Coles Supermarkets - Strategy Making Process - Case Study Example

Cole’s Supermarkets Name Institution Instructor Course Date of Submission Cole’s Supermarkets Introduction Cole’s supermarket is a chain of supermarkets in Australia. The supermarkets of the chain store feature seafood counters, fresh produce products, an instore butcher for selling meat products, baked breads and gourmet cheese shops; gluten free products, frozen vegetables, and magazines; seafood, fruit and vegetables, beauty and health, cheese, baby and toddler, health, deli and mix clothing departments; kosher products, dairy, bakery and grocery. The company also offers car insurance services, gift cards, home insurance services, credit card products, office and home improvement supplies, energy and fertilizers, chemicals, and safety and industrial products (Burch & Lawrence, 2007). The company also sells products online. The company has more than 740 stores in the country and 100,000 employees; the company, along with Woolworths Limited, from a duopoly where they control more than 80% of the market in Australia. History of Cole’s Supermarkets Coles Supermarkets Company was founded in 1914 by George James Coles under the name Coles Variety Store, which was a single store that was opened in Smith Street in Melbourne. After the opening of this first store, expansion occurred through opening of other stores, forming a chain. The company’s interest in food selling was spurred after the company acquired 54 grocery stores of John Connell Dickins stores in 1958 (Plunkett & Plunkett Research Ltd, 2008).. The company’s dealings in grocery expanded even more when it also acquired the Beilby chain in 1959 and 265 stores from Mathews Thompson grocery in 1960. In 1960, company opened its first supermarket in Balwyn North. By 973, the company had set up stores in all capital cities of Australia. From 1962, the company’s supermarkets were branded as Coles New World. In 1991, they were rebranded as Coles Supermarkets. However, from 1998, the supermarkets started going simply by the name Coles. From mid 2006, most of the BI-LO supermarkets, which had been acquired by the company, started going by the name Coles supermarkets. In 2007, Wesfarmers, a company based in Western Australia, for $22 billion, purchased the Coles group. External Factors The main external environmental factors affecting the company include economic factors, socio-cultural factors, and competition. The main socio-cultural factor that is affecting the company is the emergence of the social trend where there is an increasing consciousness towards well-being and health that is reflected in the increasing movement by people towards healthy food alternatives and organic produce. This shift in the social trend is advantageous for the company because it offers an opportunity to the company as there very few companies in the market that offer organic foods (Humphery, 1998). This implies that there is a high likelihood that the sales of organic foods will go up in future. However, this trend also poses a potential threat to industries that deal in inorganic food products because supermarkets that deal in organic produce will thrive in such an environment at the expense of inorganic produce traders. Another social trend that has emerged that has had impact on the company is the rising number of consumers who have limited to do shopping (Plunkett & Plunkett Research Ltd, 2008). This has led to an increase in the demand of time convenience, that is, the ability to shop when the consumers can afford time. This has forced the company to adapt to this new social environment by extending its trading hours to give more shopping time to its customers. The company has also provided more convenience to its customers through expanding its product range and through creating new business like the Coles Express. Economic factors There are a number of economic factors that affect the company. One of the factors is the decline in the spending power of consumers. The existing economic climate has forced people to reduce on their expenditure resulting to lower spending levels, particularly on flexible goods. This decrease in the spending power by consumers has made them to switch to private label brands that help them to cost save (Schulz, 2008). This implies that in order for supermarkets to survive through these economic changes, they have to increase their private label offerings. This provides them with an opportunity to compete with other supermarkets basing on price while at the same time realize higher margins. Supermarkets offering private labels also enable them to compete with others by basing on choice convenience, which is, offering low-cost alternatives. Competition The company also faces competition from other companies dealing in organic produce. The company’s main competitor is the Woolworths Company. Together, the two companies control 80% of the total market in Australia. However, Woolworths has a larger market share as compared to Coles. The continued stiff competition from Woolworths has affected the company in the sense it has forced it to come up with strategies to combat the onslaught from Woolworths. Strategies of the company There are a number of identifiable strategies that have been adopted by the company in order to combat competition in the market as well as help it adapt to the changing social and economic environments in the market (Humphery, 1998). The strategies adopted by the company include price reduction dubbed as ‘down down’ campaign, investment in private labels, increasing its operational efficiencies, increasing the value of its products, and engaging in promotion of the company through advertisement. The price reduction strategy was adopted by the company because of the reduced spending power of the consumers in Australia. The economic environment in the country forced most consumers to cut down on their expenditure. In order to maintain sales, the company decided to reduce prices on some of its commodities in order to maintain the spending power of its customers. The strategy was also meant to combat competition from other companies in the industry (Humphery, 1998). Due to reduction in prices on its commodities, the company is able to attract more customers, making it able to control a large portion of the market. Although the strategy has considerably reduced the profits realized by the company, it has helped the company to maintain the volume of sales despite the changing economic environment in the country. The company has also increased its operational efficiencies through transformation of the company’s supply chain network. Programs like in-house load planning, automated ordering for products, and optimization of slow and fast moving product flows have been put in place by the company in order to increase the operational efficiencies of the company. The company has also refurbished most of its stores in order to increase their operational efficiencies. The company has also adopted online selling in a move to provide convenience to its customers and increase its efficiency. This strategy of increasing its operational efficiencies is meant to adapt the company to the changing social environment where most of the customers have little time to carry out their shopping activities. So these changes are meant to help customers to carry out shopping within the little time they can afford to spare (Schulz, 2008). In order to be in line with the shift by most of the people in the country to organic and fresh food products, the company decided to increase the value of its products. This strategy has ensured that the company maintains its sales volume despite the changing socio-cultural environment. The company’s investment in private labels comes at the time when the consumer’s spending power has reduced considerably. Because of the changing economic environment, most of the consumers in Australia have been forced to cut down their expenditure. This has forced most of them to resort to private label products. The company therefore decided to adapt to these changes by investing in private labels, thus maintain its sales volume (Plunkett & Plunkett Research, Ltd, 2008). The company has employed the media in order to promote itself. The company engages in commercial advertisement on television as well as radio. The company has also aligned itself with a cooking show called master chef. This is meant to promote the company. Strategy Making Process For any business organization or company to succeed, there is need to formulate the strategies that will guide the company towards greater economic achievement. Strategy formulation is defined as the process of selecting the most suitable course of action for a company in order to realize the organizational goals and achieve the organizational vision. Strategy formulation process involves six steps. The first step of strategy formulation process is the setting of the objectives of the organization. The major element of a strategy statement is the setting of long-term objectives that need to be realized by the organization (Mills, 2002). Objectives lay emphasis on the result while strategy emphasizes on the process of attaining the result. In the selection of organizational objectives, factors that influence the selection of the objectives are analyzed before the objectives are selected. For instance, an organization has to consider the cultural environment of the business, the business ethics required, the stakeholders in the business, and corporate governance before formulating the objectives that will guide the organization (Schulz, 2008). After setting the objectives, the second step of the strategy formulation process is the evaluation of the organizational environment. The organizational environment to be evaluated includes the industrial and economic environments that the organization operates in. This includes analyzing the competitive environment of the organization and its competitive position as compared to other competitors in the market. Reviewing of the organizational environment is crucial because it helps the organization to assess its strengths and weaknesses and discover the competitive advantages that exist in the market. This step also helps the organization to discover the strengths and weaknesses of its competitors, which helps it to formulate effective strategies the competition. The third step in the strategy formulation process is for an organization to set quantitative targets. In this step, the organization sets quantitative targets for some of its objectives (Mills, 2002). This is to enable the organization to compare itself with long-term customers in order to assess the contribution that can be made by different operating departments or product zones. The fourth step in the process is to set objectives in context of the divisional plans. At this stage, the contributions from each unit or department are assessed and the strategic planning done for each department or unit. This is done in line with the macroeconomic trends (Plunkett & Plunkett Research Ltd, 2008). The fifth step is performance analysis. This step involves discovering and analyzing the disparity that exists between the desired performance and the actual performance. This is to enable the organization to come up with the right strategy to rectify the gap. The last step is choice of strategy. This step involves the actual choosing of the best way of action after considering all the factors that affect the organization. Strategic intent of Coles Company The company’s strategic intent is brief and revolves around provision of value to its customers rather than the company does. The company’s strategic intent is to provide the people of Australia with a shop that they can trust to deliver quality, value, and service. This has been illustrated in the way the company has been carrying out continuous improvement of the quality of its products and services. Monitoring the strategy In any organization, there is need to monitor the strategies put in place in order to evaluate whether they are effective or not. There is need for administrative resources to be deployed to monitoring tasks so that the effectiveness of the strategies formulated can be analyzed. One of the ways in which Coles Company monitors its strategies is it seeks feedback from customers on their views about the services and products provided by the company (Mills, 2002).. The feedback from the customers is then is used to evaluate the strategies. Opportunities and threats The main opportunity for the company is the changing social trend where people in Australia have health conscious and have shifted their attention and preference for organic products. Since the company deals in fresh food produce and organic products, this provides a rare opportunity for the company (Schulz, 2008). The company has a chance to grow even further because there is limited competition and it enjoys a large part of the market. However, the company also faces a threat in form of price deflations. Price deflations are likely to make it difficult for the company to increase its earnings margins. Internal analysis Coles’ main function is to ask as a link between producers and the ultimate consumers. This is because producers concentrate on production hence they require a go-between with consumers (Plunkett & Plunkett Research Ltd, 2008). For most producers of organic produce, Coles is their major buyer. Therefore, Coles has a lot of influence over the majority of producers and the company always dictates things like crop type grown by the producers, their farm sizes, agricultural methods that can be used by the producers and the prices at which the producers can sell their produce. Coles’ mission statement emphasizes the need for the company to offer quality products to its customers at cheaper prices. Thus, all the activities of the company are geared towards achieving and delivering those promises to the customers. The main value-creating functions that are used to deliver the company’s promises include in-bound logistics, operations, and marketing and sales. Under the in-bound logistics, Coles Company is basically a retailer (Mills, 2002). Therefore, the company is not involved in the production of the products it sells. However, the company controls the distribution of its products. Coles produce is always taken straight from producers to their regional or national distribution centre, where the products are inspected for quality and taken directly to the stores. In addition, the company owns and operates all the distribution centers and trucks that are involved in the distribution network . The operations function of the company involves two basic activities, that is, inventory management and quality assessment. Constant checks to detect any defective products are done on the products from when they reach the retail stores to the time the goods are put on display. In addition, each stock unit has a minimum presentation level. The number of stock units present at each store is monitored using the sophisticated point of sale technology (Mills, G. (2002). Once the number of units falls below the minimum presentation level, an order to restock is sent to the concerned distribution centre. Moreover, the company uses a sophisticated forecasting program to predict future changes in the market in terms of demand due to changing economic trends or environmental factors. In the marketing and sales function, the company has two main activities that are used to help the company increase sales and thus enable it to compete effectively. The two activities are organizational dynamism and in-store promotions. The company carries out in-store promotions by holding weekly specials where short-term sales of some products are boosted by reducing the prices of the products by a large percent. The company supplements that boost by distributing sales catalogues to inform customers about the weekly specials. The weekly specials are highly effective in boosting sales. For instance, under normal circumstances, the sales for toilet amount to between 2000 and 300 dollars a week. However, during the weekly specials, the sale of the same commodity increases to about 8000 dollars. a notable capability of the company is its ability to adapt to changing business environments and consumer trends. In terms of competition, the company uses the integrated competitive strategy, that is, the company employs both differential elements and cost leadership to compete. The company utilizes its well-organized supply chain to reduce costs and differentiates itself using its brand image. Furthermore, the company’s strategic factors like being flexible in changing environmental factors and minimizing future threats are crucial for the survival of the company (Humphery, 1998). The company’s most significant capabilities and resources are the highly efficient supply chain, brand reputation and the effective top management. These are the factors that have enabled the company to survive through many environmental and economic changes. Porter’s five forces analysis Threat of Substitutes The company’s operations and profitability is being threatened by indirect competitors such specialist grocery stores, convenience stores, and farmers’ markets (Mills, 2002). These competitors have posed as viable substitutes to the company and have become a serious threat to the company. Rivalry from Competitors The company experiences great competition from other companies such as Woolworths, IGA and Actions. The high rivalry that exists in the industry is as a result of the lack of differentiation among the companies brought about by the nature of the products and services they provide (Schulz, 2008). This leaves price, store location and product choice as the only competitive factors. Bargaining Power of Suppliers The supplier’s bargaining power has always been low. This is because producers have a limited number of buyers to choose from, with the existence of Woolworths and Coles as the only purchasers (Mills, 2002). However, this trend is likely to change with the entrance of IGA and Action supermarkets in the market. Bargaining Power of Buyers Like that of suppliers, the buyers’ bargaining power is low. This is because of the existent of only two major players in the industry (Schulz, 2008). However, this is also set to change with entrance of new players. The government’s push to lower competition barriers is set to help new companies to enter the market. This will enable consumers to have a wide range of products to choose from. Threat of new entrants This is very low and is likely to remain unchanged for long. This is because new entrants need to compete with Woolworths and Coles who enjoy large economies of scales. This requires a new entrant to invest massively in infrastructure and facilities, which is hard to do for most firms. In addition, most landlords prefer the two companies of their huge pulling power of consumer traffic. Coles Company is set to even grow further in future. The company’s current strategies and innovations are setting it for any future changes (Schulz, 2008). The company’s adaptability to the rapid environmental and economic changes is likely to help it remain significant in the grocery industry. This is coupled with the unlikelihood of the entering of new players in the industry. References Burch, D., & Lawrence, G. (2007). Supermarkets and agri-food supply chains: Transformations in the production and consumption of foods. Cheltenham, UK: Edward Elgar. Humphery, K. (1998). Shelf life: Supermarkets and the changing cultures of consumption. Cambridge: Cambridge Univ. Press. Mills, G. (2002). Retail pricing strategies and market power. Melbourne: University Press Plunkett, J. W., & Plunkett Research, Ltd. (2008). Plunkett's retail industry almanac 2009: The only comprehensive guide to the retail industry. Houston, Tex: Plunkett Research Ltd. Schulz, P. (2008). CRM and the Australian food retail industry. München: GRIN Verlag GmbH. Read More