The two different types of cost that the Amazon Fresh should consider while opening business in Australia is the cost for data ware house holding lots of information which is the major fixed cost of the online site (News.com.au, 2018). The variable cost consists of the cross docking shipments which is a practise in logistics used for unloading materials which is used to minimize the cost of operation.
FIXED COST- The cost that does not change with the change in number of goods or services produced or sold is termed as fixed cost.
VARIABLE COST- The cost that changes with the number of outputs sold or purchased is termed as variable cost.
|
AMAZON FRESH |
Coles & Woolies |
|
|
Reduction in cost |
Slashing of the seller fees and also cuts down whole food prices |
Reducing the price of milk. Both have an oligopoly market structure which have presence of barriers to entry. |
|
Product differentiation |
It differentiates itself by selling gourmet products and has an advantage of more warehousing price. |
Quality and style are always exceptional and also have a profitable customer relationships. |
|
Reduction in competitive intensity |
Due to less competitive unit price and lack of business foundation. |
Due to late entry in the online retail market, there is a reduction in the intensity of competition. |
When Amazon Fresh supply their products at a very low price, the equilibrium price and quantity changes. It can be seen from the above diagram that the price falls down and the supply of the food reduces. There is also a presence of excess demand and the quantity supplied falls from Q0 to Q1.
For Amazon Fresh Australia product is Apple juice,
Demand:-
Per Capita consumption is:
As QD= 300-50p
Q1 = 300-50(3) and Q2 = 300-50(2)
Q1 = 300-150 Q2 = 300-100
Q1 = 150 Q2 = 200
Population is 25million, so
Supply
Qs= 100+ 50P
Solution for P
QS = QD
100+50P = 300- 50P
100P=200
P=2
Solution for Q
Qs= 100+ 50P
QS=100+50(2)
QS =100+100
QS=200
QS= 200 million litres of Apple juice per annum
The government can create wealth in the fresh food market in a way by applying tax those food which are unhealthy and providing subsidy to the farmers who provide fresh food and vegetables. By doing this people will consume less amount of unhealthy food. Providing subsidy will also reduce the price of healthy food.
The five major supermarkets of Australia are Aldi, Foodland, IGA, Coles and Woolworths. Australia is one of the most concentrated grocery markets in the world. Coles and Woolworths accounts for most of the sales in the supermarket. The greater the market share the more is the influence on the suppliers and therefore, it becomes easier to move out smaller independent retailers (Knox, 2015).
Woolworths is the largest retailer in Australia which sells groceries. Both Woolworths and Coles forms a duopoly in the Australian market accounting for about eighty percent in the Australian supermarket. Woolworths usually specializes in selling fresh fruits, vegetables, meat and packaged food. The trading for food retailing has changed over past five years. With the major competition from Coles and Woolworths along with the expansion of Aldi and facing threat from Amazon Fresh have the consumers have changed their preferences. In order to increase the competitiveness, both Coles and Woolworths are trying to expand their product ranges. However, products which are private labelled usually have lower price points than those branded products. The famous supermarkets are trying to encourage people by offering groceries of cheap ranges. According to the research made by IBIS World states that products which are private labelled accounts for twenty five percent of sales in the groceries and supermarkets which is expected to rise to $26 billion in 2017-2018.
The supermarket chain is the largest in Australia which is operating in the 995 stores across the country. Woolworths works with the Australian farmers to make sure that they provide fresh fruits and vegetables along with fresh meat. Woolworths has been also projected to make $1.3 billion from the online sales.
Coles is also one of the largest retailer of fresh fruits, liquor, fuel and groceries in Australia. It has around 801 supermarkets all throughout the nation. People in Australia can also buy fresh fruits and vegetables online from Coles online (Anesbury et al., 2016). They have a huge team members of around 106,000 which operates in the retail outlets.
One of the famous German brands Aldi has ten thousand stores operating over more than twenty countries. In most of the places in Australia, Aldi had filled the void in the supermarket business which had grown when the famous grocery chain Franklins went out of business. The first store of Aldi opened in Sydney in the year 2001 which has started growing rapidly while maintaining 12.6 percent market share in the tear 2016.
The Independent Grocers Alliance has formed in the year in 1926is a local grocery stores under the IGA brand. This U.S brand of grocery stores operates in more than thirty countries (Trinh, Anesbury & Driesener, 2017). However, IGA operates as a franchise through stores that are owned separately. The Independent Grocers of Australia is owned by Metcash which is an Australian wholesaler and retailer. On the year 2006,IGA grew to include Four Square, Dewsons, Action and SupaValue.
One of the important steps is to identify which is the relevant cost and which is not. There are different types of costs which include opportunity cost, future costs, and committed costs and sunk cost. Cost, profit and revenue are some of the important factors in determining the success in the business (Anesbury et al., 2016). When there is a presence of high costs, there will be no profit in the business even though they may earn high revenue. Both the direct cost and the indirect cost helps in running a business. Relevant costs are those costs which will be incurred in the future. These costs is related to the specific management decision which will change in future as a result of the decision. However, fixed costs are not usually relevant for production decision, variable cost and incremental cost are relevant for a particular decision. The costs that change with the volume of the production is called the variable cost. On the other hand fixed costs are those cots which remain constant regardless of any volume of production. Variable costs are the inventoriable cost and fixed costs on the other hand are non inventoriable cost.
Three of the basic strategies includes product differentiation, cost reduction and reduction in the competitive industry (Trinh, Anesbury & Driesener, 2017). Strategy is the art of matching the capabilities and resources of a firm related to the risks and opportunities for the purpose of developing competitive advantage that is sustainable. Amazon fresh can generate revenue by selling variety of products online.
The process of managing assets in a manner that supports an organization’s strategic goals is termed as resource allocation. Price has therefore a signalling function along with the incentive function which will result in resource allocation when price will change due to change in demand or supply conditions. The price mechanism aims to allocate resources that are scarce. Therefore, resources can be allocated according to the changes in price.
Amazon Fresh has recently changed its pricing policy as the online market of grocery heats up (Knox, 2015). The decision of Amazon to change the price of Fresh might help the on board shoppers when the company faces increased competition in the online grocery market. The new pricing model of the Amazon will entice more shoppers to sign up for the service.
One of the role of the government is to provide a stable set of rules and institutions in the market economy and also ensure market stability and growth. Government also corrects for externalities.
Measure 1: Government can provide subsidies to individual retailers in order to promote purchase of healthy food.
Example: a subsidy of $1.8 billion dollar has been provided to the independent retailers of the fresh fruits
Measure 2: The government can also tax unhealthy food so that the purchase of healthy food increases.
Example: Government levied a tax of around $1.37 on junk food in Australia.
Conclusion
In order to conclude it can be said that the Australian supermarket retailers are one of the leading players in the industry. The wholesale industry of fruit and vegetables in Australia has benefited lot over the decade due to rising due to rise in health consciousness.
Reference
Anesbury, Z., Nenycz?Thiel, M., Dawes, J., & Kennedy, R. (2016). How do shoppers behave online? An observational study of online grocery shopping. Journal of Consumer Behaviour, 15(3), 261-270.
Ferguson, M., O’dea, K., Chatfield, M., Moodie, M., Altman, J., & Brimblecombe, J. (2016). The comparative cost of food and beverages at remote Indigenous communities, Northern Territory, Australia. Australian and New Zealand journal of public health, 40(S1), S21-S26.
Knox, M. (2015). Supermarket monsters: The price of Coles and Woolworths’ dominance (Vol. 6). Black Inc..
News.com.au. (2018). ‘Immediate mass uptake of Amazon Fresh is unlikely’. Retrieved from https://www.news.com.au/finance/business/retail/amazon-fresh-faces-uphill-battle-in-australia/news-story/43e76ba3c7b8644f552ce0c30af2fce4)
Nielsen.com. (2018). THE FUTURE OF GROCERY E-COMMERCE, DIGITAL TECHNOLOGY AND CHANGING SHOPPING PREFERENCES AROUND THE WORLD. Retrieved from https://www.nielsen.com/content/dam/corporate/us/en/reports-downloads/2015-reports/nielsen-global-e-commerce-new-retail-report-april-2015.pdf
Retailworldmagazine.com.au. (2018). Spotlight on Australia’s supermarkets and grocery industry – Retail World Magazine. Retrieved from https://www.retailworldmagazine.com.au/spotlight-australias-supermarkets-grocery-industry
Sutton-Brady, C., Kamvounias, P., & Taylor, T. (2015). A model of supplier–retailer power asymmetry in the Australian retail industry. Industrial marketing management, 51, 122-130.
Trinh, G. T., Anesbury, Z. W., & Driesener, C. (2017). Has behavioural loyalty to online supermarkets declined?. Australasian Marketing Journal (AMJ), 25(4), 326-333.
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