Woolworths Supermarkets Current Situation and Strategy Plan - Case Study Example

Management Report: Woolworths Supermarket Name Professor Institution Course Date Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 Woolworths Current Situation 3 3.0 New Goals and News strategies 4 4.0 Strategic goals 5 4.1 Global expansion 5 4.2 Managing and controlling and of supply chain 6 4.3 Increasing profits 6 5.0 Strategies 7 5.1 Strategy plan: Global expansion 7 5.1.2 Tactical actions 7 5.2 Strategy plan: Managing and controlling of supply chain 7 5.2.1Tactical actions 7 5.3 Strategic plan: increasing profits through sports sponsorship 8 5.3.1 Tactical Actions 8 6.0 Conclusion 8 9.0 References 9 7.0 SWOT Analysis 11 7.1 Strengths 11 7.2 Weaknesses 11 7.3 Opportunities 12 7.4 Threats 12 8.0 Porter’s Five Forces 12 8.1 Threat of new entrants 12 8.2 Threats of substitutes 13 8.3 Bargaining Power of buyers 13 8.4 Supplier bargaining power 13 8.5 Competitive Rivalry 13 1.0 Introduction The grocery and supermarket stores sector in Australia has been one of the stiffly competitive sectors in this economy (IBISworld 2014). The competition has been reduced to a two-horse race with the leading two supermarket chains Woolworths and Coles taking the largest share of the market equivalent to 70% (Bariacto & Nunzio 2014). IBISworld (2014) claims that the rapid growth and entry of many supermarkets including the German-owned ALDI is likely to intensify competition even further and eliminate duopoly. ALDI solely sells private-labeled goods at low prices and is likely to result in a huge shift in this industry. This means that Woolworths which is the main focus in this report must implement new goals and strategies so as to remain competitive and relevant. Based on the information, this report analyzes the Woolworths Supermarkets position audit using SWOT Analysis and Porters competitive five-force Analysis. This can enable the supermarket to understand its internal strength and set new goals and new strategies to match external forces. SWOT analysis will focus on strengths like strong brand, wide range of provisions, online presence, motivated workforce and large financial base. Weaknesses cover high prices, lack of stores control. Opportunities that will be discussed comprise of managing of supplier chains, sponsors and marketing campaigns, and global expansion. Threats will focus on intense competition, employees’ wage bill growth and change in consumer behavior and loyalty. 2.0 Woolworths Current Situation Woolworths is today ranked as the leading grocery or supermarket store in Australia. The grocery was first established in 1924 and is owned by the Woolworths Limited (Woolworths Supermarket 2014). The largest profits of Woolworths Limited of up to 87% come from this supermarket chain (IBISworld 2014). Over the years, it has grown and now runs 933 stores within Australia. In 2013 alone, the company had opened 19 more stores. Zappone (2009) contends that Woolworths together with Coles have created duopoly and controls 70% of the Australian grocery market. However, entry of Aldi Supermarket chain recently severely confronted the duopoly. The company has a reward program which it uses to create long term relationships and loyalty with its customers. Its high prices have made customers to move to competitors such as West farmers and Aldi (McGregor 2012). This made the supermarket to post a slight increase in profits in 2013. Its sales in 2013 was AU$48,565 billion in 2013 representing growth of 4.9 percent, up from AU$46313 billion posted in 2011 (IBISworld 2014). Over the years, the super chain has aligned its operations to its corporate mission which state that “the management is passionate committed retailers, who understand and lead their customers through excellence and a deep knowledge of their products and services” (Woolworths Supermarket 2014). 3.0 New Goals and News strategies Grocery shelves have transformed considerably in the last five years with two giants supermarkets Woolworths and Coles scrambling to compete with new entrant ALDI which is also offering low prices (IBISworld 2014). Ever-changing customer preferences and sentiment have also impacted business environment across the sector. Bariacto & Nunzio (2014) argue that in the face of competition, Woolworth must rethink its goals and strategies to sustain change. Therefore, these goals and strategies are the possible solutions recommended for improving the state of Woolworth to be able to compete with Coles and ALDI to largest market share. 4.0 Strategic goals 4.1 Global expansion According to IBISworld (2014), currently Woolworths Supermarket is currently operating in Australia and New Zealand only. However, in many years, it has only focused on Australia and has opened several stores of up to 921 with only 12 in Australia (Bariacto & Nunzio 2014). The Entry of an international grocery Aldi and presence of Coles pose a serious challenge and saturation of Australian market. Seeking new opportunities in new markets can provide a better platform for Woolworths to increase its profits. Ryu & Simpson (2011) posit that expansion into global markets will help the company to spread business risk. In brief, if Australia stores perform poorly, the management can still rely on global markets for revenues. In fact, in the second quarter of 2014, Woolworth Supermarket performed dismal and the managers ordered for increase of prices to top up for the loss (Bariacto & Nunzio 2014). This however, received condemnation from consumer watch activists. The company should expand its products and services in Middle East countries such as Qatar, Singapore and UAE, which have high disposable income so as to increase its profits. Increase of profits to Woolworths is a sign that it will be able to mobilize resources and create strategies that will help it in maintaining the largest share of the market. Profits create income for employees and even motivate them to work harder for better payment (Kumar 2014). Increased profits will enable the company to improve its services in every class hence positive experience from customers (Kumar 2014). 4.2 Managing and controlling and of supply chain Every business often wishes to reduce the cost of operations right from acquiring cheap raw materials or cheap supply (Donna 2005). In the long run, the company would have cut cost of operation. Cutting costs means increasing efficiency in terms of financial resources and investing in worthy courses (Donna 2005). This stresses the importance of creating great relationship with suppliers. Reiss (2010) holds that it will ensure that the supermarket can get its supplies at a cheaper price and also maintains constant suppliers in future. Bariacto & Nunzio (2014) state that in the Past, Woolworths has not had positive relationship with suppliers because of the intention of the management to be dominant in the negotiation and exploit them. Therefore, they have been changing supplier due to bad relationship which has frequently fallen. As the supermarket expands, it will significantly need good relationship with suppliers for timely supply. This is because timely delivery to customer is very critical and also maintaining good relationship with customers and for reliability (Lindholm 2011). It also provides the supermarket with quality products which is actually the wish of customers. 4.3 Increasing profits Even though Woolworths have been making profits over the years, its financial performance rise just slightly in 2014 due to fierce competition from Coles and Aldi (IBISworld 2014). McGregor (2012) claims that Aldi Supermarket has been trying to eliminate duopoly created by Woolworths and Coles through low pricing target for all customer segments. To some extent, Aldi will manage as portrayed by the slight improvement in Woolworth’s revenues. Therefore, Woolworth management must create ways of improving for a sustainable future. Sports sponsorship and marketing campaigns form the avenue for increasing its profits (Kahle & Close 2011). This can be done through sponsoring club with a shirt which bears the company name and as a result it creates brand awareness. It portrays the company as a proponent of personal and sport development. Woolworths have other shareholders who have invested in shares; hence if the company is performing well, there confidence is strengthened. 5.0 Strategies 5.1 Strategy plan: Global expansion 5.1.2 Tactical actions The supermarket can use a joint venture to enter into Middle East markets such as Qatar, UAE and Singapore. Undertake the market research to understand the product in demand Analyze the market size and demographies Identify the best company to create joint venture with Negotatite a contract which will ensure the Woolworths share risk, share product development, benefit from technology and enjoy government protection 5.2 Strategy plan: Managing and controlling of supply chain 5.2.1Tactical actions Create and maintain clear and professional communication channel. This involves official communcation through various protocals and invoicing the products (Lindholm 2011). This should also clarify about lead time. Checking the cost of production and negotiating the best contract which suits both the supplier and the supermarket. Pay on time to make the acquire products for supplying to the grocery (Lindholm 2011) 5.3 Strategic plan: increasing profits through sports sponsorship 5.3.1 Tactical Actions Enter into a deal of a stadium or court naming rights hence participating in the management and maintenance of the stadium. If an activity takes place in the stadium Woolworths will get part of the hiring fee. Sponsorship of clubs either soccer or rugby. Since these are the most watched sports in Australia and beyond, it will give the company and opportunity to market their brand. Endorsing an athlete like the olimplic gold-medalist Ryan Bayley also creates a platform for marketing Woolworths and in the long term iis likelky to increase sales. Research indicates it increase return by 30% (Jacobs, Jain & Surana 2014). Tv advertising during the sports activities is also a good avenue for increasing brand awareness. 6.0 Conclusion The report has established that there is stiff competition in an Australian Grocery market with competition taking between the three dominants including Woolworths, Coles and Aldi. However, it is Woolworths’ business which is at risk because of the intention of Coles and Aldi to dislodge it from the top. Thus, Woolworths need to ease competition through embracing new goals and strategies. New opportunities present for this supermarket include global expansion into the Middle East, creating strong and positive relationship with suppliers and increasing profits through sports sponsorship. 9.0 References Bariacto, N & Nunzio, J.D 2014, Power in the Australian Food System, Global Food and Water Crises Research Programme Donna, C 2005, Cost Reduction Essential to Competition: A Global Look at Costs Gives the Big Picture and a Big Advantage, Industry Week IBISworld 2014, Supermarkets and Grocery Stores in Australia: Market Research Report, viewed on 11th December 2014 from http://www.ibisworld.com.au/industry/default.aspx?indid=1834 Jacobs, J, Jain, J & Surana, K 2014, Is sports sponsorship worth it? McKinsey & Company Jackson, M, Houdard, F & Highfield, M 2008, Room to grow: business location, global expansion and resource deficits, Journal of Business Strategy, Vol. 29, No.1, pp. 34 – 39 Kahle, R.L & Close, A.G 2011, Consumer Behavior Knowledge for Effective Sports and Event Marketing, New York, Routledge Kumar, B 2014, 6 Roles and Importance of Profit in Business – Explained! Viewed on 4th December 2014 from http://www.preservearticles.com/2013082933387/6-roles-and-importance-of-profit-in-business-explained.html Lindholm, A 2011, Managing and Controlling Supply Chain Collaboration, Inköp+logistic McGregor, K 2012, Senator Nick Xenophon moves to smash Coles and Woolworths duopoly, The Advertiser Reiss, B 2010, Build a Good Relationship with Suppliers, viewed on 11th December 2014 from http://www.entrepreneur.com/article/205868 Ryu, J & Simpson, J. J 2011, Retail internationalization: Lessons from "Big Three" global retailers' failure cases, Journal of Business & Retail Management Research, Vol.6, No.1, pp.1-10 Woolworths Supermarket 2014, Woolworths Supermarket Official Website, viewed on 11th December 2014 from http://www.woolworths.com.au/wps/wcm/connect/webSite/Woolworths/ Zappone, C 2009, Supermarket duopoly blamed for soaring food prices, The Sydney Morning Herald 7.0 SWOT Analysis The company over the years has used its internal capability to drive its business in the grocery market. This internal capability has been complimented with employees quench for high performance. An analysis of SWOT gives a broader picture of companies internal capability and how they can use the opportunity to overcomes its external forces. 7.1 Strengths Woolworths is a strong brand is known all over Australia. This is supported by the fact that it is the largest supermarket chain in Australia with 47% market share (Bariacto & Nunzio 2014). It has a wide range of provision such as home appliances, fresh produce, furniture, bakery goods, drinks and liquor among others. `Woolworths has an online shop where customers can access its products anywhere across the globe. The supermarket has a motivated workforce who are committed to customer service The company has made high profits over the years and large financial base to expand its services globally. 7.2 Weaknesses The company charges high prices, which are beyond economy consumers. Woolworths have up to 933 stores across Australia marketing it had to control all the operations. Also, some store cannibalizes others. 7.3 Opportunities Global expansion forms one of the opportunities the supermarket can pursue. For instance, middle east countries such as Qatar, Singapore and UAE, which have high disposable income. Controlling supply chain which creates a great relationship with supplier. Woolworths has an opportunity in increasing its profits through sponsorship of sports clubs and marketing campaigns. 7.4 Threats Strong competition from Coles, Aldi and Westfarmers is threatening Woolworth goal of making more profits. High wage bill is likely to become a burden as labor activist demands pay rise to employees Ever changing consumer behavior is a threat to Woolworth’s products. 8.0 Porter’s Five Forces Porter's five forces are used here to evaluate frameworks for business strategy as used by other airline industry players to establish the competitive intensity and attractiveness of that market. 8.1 Threat of new entrants The threat of new entrants is high because of deregulation of the Australian grocery industry. However, the duopoly of Woolworths and Coles makes it appear as if it is regulated (Bariacto & Nunzio 2014)) Presence of many companies increases competition and companies with good strategy have the advantage to increase their profits. Threat of new supplier entry is high because of the openness of the industry B2C high B2B low 8.2 Threats of substitutes The level of threat to substitute is very high due to the fact the grocery offers a wide range of products There are several examples for substitutes. For example, meat has numerous substitutes including veggies burger, beanfeast, boca burger and gardein among others. B2C high B2B low 8.3 Bargaining Power of buyers Buyers have a high bargaining power because of presence of several supermarkets in the market (IBISworld 2014). Woolworths is focusing more on premium products demand for high quality products and less loyalty Bargaining power of b2b is very low because of alternative or substitute B2C high B2B low 8.4 Supplier bargaining power Many suppliers with different categories of products including home appliances, furniture and farm fresh products hence low supplier bargaining power (IBISworld 2014) B2C high B2B low 8.5 Competitive Rivalry The level of competition is very high considering there are many players in the market (Bariacto & Nunzio 2014)). The situation is likely to affect the financial performance of Woolworth’s supermarket in future. the competition is based on price, level of service and product branding The lifecycle of competition is at stage three at domestically level and with less product differentiation. B2C Medium B2B low Read More