Australian markets Coles vs Woolworths

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 Table of contents
Introduction……………………………………………..1

Wollworths………………………………………………1

Coles…………………………………………………….2

Recent development in the super market chain in

Australia………………………………………………….2

Macro environment analysis……………………………..3

Porter’s five point analysis………………………………..5

Company
analysis…………………………………………………...7

Marketing strategies…………………………………........9

Conclusion………………………………………….…..11

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 Australian markets Coles vs Woolworths

The Australian retail industry consists of mostly 140,000 retail businesses with a very

few major players in the supermarket industry; mainly Woolworths Ltd., Coles Group

Ltd., ALDI, AUR/Foodworks, Metcash/IGA, Foodworks, SPAR Australia and Macro

Wholefoods. The retail industry plays a vital role and considered to be is one of the

largest employers. About 10.7% of the total working population are employed in this

industry. Retail industry specializes in widest choice of non-specialized food, groceries,

fresh fruits, vegetables, cleaning merchandise bread & pastries, cigarettes, toiletries,

canned goods, dairy goods etc. The retail industry generates over 4.1% of GDP or $53

billion. In 2011 and it was a significant contributor to the Australian economy. There

are two dominating large chains in the retail business, those are Coles and Woolworths.

Woolworths.

Woolworths opened its first store in Sydney in 1924 at a basement. After acquisition

and expansion Woolworths has become the largest supermarket chain in Australia, with

over 40% market share. The major brands operate under Woolworths Ltd. Includes

Woolworths/Safeway supermarkets, Tandy, Big W, Dick Smith Powerhouse, Dick

Smith Electronics, Dan Murphy‘s, and BWS. Woolworths is one of Australia‘s largest

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retailers in terms of number of supermarkets, sales revenues, stores and geographic area

coverage. It has 840 supermarkets, 3,200 stores across Australia and New Zealand, 156

supermarkets in New Zealand.

Coles

Since its establishment on 9th April 1914 by George Coles the founder of Coles

Supermarket Coles has developed itself to be one of the pioneering companies in the

Australia’s retail industry. George the son of a retailer travelled overseas to observe the

retail practice. He returned to Australia and established the first retail practice at Smith

Street; Collingwood, Melbourne. Today the company continues with its tradition of

food retailing, employing over 10,000 people, who collectively carry out transactions

amounting to 18 million per week. There are 742 stores all over Australia, the total sales

of the retail supermarkets turnover stands to $30 billion which means Cole

Supermarkets controls about 31% of the market.

Recent developments in the supermarket chain in Australia

There have been significant changes and developments in the supermarket chain

industry in Australia. There has been an entry of new players in the industry. ALDI has

expanded since its entry in 2001. Costco a new business group has entered the market.

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The recent changes were mostly due to the increase in the number of online customers.

Now the customers increasingly prefer to shop online than in the traditional methods.

The Australian government in 2008, commissioned the Australian Competition and

Consumer commission in order to regulate the supermarket industry. Competition and

consumers act in 2010, went through several amendments of policy and regulations.

Macro environment analysis.

External environment analysis is very much important as we cannot and should not

develop strategies without knowing the external factors. The strategies must be

responsive to the external business environment; otherwise the firm could become the

most efficient producer of goods. To ensure avoidance of such mistakes, firms must

have knowledgeable about the external business environment. For this we have briefly

analyzed the external environment of Australian retail industry where both these chain

operates.

Political Legal Environment: Government has a direct impact on the supermarket

industry in regards to its legislation, and through the monitoring and regulatory

authority such as the Australian Competition and consumer commissions (ACCC),

Competition and consumer act, the commonwealth Government and the foreign

investment Review Board (FIRB).

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Technology: Woolworths has adopted new innovative technology. It has subscribed

to GEMMnet (Global Electronic Marketing & Merchandising Network) in 1994. It has

invested heavily to improve its supply chain and distribution system. This step has an

direct impact on cost savings. Online shopping facilities has been increased to a great

extend and the company is reaping its advantage.

Global Segment: Woolworths has expanded its business operation in New Zealand &

India to sustain its growth in retail industry and capitalize its market share.

Economic Segment: The slow growth rate and uncertainty in the Australian economy

poses a threat for the retail sector as it may stagnate in future. Possible increase in fuel

prices and low wages and growing unemployment rate, may impact the industry the

industry in the long run.

Demographic Segment: Australia‘s population was 24.6 million in 2019 but there is a

mix of ethnic and religious group. In Australia, the age of 85+ group is experiencing

the fastest growth rate. The number of people in this age group is expected to be almost

quadruple ie approximately 5% of the total population in 2050 and those over the age

of 65 currently constitute are 12% of the population and the forecast is a 24% growth

by 2050.

Socio-cultural Segment: Changes in attitudes and lifestyles have resulted in dramatic

shift in the supermarket industry. People are very much concern about health issues

these days. Hence, there is a demand for easy to cook food, low-fat foods, GM-free
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organic food. The participation of women in workforces has also increased in recent

time may be one of the causes for it.

Porter’s Five Forces Analysis

Awareness of the five forces can help a company understand the structure of its industry

and stake out a position through future planning that is more profitable and less

vulnerable to market attacks. Industry structure drives the competition thus the

profitability no matter whether the industry is high tech or low tech, emerging or

mature, regulated or unregulated. From the five force analysis a company through its

competitive strengths can take its position in the industry. But it should not be focused

on elimination of rivals.

Bargaining power of Buyers: Australian Supermarkets offer homogenous products

which have low switching costs between the stores and thus have provided buyers with

extremely high bargaining power. When it comes to specific market and products

bargaining power is less so retail outlets must specialize in specific customized products

only available to Australian consumers. For the rest of products the bargaining power

of buyers in this industry is very high.

Bargaining power of Suppliers: British American Tobacco and Coca Cola enjoys near

monopoly over the market because of its reputation and uniquiness of the product.

Customers flock to buy such products. The bargaining power of suppliers varies

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depending on the brand name of the supplies and the size of the supermarket.

Bargaining power of such suppliers in the supermarket retail industry in Australia is

high to moderate.

Industry diversified products: In the supermarket industry there are also a number

of diversified products available for the consumers such as pharmacies, convenience

stores, online stores, non-affiliated petrol stations, grocery stores, fresh food markets

and delicatessens. Consumers are willing to pay high prices for these conveniences

when it is closer to home, easier parking and no queues. Stores should be opened in

residential areas with products that are unique to the locality.

Threat of New Entrants: Due to low price offered in Australian retail shops is making

domestic supermarket industry it is not an attractive industry to enter because of low

profit potential. The scarce availability of proper location and high market price of land,

government restrictions and regulation and huge capital requirement can act as barriers

to new entry. Another barrier is the relationship of existing big players with the suppliers

and requirement of establishing its own distribution centers by the new entries can also

be a barrier. The best method is to enter into joint venture with big players with its own

unique products suitable for the market.

Rivalry among competitors: The rivalry between competitors in the supermarket

industry is intense. The best way to stop the rivalry is through acquisition and merger.

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 Company analysis.

Cole’s core competencies.

Highly Effective Supply Chain:

Coles efficient supply chain is both a resource and a capability when it comes to

company’s inbound and outbound logistics. The substantial cost saving techniques

provided by the supply chain enables Coles to compete effectively with Woolworths.

Brand Reputation:

Coles brand image has been developed due to positive consumer experiences which can

be attributed to the stringent quality assessment. It offers substantial differentiation of

products from the rivals, and contributes of the high level of customer satisfaction.

Effective Top Management:

The top management is able to navigate the increasingly competitive environment by

formulating new policies for the proper function and the management of the company.

Sustainable advantage

When framing the strategic advantage four criteria’s needs to be satisfied; rare, valuable,

non-substitutable and costly to imitate. Through its economies of scale and value chain

the company is able to offer customers products of high quality at lowest possible price.

Value chain analysis

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Coles motto is “Down Down, Prices Are Down” and “Quality food costs less at Coles”.

The goal of these activities is to offer customer values that exceed the cost of the

activities, thus creating a profit margin.

Woolworth’s core competence.

Resources: Woolworths operates over 3,000 stores across the Australia & New Zealand,

and Employes over 180,000 people. This means that its resources are very high and

strong. Woolworths has efficient human resource management and wide range of

product and product innovative skills, strong brand image and reputation and well

designed logistics management, good quality and fresh food, partnership with big

companies.

Capabilities: Capabilities refer to productive use of resources through organizational

skills. From 1924 Woolworth is running business very successfully, it means that it

capable to use right person in right position and set its resources on the right track.

World-class supply chain: Through its supply chain Woolworth’s innovation and

competitive advantage have developed through its supply chain. Woolworths has

significantly focused on cost cutting in managing unnecessary expenses.

Branding & Market: Woolworth’s motto is “The fresh food for people” this slogan, has

created a differentiated image of quality product at responsible prices.

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Innovation: Woolworths has implemented several project by diversification of product

line, including re-fresh, the new idea program petrol retailing.

Integration: Woolworths has been producing its own inputs to increase its market

power share.

Marketing strategies

The ACCC has introduced various policy changes which has opened up the industry to

the competitors. Various legislative changes that include regulatory environment and

tax are factors that both retail chain should take into consideration when formulating

strategies.

The company should then focus on maximizing the full potentials of the markets by

targeting people between 15 to 67 years because they occupy major portion of the

market. Products related to 80+ age group should also be targeted as there population

percentage is also very high.

There is increased usage of computers and other technologies to shop online. Both

these retail chain must uses the latest technology to a pleasurable online shopping

experience and to track the process of its stock and also to survey the change in

consumer taste and preferences.

Currently consumers want organic products so the industry who is offering the sale of

organic foods and products will get a greater market share. This presents an opportunity
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to venture into healthy and organic foods and products. This will enable the company

to tap into the market and also respond to the changes in the tastes and preferences of

customers.

Trading hours should be expanded to 1AM so as to meet the demands of time sensitive

customers. Extending the range of products to customers is a good strategy.

There is a reduction of consumer’s purchasing powers. Buying directly from the

producers will eradicate the middle man costs and will help in increased sales due to

reduced price and will help in capturing a greater market share.

Products from all over the world compete in the local economy. Similar products

should be made in the country and price must be low so that the competition must be

reduced or eliminated. If that is not possible then there must be a tie up with these

product manufactors so that they sale these products though the big retail outlets. This

will help in getting the share of profits.

The biggest determinant of the level of competition is the store location, product and

the price which also play a major role. Woolworths are Cole supermarkets biggest

competitors in the industry. The rivalry in the industry is bound to increase in the future

due to the entry of new players in the industry. So a tie up with the new players is

essential. Merger and acquisition is another alternative to the expanding competition.

The threat of new entrants is expected to remain low in the foreseeable future as the

economics factors are expensive like land and infrastructure. The new entrants must

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invest heavily in infrastructure and facilities, and seek for expertise to manage the

business.

Conclusion

For both Coles and Woolworths the prices of products are cheap. So in this case both

are at a competitive edge. The same also applies to shopping online. Both chains have

charged different prices for online shoppers to what you'd pay in-store, but from 2019

pricing is consistent between online stores and what you'll pay at your local branch.

Free delivery makes grocery shopping online attractive. Both Woolworths and Coles

offer free delivery options, but there is a differentiation. Woolworths first delivery will

be free provided you spend more than $100. Coles also offers free delivery for your

first shop provided you spend at least $100 which is same but slight change in wording

to make it look more attractive to the customers. For Coles $100 and you get a free

home delivery but when it comes to Woolworth’s it has to be more than $ 100 or let’s

say $ 110 then you get a home delivery for free. Coles offers "Flexi-Free Delivery"

offers free delivery on all subsequent shops of $150 or more. For Woolworth’s you

have to spend more than $ 300 for subsequent delivery. But for Coles its $150. So Coles

is a clear winner. Woolworth’s charges $15 for less than $100 order and $3 for orders

ranging from $250 to $300. Coles charges from $4 to $20 based on location and the

time of the day.

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From the above analysis we can understand that Coles is a clear winner and will get a

greater market share for its policies.

References.

Dess, g. g., Lumpkin, g. t. & Eisner, a. b. 2007. Strategic Management: Creating Competitive

Advantages, McGraw-Hill/Irwin, New York.

Alam, Q. & Majumdar, N. A. 2011. Woolworths Limited: Retail leader in Australia. Cases in Business

and Management. 2nd ed.: Tilde University Press, Victoria, Australia.

Cotterill, r. w. 2006. Antitrust analysis of supermarkets: global concerns playing out in local markets.

The Australian Journal of Agricultural and Resource Economics, 50, 17-32.

Tootill, A. 2012. Cole In The Country. Sydney, Australia: Alan Tootill.

Nenycz-Thiel, M. 2012. Value-for-money perceptions of supermarket and private labels..

Australasian Marketing Journal (AMJ), 20(2), pp. 171-177.

Deloitte, 2012. Analysis of the Grocery industry; Cole Supermarkets Australia, Sydney,

Australia: Deloitte Access Economics Pty Ltd.

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