New Goals and Strategies for Woolworths Limited - Case Study Example

New Goals and strategies for Woolworths Limited Student: Sign: Course: Tutor: Date: Chief Executive Officer Woolworths Limited Mr. Grant O'Brien Woolworths Way Bella Vista NSW 2153 14 December, 2014 Dear Mr O'Brien The purpose of this report was to perform a situational analysis of Woolworths limited in the Australian retail industry. The analysis results were expected to help in formulating new goals and strategies for Woolworths. The research utilized SWOT and Porters Five-Force tools to perform the analysis. According to the findings, Woolworths’ key strengths in supply chain management, brand salience and large store network can still be relied on to compete effectively. The industry is still attractive to old established players. Woolworths’ management will, however, develop and adopt goals such as market expansion, reduction of operational loss and increase in grocery sales through competitive prices. This new goals and strategies will be critical in advancing Woolworths’ intentions to grow and expand market share. Yours Sincerely, ______________________ Table of Contents New Goals and strategies for Woolworths Limited 1 Chief Executive Officer 2 Introduction 4 1Woolworths current situation 5 2SWOT Analysis 6 2.1Strengths 7 2.2Weaknesses 7 2.3Opportunities 7 2.4Threats 7 3Five competitive forces 8 3.1Rivalry in the industry 8 3.2Threat of new entrants 8 3.3Power of suppliers 8 3.4Power of buyers 9 3.5Threat of substitutes 9 4Recommendations 9 4.1Goal 1: Increase food and liquor sales by 5% 9 4.2Goal 2: Increase Market share for grocery sales by 10% 10 4.3Goal 3: Reduce operational expenses by 5% 11 4.4Goal 4: Expand into emerging markets in the next one year 11 5Conclusion 12 References 12 Mitchell, S. (2014, September 5) Woolworths committed to cutting prices in battle with Cole, Aldi. The Sydney Morning Herald. [Online] Available from: http://www.smh.com.au/business/retail/woolworths-committed-to-cutting-prices-in-battle-with-coles-aldi-20140905-10cqir.html [accessed 2014 December 14] 13 Attachment 1 14 Attachment 2 15 Introduction This report is based on a situational analysis of Woolworths Limited in the Australian retail industry. The report is prepared with a view of offering new goals and strategies to Woolworths Limited. The Australian retail industry is currently very competitive. Coles and ALDI offer great competition to Woolworths particularly in the grocery and food retailing (Langley, 2013). Woolworths opens new battlefront to secure cheaper drinking milk. There is a need for Woolworths to develop new goals and strategies to counter the growing competition and deliver value to its shareholders. The new goals and strategies are meant to enable the company deal effectively with competition and grow its revenue and market share in Australia. The report will use SWOT and Porters Five-Forces tools to perform a situational analysis on Woolworths. The SWOT analysis will identify the internal strengths and weaknesses that face Woolworths. The SWOT analysis will as well highlight the external threats facing Woolworths and the opportunities the company can exploit successfully. Porters Five-Forces analysis will detail the Australian retail industry attractiveness for the case of Woolworths. The situational analyses will be used to recommend new goals and strategies and clearly defined tactical plans for Woolworths. The report will comprise the following sections arranged in subheadings: situational analysis, Recommendations, Justification, tactical plans, and concluding remarks. 1 Woolworths current situation Woolworths limited is one of the two largest players in the Australian retail industry. It has its main interests in the retail industry[Woo133]. Woolworths and Coles supermarkets control a combined 72.5% of the retail industry in Australia (Mitchell, 2014). Woolworths is the largest retailer in Australia in terms of market capitalization (Langley, 2013). Currently, Woolworths serves more than 28 million people in Australia[Woo133]. Woolworths supermarket, the most popular of Woolworths businesses commits to “Always work hard to make our customers happy by providing them with nothing but the best of fresh food”[Woo12]. Woolworths’ current growth strategy as communicated on the mother-company’s website is built on four strategic priorities[Woo132]: 1. Extend and defend leadership in food and liquor 2. Act on our portfolio to maximize shareholder value 3. Maintain our track record of building new growth businesses 4. Put in place the enablers for a new era of growth 2 SWOT Analysis SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is used as a tool to analyze the strengths, weaknesses, opportunities and threats facing a business. These factors can be categorized into the internal and external environments of the business. Strengths and weaknesses relate to the internal environment of the businesses that includes factors like expertise, location, patents and more. Opportunities and threats relate to the external environment of the business that includes factors such as competition, economic performance, regulatory actions and more[Anj09]. For a business to develop an effective strategic plan, it has to scan its internal and external environment critically to identify the strengths and weaknesses within the organization and the opportunities and threats facing the business [Kei11]. (See Attachment 1 for Woolworths SWOT analysis) 2.1 Strengths Woolworths brand is very visible and easy to identify with around Australia due to the popularity achieved by the wide branch network. Woolworths has a diversified portfolio of products and solutions particularly in the retail industry[Woo133]. Woolworths has vertically integrated supply chains (Langley, 2013). Woolworths has long established contractual relationships with grocery and dairy suppliers across Australia (Mitchell, 2014). Woolworths has a pool of more than 198,300 employees with competence and expertise in various technical and managerial issues facing the company[Woo14]. 2.2 Weaknesses The diversified portfolio is expensive to maintain. A large organization with a multiple focus poses strategy dilemma and reduces organizational efficiency for Woolworths’ management. Woolworths’ products particularly foods and grocery items are considered as expensive. 2.3 Opportunities There are several opportunities available for exploitation by Woolworths as highlighted in this section. Woolworths can build on its strong brand and supply chain efficiency to avail cheaper private and house labels particularly in food and consumer goods sections. Woolworths can rely on synergy between its various businesses to achieve growth and beneficial relations within its portfolio. Woolworths should consider rolling out into other emerging markets in Asia and Africa. 2.4 Threats Competition Government Regulation (Knight, 2014) 3 Five competitive forces Five forces model developed by Michael porters is used to determine an industry’s long term attractiveness, rivalry, and threat of new entrants, bargaining power of suppliers and buyers and the threat of substitutes in the market. Porters’ five-forces is useful to management since it provides a long-term view of the market that is important in making strategic decisions[MPo]. For example, based on analysis result using Porters Five-Forces model, management may decide to divest or increase investment in a certain industry. (See attachment 2 for Porters Five-Forces analysis on woolworths) 3.1 Rivalry in the industry There is stiff competition in the Australian Retail industry. Woolworths’ Supermarket and fuel businesses face cutthroat competition from Coles and other retailers (Mitchell, 2014). 3.2 Threat of new entrants The threat of new entrants is not so high in the Australian Retail industry due to the huge capital outlay and other constraints. 3.3 Power of suppliers Strong farmers associations and tougher legislations have made grocery and dairy suppliers more powerful to dictate prices to some extent (Langley, 2013). 3.4 Power of buyers Buyers in the retail industry have various sellers to choose from. Subsequently, buyers can indirectly influence the price of commodities and quality of service to their benefit (Mitchell, 2014). 3.5 Threat of substitutes The threat of substitutes is very high, considering the level of competition in the Australian grocery and retail industries. 4 Recommendations New goals for Woolworths 4.1 Goal 1: Increase food and liquor sales by 5% The following strategies can be used to achieve goal 1 Increase advertising activities and budget to promote Woolworths’ commitment to fresh food and quality liquor. Use of discount in selected items to drive up sales for the rest Justification Woolworths needs to increase sales in these areas in order to counter growing competition from ALDI and Coles in other consumer goods. A 5% increase in sales will generate adequate revenue for expansion and shareholder dividends. Action plan Reduce delivery time for online orders of food and liquor by Woolworths’ customers Offer regular discounts for food and liquor at Woolworths’ stores to attract more shoppers 4.2 Goal 2: Increase Market share for grocery sales by 10% The following strategies can be used to achieve goal 2 Negotiate for better deals with large scale farmers to source grocery at a lower price and transfer the low-cost benefits to consumers in low commodities’ prices. Lower operational costs in grocery sections in order to offer products at competitive prices Justification ALDI and Coles offer the greatest competition to Woolworths on grocery items. If Woolworths can increase its market share in this section, it will have reduced its competitors’ threat substantially. Action plan Reduce prices for grocery items drastically to recover lost market share Deal with large scale farmers more in order to negotiate for better quantity discounts 4.3 Goal 3: Reduce operational expenses by 5% The following strategies can be used to achieve goal 3 Divest from loss-making entities and difficult partnerships Reduce the number of staff particularly in tasks where there is job replication Justification A complicated organizational structure with many employees and multiple activities may result in losses. Woolworths’ divisions may be costly to maintain and offer best practices in. it is logical to concentrate in where the management has adequate experience. Action plan Cut work-force by 10% to eliminate roles replication and non-essential staff. Divest from businesses that have posted negative income in the past two years. 4.4 Goal 4: Expand into emerging markets in the next one year The following strategies can be used to achieve goal 4 Conduct extensive market research in emerging markets to customize operations and competition model Buy into existing retailers to access strategic locations in malls and ideal streets. Action plan Open ten branches in southern Asia, Latin America and Africa Introduce private labels in price sensitive markets in Africa and Asia. 5 Conclusion From the Situational analysis, it is clear that Woolworths has several strengths it can rely on to exploit available opportunities. Woolworths’ management is adequately experienced in retail business. Such experience maybe used to manage vertical integration and offer value for money to consumers in form of affordable prices. Woolworths’ weaknesses such as high prices and complex organizational structure make it susceptible to threats such as competition and consumer indifference. The retail industry is still attractive considering the difficulty in market entry and presence of a few strong competitors. Woolworths is also in control of the supply chain to dictate prices and delivery terms. Woolworths can build on the attractive industry future and its strength in operations and stores network to increase market share through expansion, value addition and competitive pricing as highlighted in the report. The identified new goals and action plans will be crucial in helping Woolworths achieve its strategic objectives including growth in profitability and shareholder value. References Woo133: , (Woolworths, 2013), Woo12: , (Woolworths, 2012), Woo132: , (Woolworths, 2013), Anj09: , (Bohm, 2009), Kei11: , (Simerson, 2011), Woo14: , (Woolworths Limited, 2014), MPo: , (Porter, 2010), Attachment 1 Woolworths SWOT Analysis Strengths Woolworths brand is very visible and easy to identify with around Australia due to the popularity achieved by the wide branch network. Woolworths has a diversified portfolio of products and solutions particularly in the retail industry. Vertical integration particularly in grocery and food items businesses allows Woolworths to operate a more predictable system and minimize operational losses to increase profits. Woolworths has long established contractual relationships with grocery and dairy suppliers across Australia. Woolworths has a pool of more than 198,300 employees with competence and expertise in various technical and managerial areas. Weaknesses Woolworths incurs huge expenses in maintaining a large workforce. A large organization with a multiple focus poses strategy dilemma and reduces organizational efficiency for Woolworths’ management. Woolworths’ products particularly foods and grocery items are considered as expensive as compared to Coles and Aldi prices. Opportunities Woolworths can build on its strong brand and supply chain efficiency to avail cheaper private and house labels particularly in food and consumer goods sections. Woolworths can rely on synergy between its various businesses to achieve growth and beneficial relations within its portfolio. Woolworths should consider rolling out into other emerging markets in Asia and Africa. Threats The retail industry in Australia is very competitive currently with players such as Coles, Flemings, Safeway and ALDI making it very expensive to sustain operations in Australia. Frequent market involvement by the Australian government through ACCC . Attachment 2 Five competitive forces Five forces model developed by Michael porters is used to determine an industry’s long term attractiveness, rivalry, and threat of new entrants, bargaining power of suppliers and buyers and the threat of substitutes in the market. Porters’ five-forces is useful to management since it provides a long-term view of the market that is important in making strategic decisions. For example, based on analysis result using Porters Five-Forces model, management may decide to divest or increase investment in a certain industry. Rivalry in the industry There is stiff competition in the Australian Retail industry. Woolworths’ Supermarket and fuel businesses face cutthroat competition from Coles. Given this reality, retailers are expected to indulge into unhealthy competition practices such as controlling the supply chain to lock out other players. Price undercutting and expensive promotion strategies may also cost industry players greatly. Threat of new entrants The threat of new entrants is not so high in the Australian Retail industry due to the huge capital required to establish a strong stores network. Contractual terms also lock out establishment of new retailers in prime locations where players such as Woolworths or Coles are already operating. Major retailers such as Woolworths operate vertically integrated supply chains that lock out new entrants from essential supply of grocery and food items. Power of suppliers Woolworths and other players such as Coles have been accused of highhandedness when dealing with Farmers. This has necessitated the need for strong framers associations and tougher legislations. Both of these factors have made grocery and dairy suppliers more powerful to dictate prices to some extent. Other suppliers such as Petrol multinational and Mobile telephony services providers are equally powerful to dictate prices and relations. Power of buyers Buyers in the retail industry have various sellers to choose from. Subsequently, buyers can indirectly influence the price of commodities and quality of service to their benefit. This makes buyer power in the Australian retail sector to be very high. The government through ACCA eliminates monopolistic tendencies to protect consumers from price exploitation. Threat of substitutes The threat of substitutes is very high, considering the level of competition in the Australian grocery and retail industries. Coles services and product offering is almost similar to what Woolworths offers in terms of products features. Read More