consumer behaviour. It will help the employees in better convincing the customers towards purchasing the products.  

Conclusion

While concluding the study, it can be said that Coles Supermarket, the subsidiary of Wesfarmers, is the most popular retail chain and supermarket of Australia. It has owned 80% of Australian market together with its rivalry Woolworths. Huge government support of Australia towards industrialization provides huge scope for Coles towards its business growth. Furthermore, developed economic condition of Australia has increased the profit potentiality of the organization. Coles face less threats from the new entrants in the market, but it face huge threats from the substitutes like local grocery shop. Furthermore, the organization faces tough competition in retail industry from the market players like Woolworths, IGA and many others. However, strong brand image and quality of the products of the organization facilitates the organization in beating the competitive pressure of the organization. Furthermore, the organization should concentrate on offering discounts on small purchasing of the customers for enhancing customer loyalty.

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