Woolworths Group Limited is the second largest Australian company in terms of revenue and has extensive retail interest throughout New Zealand and Australia. The company was founded in the year 1924. The main aim of the company is to create a world- class experience for each of its 28 million customers across the globe by delivering the best in value and quality products. Its team consists of 201,522 members who make best possible efforts for the purpose of fulfilling the requirements of the customers (Woolworths Group, 2018).
As a strategic analyst of XYZ Consulting Firm, this report has been prepared for the purpose of conducting the analysis of Woolworths group with the help of framework models of strategic management such as Porter’s five forces model, some elements of PESTEL model along with core competencies and value chain analysis. The report further provides the analysis of the competitive advantage, details about strategy formulation and choices along with certain recommendations.
Porter’s Five Forces Analysis
Bargaining Power of Buyers- Most of the customers of Woolworths are individual buyers having string bargaining power. When the bargaining power of the customers is strong then it forces the company to decrease the prices as the attribution of purchasing at the store. In order to meet the needs of the customers, the delivery of the low- prices products is one of the major strategies of Woolworths (Flax, Bick & Abratt, 2016).
Bargaining power of Suppliers- When the importance of the suppliers increase in the market, they become stronger and their bargaining power also increase. In the supermarket industry, strong bargaining power is enjoyed by British American Tobacco and Coca-Cola. Therefore, the bargaining power of the suppliers in Australia is high to moderate. Pressures are also faced by Woolworths in terms of obtaining products from the suppliers.
Industry Substitutes-Convenience stores, grocery stores, and pharmacies are substitutes available of the supermarket industry. The importance of convenience is increasing for the customers and they are ready to pay a little extra for easy parking, no queues, etc. Sometimes Woolworths often lose its customers to the competitors as they are no more attracted towards offers and are more concerned regarding their convenience (Methner, Hamann & Nilsson, 2015).
Threat of New Entrants- The profit potential of the supermarket industry is low and therefore it is not regarded as an attractive industry. Furthermore, entering in the market requires huge capital and adherence to a number of rules, regulations, and restrictions of government. Therefore, the entry barriers provide an advantage to Woolworths.
Rivalry among competitors- The increased rivalry among the competitors in the Australian retail and supermarket industry has resulted in decreasing the prices and overall profitability. In the retail and grocery industry of Australia, the presence of strong competitors such as Coles, Aldi and Costco is expected to limit the market share of Woolworths. This intense competition is forcing Woolworths to create effective and competitive strategies for the purpose of differentiating itself from the competitors.
Political/ Legal Environment- The supermarket industry of Australia is largely impacted by the legislation of the government in respect of the trading hours. Furthermore, the government regulates and monitors Woolworths through the trade practice act, Foreign Investment Review Board, the Commonwealth government and Australian Competition and Consumer Commission.
Social Environment- With the passage of time, the concerns of the society, their attitudes and lifestyles have changed to a great extent due to which the Australian supermarket industry is largely impacted. Also, the customers are increasingly becoming health conscious due to the increased risk of obesity and therefore have started demanding low-fat foods (Morden, 2016).
Branding and Market- Woolworths has created a differentiated image for itself with a slogan “the fresh food people”. The slogan is capable of highlighting its qualities that it offers health and quality product range which are available at affordable prices.
World- class Supply Chain- The supply chain of Woolworths provides it a competitive advantage over the competitors. This is further contributing towards the cost-cutting objectives of Woolworths and is assisting in avoiding needless expenses thereby bringing efficiency in the operations.
Innovation- Woolworths implements innovative programs from time to time such as “re- fresh” and the “new idea program”.
Integration- Woolworths has decided to integrate its supplies with the production of its own inputs in order to deal with the trends in the market and increase the market power.
Inbound Logistics- Since Woolworths is a large organization, it has established its own distribution centers which make sure that the products reach the stores on a timely basis. It further allows Woolworths to keep the prices of the products can be kept minimum and ensures that the needs of the ultimate customers are met. Furthermore, the distribution efficiency and quality can be easily maintained with the help of a good distribution network.
Operation- Woolworths creates value for its customers through its smooth inventory management procedures and strict quality assessment procedures. Woolworths ensures the obtainment of fresh supplies directly from its own farmers. This allows Woolworths to provide fresh products to the customers at reduced prices (Parkinson, 2018).
Marketing and Sales- Brand awareness can only be ensured with the help of the adoption of innovative marketing techniques (Hill, Jones & Schilling, 2014). Therefore, Woolworths makes a heavy investment in the marketing of the brand and products. It often offers discounts on its products from time to time which leads to an increase in is sales as well. Promotions made by the celebrities also influence the sales of Woolworths.
Outbound Logistics- Woolworths ensures the quality and freshness of its products with the help of maintaining an in-store quality management system. Furthermore, the maintenance of optimum distribution efficiency is ensured by Woolworths.
Customer Service- Woolworths provides quality service to the customers and for this, it has formulated policies regarding refund and waiting time reduction for the customers through a mounted scanner. It has further initiated a customer talkback for the purpose of focusing on customer focus group throughout the country.
There is an intense competitive rivalry in the supermarket industry due to the presence of a number of competitors such as Coles and overseas entrants such as Aldi and Costco. Since all these competitors are also established in the market and have a strong brand name, they are expected to impact the profitability and market share of Woolworths. Aldi and Costco are implementing the low- pricing strategy in order to attract the customers. They are also upgrading their stores to the new market-style format. This intense competition is further pressurizing Woolworths to create its own differentiation strategy in order to survive in this competitive market. However, its differentiated strategies have provided it a competitive advantage over the competitors (Ethiraj, Gambardella & Helfat, 2018). These days, fresh and quality products comprise the basic expectation of the customers. The competitive strategy of Woolworths is reflected in its slogan i.e. “the fresh food people”. The replication of this strategy by the competitors results in presenting them as a market follower. In this way, Woolworths is capable of distinguishing itself from the competitors. The supply chain of Woolworths is also excellent with the help of which the products are able to reach the customers on a timely basis thereby providing it a competitive advantage (Lasserre, 2017).
Vision- Woolworths has the vision to help every Australian in living big for less and ensures the achievement of this vision with the help of a strategy in regard.
Goals- Woolworths has the main goal of serving the customers who keep them above all the existing brands in the market. This goal is planned to be achieved by Woolworths by setting five priorities and have accordingly created a strategy. These priorities include establishing itself as a lean retailer through end to end process and system excellence, building an effective team and culture, sustainable sales in food through the generation of momentum, portfolio business empowerment for delivering shareholder value and lastly evolving the business of drinks for offering more convenience to the customers (Grant, 2016).
Woolworths has made the selection of cost leadership as its business level strategy. Coles is one of the supermarket industry leaders in Australia, which engages in price related wars with Woolworths from time to time. Accordingly, when one of these two business lowers the prices of their products, the other is forced to lower the prices in order to remain competitive in the market. Woolworths is the market leader of the supermarket industry in Australia and has been able to create a large chain of supermarkets. Even when a number of strong competitors are present, it has been capable of earning more than average returns as a result of its competitive strategy. It always offers its products at affordable prices for achieving its vision of living big in less.
The slogan “the fresh food people” have assisted Woolworths in building its reputation in the market. This brand reputation has differentiated Woolworths from its number of competitors present in the marketplace. The brand reputation is also the result of the positive experience of the customers with the brand all across its supply chain. This implies that the satisfaction levels of the customers of Woolworths are high. Woolworths offers convenience and health consumption opportunities to the customers which are the major factors that differentiate it from its competitors. Differentiation strategy of Woolworths also includes low pricing and fresh and quality products. Furthermore, it always ensures its adaptation in accordance with the requirements of the marketplace and the demands of the customers. It takes every possible step for understanding the requirements of its customers and adopts innovative ways in order to enhance their experience with the business. This differentiation strategy adopted by Woolworths considers customers as the priority of the business. In order to provide customers with endless choices, the business is working very hard (D. Banker, Mashruwala & Tripathy, 2014).
Presently, the main focus of Woolworths is on its differentiation and cost leadership strategy and on giving the prime importance to the customers. I recommend that Woolworths should increase its investment in the promotion and advertising of the brand and its products in the market for the purpose of staying ahead of the competitors. Advertisements should clearly highlight the healthy and fresh range of products offered by the business. The promotion can also be made through the adoption of social media strategies which will be cost effective for the organization. This will have an impact on the brand recall of the customers and will also its sales over a period of time. Moreover, it is recommended that Woolworths should consider diversification into new businesses in order to increase its profit margin. It should also emphasize the shopping experience of the customers and should take steps for making it convenient and enjoyable. It can be improved with the help of helpful, cheerful and enthusiastic employees. Relaxing music in the stores can further enhance the shopping experience of the customers.
Therefore, it can be concluded that the profit potential of the Australian retail industry these days is quite low. Also, there is intense competition in the industry which requires Woolworths to adopt competitive strategies for maintaining its competitive edge in the market. The adoption of effective strategies and suitable business model is the reason behind the success of Woolworths. The rationale behind supporting the strategy is that this business has been able to expand its boundaries through strategies like differentiation, fresh food products, and cost leadership.
However, the rationale behind criticizing the strategy is that the importance of reasonably priced products is reducing in the market. Customers now emphasize the products that meet their demands and are available in innovative ways in the market. Therefore, the success of the cost leadership strategy of Woolworths in the future is doubtful. I further recommend the use of innovative strategies for enhancing the shopping experience of the customers. The market leadership can be maintained by Woolworths through the adoption of strategies that provide a competitive edge to the business.
References
Banker, R., Mashruwala, R., & Tripathy, A. (2014). Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy?. Management Decision, 52(5), 872-896.
Ethiraj, S. K., Gambardella, A., & Helfat, C. E. (2018). Theory in strategic management. Strategic Management Journal, 39(6), 1529-1529.
Flax, J., Bick, G., & Abratt, R. (2016). The perceptions of supplier-buyer relations and its affect on the corporate brand. Journal of Brand Management, 23(1), 22-37.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.
Lasserre, P. (2017). Global strategic management. Macmillan International Higher Education.
Methner, N., Hamann, R., & Nilsson, W. (2015). The Evolution of a Sustainability Leader: The Development of Strategic and Boundary Spanning Organizational Innovation Capabilities in Woolworths. In The Business of Social and Environmental Innovation (pp. 87-104). Springer, Cham.
Morden, T. (2016). Principles of strategic management. Routledge.
Parkinson, M. M. (2018). Case Study 4: Woolworths Group plc. In Corporate Governance in Transition (pp. 203-221). Palgrave Macmillan, Cham.
Woolworths Group. (2018). Strategy and objectives. Retrieved November 19, 2018 from https://www.woolworthsgroup.com.au/page/about-us/our-approach/strategy-and-objectives/
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