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STRATEGIC MANAGEMENT

Contents
An Overview of strategic management at Food Works Supermarket Supermarket3
The Generic Value Chain........................................................................................ 4
Porters Competitive Advantage Strategies...........................................................5
Porters five forces model for external analysis.....................................................6
Scenario planning steps......................................................................................... 8
Recommendation:................................................................................................ 10
Bibliography......................................................................................................... 11

An Overview of strategic management at Food Works

Supermarket
In todays world cost is considered as the most important factor in buying choices of consumers
be it business or domestic. The cost cutting technique usually being followed by consumer items
manufacturers is by eliminating one stage of supply chain. For instance, if distributor is
eliminated or converted into retailer, the entire margin of one stakeholder is removed from retail
price. Many such stores are operating globally as well as throughout Australia and New Zealand,
which act as wholesaler and retailer at the same time.
Food Works Supermarket, (2016) is a brand of Australian United Retailers Limited (AURL). It
originated after merger of the company with Food Works Supermarket Super Market group in
November 2004. The company got on the track of success and gained strength over time. Today
it operates with 650 supermarkets out of which 400 stores operate under the brand named Food
Works Supermarket market.
Food Works Supermarket assure the best prices to consumers. Its strategy is to align the prices of
1000 brands daily to the market price. The trust of consumers is building up due to the strong
commitment of the team.
The business model of Foodworks is also very different from other supermarkets. Foodworks
supermarkets invite the retailers to become part of their chain. The retail shop owner is
empowered to make his own strategy and work to increase his profitability. The chain however
supports the retailers technically and by providing services. This also enables the company to
bound its cash in costly assets like property, plant and equipment.

Australian United Retailers Limited, (2015) in their annual reports specify that supply chain
committee has been formed by the directors which is responsible for development of alternate
solutions not in terms of products but also in terms of multi site business operations.

The Generic Value Chain

The Generic Value Chain model is very important to be understood and applied in modern
business. It simply is a process to identify the steps or processes that adds value to the business.
Usually the two ends consist of inbound and outbound supply chain in between which sales and
support is present. The value chain model circulates around the supply chain and demands to
control the logistics cost to achieve competitive prices. Vslue chain model can also be
implemented to achieve porters concept of low cost leadership
Food Works Super market is unique in its supply chain. The inbound logistics are usually
managed by the retail store owner. However, it is strongly supervised by the supply chain
committee set up by the directors. The company understands that the prices will become
competitive if the inbound costs are decreased, because, outbound costs are beared by customers
themselves. This is also one of the main advantage in retail business that store has to focus on
inbound logistics costs only.
The Food Works Supermarket supply chain uniqueness is that committee based on directors is
empowered and it checks prices of all branded stores on daily basis. The inbound costs are
monitored and usually the truck loads are planned to decrease costs.
Support functions are also very important. Just because operating stores have different sizes the
staff and support function teams vary greatly. There are stores where separate accounting
department has been established and in some cases the departments are non-existent. The
supermarkets are although decentralised and are independent in decision making value chain
model has slight variation on store to store basis.

Porters Competitive Advantage Strategies

Porter, (1980) proposed three different strategies for attaining competitive advantage and thereby
increasing market share. These strategies include following:
i.
ii.
iii.

Low Cost Leadership

Differentiation
Focus

These strategies are very broad and are means for market penetration. Premium pricing can only
be done when product is unique. As an example we can consider a single retail store in an area. It
will be able to generate revenue even when prices are bit higher. Consumers will pay for
uniqueness and monopoly of the store.
The 400 Food Works Supermarket supermarkets focus on low cost leadership through their
campaign of equal price program. According to the officials the supply chain team compares the
prices of 1000 brands with market and then they negotiate with suppliers if any discrepancy is
found. The stores are operated by their original owners who are shareholders of the company.
They are equally empowered in decision making and development of strategies of their stores.
This sense of ownership also motivates store owners to negotiate prices.
If the prices are compared with mega stores or discount stores there is no huge deviation in
prices. In fact the super market of Australian United Retailers Limited is cheaper as stated by
many consumers. It is also an advantage for brands that their revenues are increased and
distributors risk part is removed from the entire supply chain
The products sold by the stores are not unique in fact they are household items and food items
easily available at the markets. Many brands and alternatives are available. Therefore, it can
easily be understood that differentiation strategy is not being opted by the stores. On the other
5

hand, business model of the store is very unique. But Porter meant product differentiation when
he explained the strategy.
The stores are available all across Australia. It is evident that no specific market is being tapped
by the company. Food Works Supermarket is not focusing on any Niche. There target market is
all consumers and this is the reason they are working on providing low prices and best quality
products at the same time.

The strategy therefore followed by Food Works Super market is low cost leadership. It is also
justified to follow such strategies when competition is extremely high and entry/ exit barriers are
really weak. Only better relationships with manufacturers can enable the organization to achieve
their objectives which ultimately will put growth and financial strength to the business.
Australian United Retailers Limited has also increased its revenue and is now almost over $2
billion company as declared in their recent financial statements.

Porters five forces model for external analysis

Contribution of Michael Porter is admirable towards the field of supply chain. Porter establishes
five forces model for analysing the external or macro environment of the organization. This
section will briefly discuss the external environment of the organization.
1.
2.
3.
4.
5.

Threat of New Entrants

Industry Rivalry
Threat of substitutes
Bargaining Power of suppliers
Bargaining Power of customers

The retail industry is considered to be very low cost industry. It is usually supplier of routine
household and daily consumables. Therefore, usually prices are kept same across the board. The
manufactures extend almost same prices and same credit terms to be part of shelves as a
marketing tactic. This also is an indication of inherited risk of new entrants. While evaluating the
risk we should consider the entry/exit barriers. The entry cost is not huge and neither laws stop

any one from entering. Similarly, exit cost is also negligible. The only cost associated with exit is
the repute. Therefore, the risk of new entrants is prone to the retail industry.
Secondly, industry is very much saturated. It simply means supermarkets are now large in
number. The 80 20 principle of pareto also applies here. 80% of the sales is generated by 20% of
stores. Similarly, $50 million sales has been made by Australian United Retailers Limited. The
retail store market is very huge and is over $167 billion as stated by ANZSIC, (2016). According
to the statistics Food Works Supermarket constitutes very little share of market just like other
retailers. Therefore competition is extremely high in the industry.
The industry not only comprises of big stores or discount store companies but small scale general
grocery stores and fruit and vegetable shops are equally competitng with the Food Works Super
market. The retail chains, discount store companies, hyper marts, malls and retail outlets
therefore, are at very high potential risk from each other acting as a substitute. Although small
stores have less negotiating power but they are more convinient from shoppers perspectives.
Substitutes and competitors threat as a combined force are very dangerous for the industry
margins. However, it is an important element of fair prices and fair competition.
The negotiating power of customer is very high in the industry. Although the prices are fixed and
not negotiable in many stores but they are already kept at lower levels to encash all of the foot
falls. The prices set up for each product are decided after keeping the intense competition in
mind. Many foot falls are converted into repeated customers if prices offered are competitive and
product quality is better. Considering the risk of buyer power the stores should start offering
unique solutions to increase their margins through cost reductions.
The negotiating power of supplier is also very high as many super markets, stores etc are
opening everyday. Suppliers although face a pull from end consumer which reduces their power.
Keeping all variables constant we see that retail stores have the least power when it comes to
supplier or buyer. In some cases brands are forced to put their products in stores as a market
gimmick or shelf presence. In these cases supplier power is reduced to magnificant level. We can
say that power of supplier varies from product to product and category to category.

Scenario planning steps

The problem based approach is developing phenomenon now a days. Scenario planning is an
approach to address problems and find solutions after preparing different scenarios. At the
beginning we have to set the scope which means that the issue needs to be highlighted.
Throughout our discussion we have discussed the cut throat competition across the industry.
These competition requires organizations to develop new competitive advantages every day. In
short, Darwins theory survival of the fittest applies in perfect competition. There are many
loopholes in the business.
These steps are summarized below.
1.
2.
3.
4.
5.
6.

Scoping: Question/Issue that needs to be answered

Trend Analysis: External forces and macro environmental factors and their effect
Building Scenarios: Scenarios build on the outcome of first two steps
Generate Options: Options available
Test Options: logical testing with reasoning
Action Plans: Defining the action plan

This section will implement these steps to find out better options for the Australian United
Retailers Limiteds brand Food Works Supermarket stores. The discussion will include external
environmental analysis including porter five forces model and macro environment variables and
on the basis of these findings two scenarios will be discussed in details with options. These
options will be explored and tested for their feasibility. In the end action plan will be proposed
for future strategy.
The product range including food items, appliances, consumables etc maintained by the stores
are different at each location. The store layouts, standards and practices etc are also different in
the different stores. For instance, the store operator in the suburb of Hobart is working in the
different style as compared to the same in Sydney or Melbourne. The prime reason to this
argument is the decentralization strategy in decision making across the organization nationwide
and storewide.
These trends are also in line with the external factors highlighted in the previous section. Here
we will throw some light on other macroeconomic factors. Technology is evolving in the
industry. RFIDs are being deployed by many stores to save labour cost. Capital intensive
8

techniques cannot be applied in current business model of Food Works Supermarket. It will need
trained people or store owners to bring itself in competition. Retail industry is growing at a very
high pace it is a positive sign for the company to extract maximum out of it. Inflows of
immigrants and growing diversity across the continent of Australia is a clear sign of future
potential business.
Legal and Political factors also impact the business. Retail business faces stringent consumer
protection laws. Many stores in the past including Kmart has faced penalties due to such laws as
stated by Sirf Roundtables, (2016). These factors althogh create complications at majority of
times but are essential to make the prices of compliant stores competitives.
Globalization is now old concept, but these supermarkets have limited them to a specific niche,
i.e. Australia in the case of Food Works Supermarket.The company should take the business idea
to other countries like United States and other European nations. This will also help in boosting
revenues and funds.
Here we develop two scenarios from the entire discussion presented in the report.
i.

Food Works Super market should expand to other countries outside Australia with the

ii.

same business model.

Food Works Super market should not expand but should change their business model.

Now, we will pop into each option to find whether the options are feasible or not. First of all, the
existing business model provides autonomy to the owners and decision making powers also rest
with the owner. On the other hand, changing it will bring negative impact to the company. Food
Works Supermarket uniqueness is its model. Changing it will remove the concept of stores in the
mind of consumers. Therefore, we can rule out the second option about changing business
model.
There is a huge potential of retail industry globally. Especially in Asian countries where
consumers are in very large numbers. Volumes of sales would drastically improve throughout the
globe due to the increased customer base. Global repute will also attract other customers for
shopping locally as well. Hence it will be direct option to boost sales and improve the repute of
the stores.

The discussion brings us to the point that Food Works Super market should expand globally as
well especially in Asian consumer markets. It can also consider European markets but European
population is very less compared to Asia. Only India and China are countries with huge potential
for consumer based retail business.

Recommendation:
After keeping in mind the entire frame of discussion it is evident that business can be improved
by expansion. This expansion globally in Asian countries will reduce operating costs as well as it
will add to the revenues. The industry has huge local and global potential. It also makes analysis
optimistic.
Besides being global the report also identifies that technological implementation shall also be
made to make the companies standing better. Online business of the super market should be
made easy by educating customers through Kiosks.
Staff at nationwide stores should have similar training. They also should have same meet and
greet procedures. Company should be more stringent in promoting same level of service across
all stores.
Acting upon the presented recommendations will enable company to perform better. Food Works
super market is unique in its supply chain. Better sense of controls will also support company to
achieve its monetary and non- monetary objectives.

10

Bibliography
ANZSIC, 2016. Consumer Goods Retail in Australia: Market Research Report.
[Online]
Available

at:

http://www.ibisworld.com.au/industry/default.aspx?indid=1720

[Accessed 24 August 2016].

Australian United Retailers Limited, 2015. Annual Report, Sydney: Australian United
Retailers Limited.
Euromonitor, 2016. Euromonitor: Consumer Appliance in Australia. [Online]
Available

at:

http://www.euromonitor.com/consumer-appliances-in-australia/report

[Accessed 21 August 2016].

Food Works Supermarket, 2016. About Us: Food Works Supermarket SuperMarket.
[Online]
Available

at:

http://www.foodworks.com.au/about

[Accessed 23 August 2016].

Heakal,

R.,

2015.

Economics

Basics:

Elasticity.

[Online]

Available at: http://www.investopedia.com/university/economics/economics4.asp

Heritage,
Available

2016.

Australia:

at:

Heritage.

[Online]

http://www.heritage.org/index/country/australia

[Accessed 14 August 2016].

Porter, M. E., 1980. Competitive Strategy. s.l.:Free Press.
Porter, M. E., 1998. Competitive Strategy: Techniques for Analyzing Industries and
Competitors. 1st ed. s.l.:Free Press.
Sirf Roundtables, 2016. Kmart, Quenos: Sirf Roundtables.
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Study

Moose,

Available

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PESTEL

Analysis

of

K-Mart.

[Online]

http://studymoose.com/pestel-analysis-of-k-mart-essay

[Accessed 14 August 2016].

The Australian Trade Commission, 2016. Australian Industry Capabilities: Financial
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[Online]
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https://www.austrade.gov.au/International/Buy/Australian-industry-

capabilities/financial-services
[Accessed August 21 2016].

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