Strategic Management analysis of Woolworth SupermarketUPD

The report aims to identified the Woolworth’s currency strategy and provide actionable suggestions for improving the strategy based on the fundamental objectives.

External environment affects Woolworths’ business will be analyzed to clear out the company’s position in Australian retail industry. Porter’s five force analyses are used. The report will also evaluate some internal environment factors, such as Woolworths’ resources and capabilities that impact on strategic decision process. The company’s SWOT analysis is the next part of the report. By using such concepts, the reasonable recommendations will be made in order to improve Woolworth’s strategy and take full advantages of their core competences in their industry.

1. Woolworths’ Overall Business

Woolworths started its business by opening the first store in Sydney in 1924, which was a bargain basement outlet. In 2012, the company has become the largest supermarket chain in Australia and New Zealand, with 28 million customers a week accounted for 31% market share. Woolworths operates a number of brands, which are Woolworths/Safeway supermarkets, Dick Smith Electronics, Big W, Dan Murphy’s, Dick Smith Powerhouse, BWS, and Tandy. Woolworths is one of Australia and New Zealand’s largest retailers in term of sales, revenues, number of supermarkets and stores, and geographic coverage. It has 840 supermarkets across Australia, 156 supermarkets in New Zealand, and also 22 retail stores in India which are the joint venture agreement with Indian supermarket chain Tata. Woolworths’ EBIT at the end of the 2012 financial year was 3,377 million in which the majority comes from Australian operations. Woolworths has listed as a strong financial performance company with a 3.3% average growth rate in EBIT from the period time of 2006-2012.

2. Woolworth’s Corporate Strategy

Woolworths’ vision is “to deliver to customers the right shopping experience each and every time”.

Woolworths’ mission statement is: We, as passionate committed retailers, understand and lead our customers through excellence and a deep knowledge of our products and services and the world we live in. The key strategic priority for Woolworths is to build up a multi-option retailing in term of low price, good quality products and services, in stores experience to meet customer requirement. Woolworths has been ranked as the largest online retailer in Australia and New Zealand and has its goal to reach AUD$1 million sales in online channel by the end of the 2014 financial year and by 2020. To achieve their mission, Woolworths is following its four strategic priorities, including:

Extend leadership in food and liquor

– Re-establish marketing campaign of adding values for stakeholders and boosting business growth in order to expand Australia market share by using reinvigorating progress to Australian retailing industry with a concentration on value, in-store services, and fresh and value products.
– Break sales growth point in a competitive environment through Australia’s Fresh Food People’s marketing campaign launched supported by a new and innovative media integration with “The Voice”.
– Accelerate leadership in food and liquor

Act on portfolio to maximize shareholder value

– Reevaluate the way Woolworths joint in the electronics business by restructure and divesting Dick Smith
– Accelerate alignment of Big W offer to new consumer and competitive reality in term of development and value through improved marketing
– Woolworths have already had strong portfolio and been the most responsible implementer of hotels and local pubs, which should be continue in the future

Maintain track record of building new growth

– Be Australia’s the most trusted leader in multi-option retailing
– Support innovative start to create a unique, sustainable and profitable improvement
– Approach to international market opportunities and new domestic area.

Put in place the enablers for a new area of growth

– Provide step move in profitability through effective supply chain and focus on fuel growth as well as customer centricity
– Improve long-term relationship with shareholder and add more value for them by investing more in business.
– Change staffing policy to take advantage of using local and international best talent.

Woolworths also has its set of values, which are:
– marketing products responsibly
– ensuring workers’ rights are respected
– raising the bar on animal welfare
– sourcing all fish and seafood from sustainable sources
– avoiding GM foods and sourcing practices that contribute to deforestation
– responsible service of gaming and alcohol
– being trusted by customers, suppliers and community
– take responsibility of operating hotels in Australia
– being committed to bringing downward pressure on prices in operations
– recognizing the importance of people in delivering the best service
– being safe for both staff and customers

3. External Analysis

It is important for Woolworths to understand and analyze the influence of external environment on its profitability and achievement of business strategies. Authors, for example, Hanson et al (2005) and Robbins, Bergan, Stagg & Coulter (2003), concurred that not only external factors impact significantly on an organization’s business performance, but accomplishing corporate strategic is also affected. Together with analyzing Woolworths’ external environment, in this case, the knowledge of internal aspects will enable Woolworths to improve their current strategies and to turn its strategic mission into effective actions. Moreover, identifying its position in retailing industry allow Woolworths to adapt and use their competitive advantages in order to succeed. External environment is broken into two levels, including general influence factors called macro-environment and the industry-environment which influences outside the company boundaries

The report will only evaluate Woolworths’ industry-environments by using Porter’s five forces analysis, including bargaining power of suppliers, bargaining power of buyers, threat of new entrants, industry substitutes, and rivalry among competitors. The company should focus on implementing their strategy based on the five force analysis.

3.1. Bargaining power of suppliers

According to Porter (1979), the higher important suppliers are, the stronger they are. Therefore, Woolworths’ business, particularly Safeway Supermarkets, have their low dependence on the suppliers, meaning the weak bargaining power of suppliers. The main reason is the considerable amount of retailing market share in Australia and New Zealand and the huge number of products being sold to the industry.

3.2. Bargaining power of customers

The majority of Woolworths’ customers are individual buyers who have really strong bargaining power. Miranda, Konya & Havrilla (2005) mentioned that strong power customers enable to force the company decreasing the price as the attribution of purchasing at the store. To meet to customer needs, delivering low-priced products is one of Woolworths’ major strategies.

3.3. Threat of new retailers

The threat of new entrants for Woolworths is considered not significantly because of several reasons. Firstly, setting up the business with a huge number of stores and excellence quality enough to compare with the organization and its competitors such as Coles, needs a lot of amount of start-up capital, not only for fixed facilities, but also for operating the business. Furthermore, Woolworths and its existing competitors are dominant players with variable accesses to distribution channels and trusted brands in retailing industry. Possible new entrants have to face with the risks of losing their investment and also the high competitive in the industry.

3.4. Threat of substitute products and services

In term of industry rivalry, Woolworths’ businesses have to face the high competition, particularly Woolworths Supermarket or Dick Smith. Substitute products are offered to all of the Australian major supermarkets, so hence, the supermarket should come up with innovative and competitive strategies to attract their customers and build brand reputation. A competitive price strategy, as Hill et al. mentioned (2007), is the most important factor in retailing industry. Their competitor Coles also provided the rewind price strategy for consumers. To conclude, there is a high threat for Woolworths’ businesses in term of substitute products and services.

3.5. Rivalry among competitors

The presence of some strong competitors in Australia retail and grocery industry such as Myer or Coles is likely to limit the Woolworths’ market share and contribute the high level of concentration. The intensity of those competitors is forcing the company continuously creating competitive and effective strategies in order to differentiate themselves from competitors.

4. Internal Environment

Internal environment analysis is identified as analyzing the firms’ strength and weakness based on their available resources and capabilities to coordinate resources for productive and effective use (Hanson et al. 2005). In this case, Woolworths’ competitive advantage by using resources and capabilities has been applied effectively.

At the end of the 2012 financial year, Woolworths operated 3,329 stores across Australia and New Zealand, and employed 195,206 people. It also has been one of the most trusted brands in retailing industry. Woolworths found their core competencies by using more experienced employees, more in-store services and more values for customers, rather than their major competitors.

More experienced staff employed is the first Woolworths’ resources and capabilities. Woolworths Supermarket, for example, has more efficient workers compared to its major competitor Coles. Instead of using young workers as Coles, the company prefers to employ middle-aged experience workers and focuses on training and developing employees. In 2011, $60 million was invested in learning and development initiatives across the organization. Woolworths also has its point of view that “retailing is a highly-focused business which is why sourcing the best talent from Australia and the world is important to its success.

Moreover, in-store services are greatly focused in Woolworths’ strategy priority. A number of in-store services have been provided to the customers, for example, delivery service for heavy products or many purchases in one day with an affordable price, and also in-store butchers to prepare and pack customers’ chosen fresh meats at Safeway Supermarket. One of Woolworths’ fresh food initiatives was to expand the new in-store sushi kitchens to cater for increasingly diverse tastes.

5. SWOT Analysis

5.1. Strength

Strong financial performance

Woolworths’s most businesses (for example Safeway Supermarket, Big W, Dan Murphy’s and Dick Smith) have presented greatly financial status in the past of few years with the increase in sales growth rate. Together with reducing overall business costs, Woolworths has reached a 7.96% growth in revenue for five years, a higher number in comparison with other competitors such as Coles and Bi-Lo. Woolworths’ ability to generate capital in the case that they have plans to expand their market by opening more stores and updating more facilities is one of the company’s strengths. For more information, five year financial report summary will be showed in Appendix 1.

Trusted brand name and reputation

According to a survey conducted in 2005, Woolworths was ranked as the first retailer in overall leadership and responding innovatively to customer needs (Rees & Westlake, 1994). At the end of 2012, Woolworths was voted the sustainable retailer of the year by BRM AMP Australian retailer and ranked as the largest online retailer in Australia and New Zealand in term of business size, range of products, services and prices.

Better relationship with suppliers

Woolworths has focused on developing strong long-term relationships with producers and suppliers. Some pricing action initiated by other retailers, for example private label milk reductions, has caused considerable concern among suppliers that long-term profitability will be impacted. Woolworths are pretty proud of their relationship with supplier. In 2011, Woolworths has worked with the Federal Government in a Green/White Paper process to develop National Food Plan, and also with other major retailers and suppliers to develop a Charter of Fair Trade that can encapsulate the key principles of supplier/retailer business relationship. In addition, in 2007, Woolworths Fresh Food Future program was implemented to help farmers in order to promote sustainable agriculture.

5.2. Weakness

Significantly increasing debt

Woolworths’ debt rate has gone up considerably at the end of 2012 in comparison with five previous years. In the end of the 2012 financial year, Woolworths’ debt was increased from AUD$513 million in 2008 to AUD$4,316, as the result of many acquisition Woolworth made in the first months of 2012. Although the sales growth is still high, the increase in debt rate will cause the financial risk for Woolworths.

Limited geographical market share

Obviously, most of Woolworths’ businesses have operations only in Australia and New Zealand. To win the competition with international retailers, for example, Wal-Mart, which operates in Asia, Europe, South America, US, Canada, Mexico and UK, Woolworths have to consider their limited share in global market and expand internationally.

5.3. Opportunities

Expanding online retailing

Over the decades, the future of retailing industry has been reshaped significantly by the presence of computerization; the development of technology and supply chain, manufacturing innovations, and the change of consumer lifestyle changes. Retail industry now is approached differently driven by a digital commerce and Internet development. More than ever before, the consumer is put at the heart of Woolworths’ business. After applying online shopping for all Woolworths’s business across Australia and New Zealand, a significant increase in Woolworth’s profit was seen in the years. By downloading available applications in iphone, customers can access to Big W’s online shopping and the 10% of transactions during 2012 promotion time was the result.

Growth opportunity in the health food sector

According to The United Nations Food and Agriculture Organization (UNFAO), global population is possible to reach 9.1 billion in 2050, meaning that to feed them requires a 70% increase in food production (UNFAO, 2009). Instead of expanding the land used for agricultural production, growing yield and cropping intensity are preferred on existing farmlands to achieve 90% of grains in production required. However, the consequence of boosting crop yields is environment pollution and climate change also impacts on the achievement. Woolworths Fresh Food Future program’s success provides an opportunity for innovative farming, productivity and long-term sustainability.

5.4. Threats

Woolworths is facing with firm competition threats from other major retailers in Australia. Woolworth’s everyday low price strategy is responded by the price rewind strategy of Coles – their major competitor in Australian retailing industry.
In addition, with the plan to approach to other new markets like India, Hong Kong, Woolworths will experience the high competition from existing international retailers.

The other threats for Woolworths are the slow growth and unpredictable in Australian uncertainty, and the increase in diseases related to consuming alcohol caused the pressure from Government to reduce alcohol production, which limit their sales and market share.

6. Recommendation

As discussion earlier, the price strategy is the most important factor in retail industry. It is supported by Miranda, Konya & Havrila (2005) that the convenience and the price of goods are taken in account firstly in customers’ decision process in Supermarket industry. The Safeway Supermarket is in the middle of the chain between the producers/suppliers to consumers, so that the difference of products among competitors in the industry is not significant. Therefore, to achieve their strategies, Woolworths should focus on:
– A cost-leadership culture
– Strategic alliance
– Product proliferation
– People-focused development

A Cost-Leadership Culture

Hanson et al. (2005) identified a cost-leadership strategy as “an integrated set of actions designed to produce or deliver goods or services at the lowest cost, relative to competitors, with features that are acceptable to customers. In order to gain the maximum outputs at the lowest costs expensed, Woolworths have implemented the “sale-up/costs down” policy for many years which was designed to reduce the costs related to production. Woolworths have been successful to apply the policy and lowered their prices.

Woolworths should consider the other cost-leadership schemes to cut down their operating costs such as the “just-in-time” strategy. The strategy is utilized in managing products in supply chain to decrease the costs of wastage and storage by making and arriving products at retailers at retailers at the time they are required (Anonymous, 2004). To accomplish the strategy effectively, it is necessary to have a stock replenishment program to forecast the amount of products demanded. The advantages of the strategy, of course, reduce the overall costs by cutting the wastage and storage, and also increase the profit margin (Mudgil, 2004). However, the long distance between the stores and suppliers is the challenges as the Woolworths’ suppliers are located around Australia. In addition, the cost of storage is likely to be higher if the predication system is poor performance.

Strategic Alliance

The second suggestion is that Woolworths should continue and develop their strategic alliance between the core businesses with different operations. The strategy has been applied in both Woolworths and their competitor Coles as they have started correlation with companies such as Caltex and Shell, respectively. Drainer (2004) explained that both of participators are beneficial from such alliances by gaining excess profits that the companies themselves could not achieve. An example for the alliance between Caltex and Woolworths is that a discount is applied for the Woolworths’ customers if they purchased the amount of petrol for their cars with petrol prices rising. Woolworths also have agreement with Visa International and Caltex to provide a discount for Caltex’s customers who pay more than AUD$30 by Visa card in any Woolworth’s stores.

To take full advantage of the strategy, Woolworths is recommended to combine the alliance with a reward program. This program has a short-term impact on Woolworths’ sales and revenue, and also builds the long-term customer loyalty by offers the customer to collect reward points.

Product Proliferation

The strategy can be considered as product diversification that Woolworths should continue to develop in the years to come. For example, Woolworths were successful before to take acquisition with Dan Murphy’s Liquor Stores in order to provide a new range of products and services at the same market to attract new consumers and meet the existing customer’s needs. Amber (2006) has his point of view that the strategy is suitable for entering the mature industries such as Australia.

In term of product proliferation, McDonalds’ case is a good example for Woolworths. McDonalds have create a “everyday products” strategy as they sell bread, eggs and milk only in one day and employ “food-for-now” program, instead of “food-for slightly-later” which is driven by the increase of demands in using fresh food nowadays. Broaden Woolworths’ target market by entering the pharmaceutical market and continuing unrelated diversification process are also the good recommendation for Woolworths.

People-focused development

Woolworths have found the importance of their human resources and capabilities in achieving the goals that “retailing is a highly people-focused business”. Staff diversity was an agreement of Woolworths with the Australian Government in 2012, in which Woolworths are committed to employ people from different backgrounds in term of nationality, ages and so on. It is no doubtable that diverse background employees are necessary in a multi-cultural country like Australia.

However, the quality of services in all Woolworths’ stores might be influenced because of the gap in staff qualification. And also the difficulties in controlling and managing people from different cultures are the biggest challenge for Woolworths.

CONCLUSION

The report is an analysis of Woolworth’s currency strategy and practical advances for future improvement.

Woolworths has been ranked as one of the most trusted brands in Australian and New Zealand retailing industry. As it can be seen from Porter’s five forces analysis, Woolworths have faced with the high competition in the industry as the consequence of high threats of substitute products and services. Woolworths’ customers are mainly individual consumers so that the influence of customers is great. The next part of the report is internal analysis. Woolworths find themselves having the core competences of using resources and capabilities. There are some internal strength and weakness, and also external opportunities and threats that Woolworth should consider in creating an innovative and competitive strategy. Finally, the set of recommendations is made. There are four main suggestions for Woolworths, including cost-leadership strategy, strategic alliances, product proliferation, and people-focused development.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s