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Strategic Management Assignment - Industry Analysis

Retail food chain stores - Woolworth

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  • How big the industry is Market size
  • What is the contribution of industry in GDP?
  • Key players (at least 5 key players top in aus) facts and figures
  • Market shares of first 5 key players

Analysis of the nominated market in Australia and the external factors affecting Woolworth industry.

Answer -

Executive summary

Woolworths is among Australia's leading grocery and supermarket stores, which is almost a duopoly alongside Coles. It was founded in 1924 and specialises in groceries, household items, beauty products, packaged food items, magazines, baby and pet supplies, and several other items. This organisation also provides a HomeShop option, which allows buyers to purchase groceries online and get them delivered at their doorstep. It was initially developed as Wallworths Bazaar Ltd., but by the end of 1924, the degree of consumer interest increased, and the outlets began expanding their offering, often providing cheap prices and guarantees such as money-back offers. This report indicates that Woolworths is a market leader in the retail industry in Australia, and its position seems rather consolidated and sure. Although there are strategic issues such as a confused positioning and partial behaviour towards the higher-income segments, there is still hope for the company to recuperate and further strengthen its position as the market leader in the company.

Market size and trends

Woolworths, along with Coles, forms almost a duopoly and occupies nearly 80 per cent of the Australian market share for the supermarket industry. Woolworths operates nearly 1000 stores all over the country, and there are also a number of convenience stores that have the same logo. In 2018, the lone market share for the organisation was as high as 34 per cent, and this dominance can be attributed to its capacity of having a good stock of fresh produce, which is preferred by most consumers (Morgan, 2019). Woolworths has the advantage of being able to source the freshest produce, in terms of food products such as meat, bread, fruits, vegetables, and deli products.

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As reported by Pash (2018), Australia has had a commendable growth in terms of its food and grocery industry, as the sales had been up by almost 4.3 per cent when compared with the previous year. The supermarket chain had recorded a massive profit of more than one and a half billion dollars at a growth rate of 12.5 per cent. This is the strongest recorded growth in the past couple of years.

Market structure

Woolworths operates in a market that is by structure an oligopoly. The majority of the market is dominated by Woolworths, and the company has the power to set the prices as there is a high level of product differentiation, and the supermarkets procure goods that are not similar to each other in any way. Furthermore, the position that Woolworths has been able to acquire is quite strong as well, which has made the barrier to entry quite high, as it is already a well-established market giant with a solidified position.

Market segmentation

Woolworths divides its target market into different segments on the basis of numerous demographical features, along with socio-economic factors. These consumer segments comprise of various buyers who have a consumption pattern that is similar to the others within that group. For Woolworths, gender is an important determinant of the development of a suitable market, as many of its products, specifically from the homecare and other departments have been designed keeping in mind the needs and the demands of the different genders and their preferences.

The retail products are segmented on the basis of avoiding the instance of overstocking and also to reduce the chances of the inventory becoming obsolete. The income levels of the consumers are also taken into account, which has made it easier to facilitate the easy procurement of the products and their segregation. The perspective of the purchasing power of the consumers dictate the rate of growth for any product, which is essentially influenced by the actual income level of the buyers.

Distribution channels

For any retail company, especially a supermarket retail chain, the distribution channels are an extremely important aspect that need to be taken care of. This is because it is vital to procure and deliver the products to the consumers in an efficient and timely manner, as if they don't, there is always someone else, a competitor or market rival, who would do the same and snatch away the market share. Woolworths has arrangements with the best farmers and suppliers of fresh produce to ensure that only the best products can reach the shelves. This is essential for maintaining a respectable and trustworthy approach with the customers, and specific strategies have also been deployed, which guarantees that the suppliers would come to supermarket, not the other way round, thereby helping maintain an effective competitive pricing rate.

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Financial and corporate performance

As stated before, Woolworths' performance has improved considerably, incurring a net profit of around 12.5 per cent as compared to its previous year's results. However, due to a ban on the provisions for single-use plastic bags in the country in early 2018, there has been a marked drop in the sales (Janda, 2018).

SWOT analysis and competitive advantage

The SWOT analysis of Woolworths can be explained as follows -

Strengths:

1. The supermarket retail giant occupies more than half the market share in Australia along with another key player, Coles. The large market share has drastically reduced the chances of competition from new companies or entrants.

2. The organisation ad originally started off as targeting the wealthier consumer segments, and had been well-stocked with brands that were quite well-known and upscale. This ensured that the labels were recognised as valuable brands. Thus, the brand presence of the company is immensely strong.

3. The employee policies of Woolworths are said to be immensely worker-friendly, in addition to adequate salaries and other perks and compensations. They also ensure that they receive the necessary training, and are courteous to the customers.

Weaknesses:

1. The positioning of Woolworths is rather confusing, as more than one market segment based on income is targeted. This results in the sending of mixed signals to the consumers.

2. Woolworths sells both affordable and aspirational products, which makes them rather partial to specific markets. They have also been accused of being partial towards the high-income market segments at many times.

3. Coles has been the most major competitor for Woolworths. In a bid to outdo the competition, the company often offers major discounts, thereby resulting in massive losses.

Opportunities

Woolworths has the opportunity to focus on the experience it has acquired in terms of its value segment, and this can be exhibited in the quality of in-store experience as meted out to the customers, which will help create a differentiation, and encourage people to pay more for their products and services.

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Threats

1. Coles, as previously mentioned, is the major rival in the market for the company. Additionally, online retailers such as Amazon have also entered the grocery segment, which has threatened the online sales of the company.

2. There has been a massive increase in the awareness pertaining to health and what people eat among the consumers. This has brought about a change in the way they shop, and has also changed the trends, thereby putting supermarket chains such as Woolworths under threat.

From the above internal (SWOT) analysis, it can be deduced that the company has the competitive advantage of being the major market share holder in Australia in the supermarket and retail industry. This implies that there is virtually no other company that can dethrone Woolworths easily, and this can also be attributed to the fact that the barriers to market entry for this industry is quite high.

Strategic options

As can be identified from the previously conducted SWOT analysis, it is clear that the major strategic issue that Woolworths is faced with, is that of unclear market positioning. The major problem that lies in this case, is that Woolworths stocks products that are both affordable as well as aspirational. In other words, there are two kinds of product ranges that are available at the supermarket chain - expensive and economical. This has left the buyers confused, as the middle-income classes, who seek affordable options for their groceries and daily-use items, are often left wondering if the supermarket is for budget-conscious people like them, or for consumers who like to splurge and indulge in luxurious goods.

Possible recommendations

A possible recommendation in this case for Woolworths would be that the company should make it clear to its buyers that it is a retail chain that wishes to serve all the customers within the Australian market. In other words, Woolworths has the tendency to be partial to the high-income market segments, and this must stop at the earliest. The customers from the budget-conscious classes should not feel left out, and must experience of sense of inclusivity when it comes to the supermarket chain. Furthermore, this will also help the company acquire more consumers easily, thereby reducing the need for heavy investments for promotional purposes.

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