Business Strategy in a Global Environment: Woolworths Supermarkets - Case Study Example

Business Strategy in a Global Environment Table of Contents 1.0 Background 2 2.0 Strategy development 3 3.0 External environment analysis 6 3.1 PESTEL Framework 6 3.1.1 Political/legal analysis 6 3.1.2 Economic analysis 6 3.1.3 Social analysis 7 3.1.4 Technological analysis 7 3.1.5 Environmental analysis 7 3.2 Porter’s 5 Forces Network 8 3.2.1 Threat of new entrants 8 3.2.2 Power of buyers 8 3.2.3 Power of suppliers 9 3.2.4 Degree of rivalry 9 3.2.5 Threat of substitute 9 3.3 Strategic group analysis 10 3.4 Internal environment analysis: SWOT analysis 10 3.4.1 Strengths 10 3.4.2 Weaknesses 11 3.4.3 Opportunities 11 3.4.4 Threats 12 3.5 SWOT matrix 12 4.0 Conclusion 13 5.0 References 14 1.0 Background Woolworth’s supermarket, owned by Woolworths Limited is the largest supermarket chain in Australia in terms of market share (Datamonitor, 2007). Woolworths limited began its operation in December, 1924. The business started as a single basement store called the Woolworths Stupendous Bargain Basement, opened in the old Imperial Arcade in Pitt Street, Sydney. Currently, the Woolworth limited has approximately 2,330 supermarkets stores which serve over 13 million clients each week nationally (Global Data, 2011). Woolworth’s supermarket is a chain that deals with different consumer products which vary from fresh food stuffs including grocery, fresh foods, and general merchandise targeting all the Australian populations. 2.0 Strategy development In order to achieve its mission, Woolworth’s supermarkets have incorporated strategy development in its operations. In 2008, Woolworths Limited launched a novel identity for all its supermarkets and replaced the Safeway brand in Victoria with an aim of uniting all its supermarkets under one brand name’ Woolworths’ (Ari, 2008). The novel brand image contained a green tinted icon standing for ‘W’ in Woolworths with a stylized leaf suggesting fresh produce. Woolworhs supermarkets slogan ‘The Fresh Food People’ is acknowledged all over Australia and it is the main part of the novel logo. These modifications were introduced by the company with an aim of distancing itself further form its major competitors, including Coles Supermarkets, and to make its brand softer, more contemporary, and likeable (Ari, 2008). The Fresh Food people strategy integrates more than merely the guarantee of the best and largest assortment of fresh foods. Woolworths enthusiastically believes that the success of the company is solely dependent on the people. A campaign launched in the year 2006 was meant to demonstrate the company’s passion for and knowledge of fresh foods provided to the customers. Every ad showed the employees working as a team, conversing about the quality produce, creating meal solutions and also, pointing out the value which individuals may enjoy after purchasing Woolworths products (Ari, 2008). The campaign launch was extended to various advertising mediums including Radio, Television, catalogues, in-store, press, and online work. In February 2010, Woolworths developed Safety and Health strategy. The company believes that it is their responsibility to protect the welfare and health of their staffs, clients, visitors, contractors and the community in general (Woolworths Supermarkets, 2011). Safety is the main feature of the company’s business and strengthens the operational activities. The four main strategic imperatives contained in the strategy include safety communication, safety leadership, recruitment and induction, and non-trading area standards (Woolworths Supermarkets, 2011). Furthermore, Woolworth’s supermarkets have implemented an education program referred to as ‘Keeping Safety Fresh’ which centers on highlighting main risk areas within the supermarkets (Woolworths Supermarkets, 2011). In 2007, Woolworths Supermarkets held a National Drought Action Day with the intention of assisting the rural Australians who were affected by drought (Woolworths 2007). The initiative, which received great support from Australian nationalities, raised more than $4.7 million that was distributed among the rural Australians by the Country Women Association (CWA) (Woolworths, 2007). Woolworth’s supermarkets persist to promote eating healthy foods in its various supermarket stores, in magazines and on its website. The company’s website includes such information as: produce in season, healthy eating advice and healthy recipes. Furthermore, a section on ‘Supermarket Safari’ can be used by teachers and parents to educate their children regarding nutrition. In the year 2005, the company instigated its ‘select’ array of quality private products (Woolworths, 2007). Woolworth’s supermarkets obtain its products from suppliers who are deemed to be specialists in order to offer a wide assortment to its customers at great prices. All the products sold are of high taste and quality which makes such products to be more competitive in the market. Woolworth’s supermarkets unique silver packaging is also proving to be very popular to the clienteles (Woolworths, 2007). Woolworth’s supermarkets also invest greatly on training its staffs. The company invests millions of dollars each year in training programs aimed at cultivating talent and developing employees’ skills and also as a way of motivation (Woolworths Supermarkets, 2011). Every year, more than 100, 000 supermarket employees participate in training programs (Woolworths Supermarkets, 2011). The company believes that, motivating employees through training is a way of improving performance and also it assist in boosting employee-customer relationships. In the larger community, Woolworth’s supermarkets support numerous charities and events. Moreover, the company assists in the annual ‘Fresh Future’ Children’s Hospital Appeal which contributes funds to assist children’s hospitals across Australia. Furthermore, the company works hand in hand with Fred Hollows Foundation which teaches communities the necessary skills to run retail stores and stock nutritious and fresh foods. The supermarkets uses advertising/promotion, branding, market innovation, quality product and reduced prices strategies to become competitive in the industry and these are some of the strengths which have made the company become the first chain supermarket in Australia (Woolworths Ltd, 2006). All these are strategies to attract and retain customers. 3.0 External environment analysis 3.1 PESTEL Framework A pestle analysis is simply a framework that classifies environmental influences as political, economical, social, technological, legal and environmental (David, 2010). The analysis scrutinizes the effects of these factors and their relationship with each other on an industry. 3.1.1 Political/legal analysis Countries have different legislations that sway the operations of businesses. Such legislations either restrict or offer opportunity to such companies. Woolworth’s supermarkets deal with a range of consumer products including fresh foods, and groceries. As a result, the company has to comply with a number of regulations in Australia linked with sale, packaging and labeling of foodstuffs. These legislations encompass Food Works Labeling Edition and FSANZ Food Standards Code. Woolworths must also abide by various set environmental laws including safe disposal. The company may also suffer from political uncertainties which may lead to economic instability. 3.1.2 Economic analysis Australia has a stable macroeconomic environment which has guaranteed an upward growth of Woolworths Supermarkets since establishment. This includes general economic stability, stable currencies, low interest rates, and global competitiveness which have formed the foundation for the company’s growth. However, a depressed economy may affect Woolworth’s supermarkets greatly as it may be forced to change its strategies and this may affect it success. 3.1.3 Social analysis Woolworth’s supermarkets sell a range of products suitable to persons of all ages and gender. These products which include fresh foods and groceries are a requirement for the survival of human beings (Woolworths Supermarkets, 2011). All the products sold are of high taste and quality which makes such products to be more competitive in the market. Woolworth’s supermarkets unique silver packaging is also proving to be very popular to the clienteles (Flanagan and Sanderson, 2000). Through different mediums, the company is able to reach its target market which includes persons of all ages, gender, and low and high income earners. 3.1.4 Technological analysis Woolworth’s supermarkets have to keep up to date with the rapid technological growth if it has to remain competitive in the market. Such technologies as customer serving computers are very essential in order to ensure that quick service is offered to customers. Integration of IT in business operations has assisted the company greatly in its shopping and marketing activities (Flanagan and Sanderson, 2000). Online presence such as the use of internet has also contributed greatly to the success of Woolworths supermarkets. 3.1.5 Environmental analysis Woolworth’s supermarkets can be deemed to be environmental friendly, a factor which has contributed to the success of the firm. For instance, its parent company, Woolworths limited has embarked on a diversity of initiatives aimed at addressing waste management energy consumption, packaging and hazard management. The company is aggressively pursuing the mitigation of the use of plastic bags and instead, advocating for the use of reusable green bags (Flanagan and Sanderson, 2000). Moreover, the company introduced a program to collect its supermarkets organic wastes which are processed to generate green energy (Flanagan and Sanderson, 2000). Woolworths’ Norwest support office was established to integrate recycling programs and energy effective systems. 3.2 Porter’s 5 Forces Network The porters’ five forces are used to analyze a company’s competitive structure. Studies have revealed that, the likelihood of a firm becoming profitable partly depends on these factors (Porter, 2008). 3.2.1 Threat of new entrants The threat of new entrants in the supermarket industry is very high. This is evidenced by the fact that in though the costs of establishment are high, low level of brand loyalty, low government regulations and high supplier power will allow persons to come up with their own supermarkets. Woolworth supermarket has long enjoyed the economies of scale as a dominant player (Flanagan and Sanderson, 2000), with a lot of access to distribution channels such as a good relationship with suppliers. For this reason, entrant of new business will pose low risk to the company. 3.2.2 Power of buyers The bargaining power of buyers is very low in the supermarket industry. This is evidenced by the fact that there are many buyers and all of them are very significant to the company. Furthermore, it is hard for customers to switch to other supermarkets as quality and prices of goods in supermarkets are almost the same. Woolworth’s supermarkets make certain that its branded products are distinctive and of high quality, a strategy aimed at attracting and retaining customers. 3.2.3 Power of suppliers Usually, the bargaining power of suppliers is affected by switching costs, supplier concentration and size, and uniqueness of resources supplied. In the supermarket industry, the bargaining power of suppliers is low. This is evidence by the fact that there are a wide range of suppliers thus, the Woolworths supermarkets can switch from one supplier to the other. Furthermore, the switching costs are very low are there is no probability of the suppliers threading to purchase the company. 3.2.4 Degree of rivalry In the supermarket industry, it is evident that there is high competition between operating firms. In Australia, there are a number of supermarkets which competes aggressively with each other making it difficult for them to make high profits. As a result, Woolworth’s supermarkets have to come up with effective strategies in order to remain competitive in the market and also maintain its market share (Woolworths Supermarkets, 2011). 3.2.5 Threat of substitute It is apparent that maintainable competitive advantage is the key to success for any company. The emergence of a substitute product to the market threatens the company in that it significantly lessens the competitive advantage of that firm (Porter, 2008). It is true that, firms in the supermarket industry sell also the same products. Nevertheless, the quality of the company’s branded products is different and there may exist possibility of substitution. For this reason, Woolworth’s supermarkets make certain that their branded products are of high quality and well priced to reduce the risk of substitution. 3.3 Strategic group analysis Strategic groups are concepts used for grouping firms within a certain sector with similar business models (Hodgkinson, 1997). Strategic groups in the retailing supermarket industry comprise of expediency stores, developing convenience retail stores, marginal channels and supermarkets and superstores. Woolworth’s supermarkets fall under the forth group. These groups, sells almost the same product and this increases competition in the supermarket industry. 3.4 Internal environment analysis: SWOT analysis Internal analysis encompasses the evaluation of the strengths, weaknesses, opportunities and threats of a company. This assists in formulating strategies to overcome such weaknesses and threats and also focus on the strengths and the available opportunities to accelerate the growth of the firms (Hill et al., 2004). This analysis to the Woolworth will be of great help to its strategic management process. This is because it will help the company implement the strategies that it possesses which are hard to be imitated by other competitors as well as improve its weaknesses so as to maintain its competitive industry. 3.4.1 Strengths Woolworths Supermarkets have a very strong financial position. Furthermore, it has achieved an impressive financial performance over the last few years accompanied by continued growth in sales of its products. Moreover, its operating costs have also been reducing. Studies have shown that in the last past five years, Woolworth’s supermarkets have had a revenue growth of about 7.95 per cent (Woolworths, 2006). It was indicated that this revenue growth was comparatively higher than that of its rivals including Cole supermarkets. This indicated the capability of Woolworths to generate cash flows. This is a strength that has helped Woolworths maintain their strong position in the retailing industry. Furthermore, the recognition of the Woolworths brand name is also their strength in the Australian retailing industry. Woolworths was ranked first in the Australia retail industry in responding to its customers’ needs innovatively (Woolworths, 2007). In addition the company’s competencies are among its key strengths. They include the capabilities as well as resources which usually serve as the company’s source of competitive advantage over its rivals in the retailing industry which include efficient staffs (Hanson et al., 2005). 3.4.2 Weaknesses One of the weaknesses faced by Woolworth’s supermarkets is its limited geographical presence. It is apparent that the supermarkets are found in Australia and New Zealand only. As a result, the company may face major competition from other companies such as Wal-Mart which operates in a number of countries including United Kingdom, United States and Canada amongst others. Any modification in the Australian and New Zealand supermarket industry may greatly affect the company’s market share. Furthermore, Woolworth’s supermarkets face leadership challenges and this is a major weakness for the company. 3.4.3 Opportunities The growth of Woolworth’s supermarkets in the past years in terms of markets share implies that its 40 percent market share has high expectations of growing in future. Furthermore, the firms strategic development over the past few years that Woolworths has the vision and potential for growth (Woolworths, 2007). Moreover, the increased range of supermarket stores means that, the company has the capacity to expand its premises which in turn will increase the level of profitability. In 2009, Woolworth’s supermarkets bought Highett Shopping Centre development site in Highett, which is a major symbol of growth for the company (Pallisco, 2009). The rapid technological growth may also offer Woolworths supermarkets an opportunity for growth, become more innovative, and in serving its customers better. 3.4.4 Threats Evidently, Woolworth’s supermarkets faces high competition from other supermarkets stores in Australia including Coles Supermarkets, one of its greatest rival, David Holdings, Franklins, and QIW (Woolworths, 2007). Moreover, the rapid technological growth in the modern society implies that Woolworths has to keep up-to date if it has to remain competitive in the industry and also maintain its market share. This is due to the fact that, the current international market is characterized by innovations and consumers prefer latest technologies. 3.5 SWOT matrix Strengths Avery strong financial position Revenue growth compared to that of the competitors recognition of the Woolworths brand name Weaknesses limited geographical presence leadership challenges Opportunities growth in the company’s market share implies the possibilities of future growth the rapid technological growth may offer an opportunity for innovations and customer satisfaction Threats high competition from others supermarkets stores in Australia The rapid growth in technology means that the company has to keep up with the latest technologies. 4.0 Conclusion The growth and success of Woolworths Supermarkets since establishment means that the company has formulated effective strategies to assist in this. Furthermore, the supermarket industry has also proven to be favourable for the company, with buyer and supplier power thus the company can influence and control the market in order to improve its profitability. Furthermore, the external environment has also proven favourable for Woolworth’s supermarkets, with stable political and economic policies, and favourable legal requirements. The company’s strengths coupled with its environmental friendly’s actions have outdone its weaknesses and threats and that why it has resulted to be the largest supermarket in Australia in terms of market share. 5.0 References Ari, S., 2008. Woolies shelves Safeway brand. The Age, Melbourne. http://www.theage.com.au/national/woolies-shelves-safeway-brand-20080820-3ywj.html. [Accessed November 14, 2011]. Datamonitor, 2007. Company Profile, Woolworths Limited, http://web.ebscohost.com.ezproxy.lib.monash.edu.au/ehost/pdf?vid=17&hid=102&sid=5260edbf-16b0-46d4-a1bc-974f7f0264e9%40sessionmgr106. [Accessed November 14, 2011]. David, R., 2010. Strategic management: concepts and cases. Upper Saddle River: Pearson Prentice-Hall. Flanagan, B. and Sanderson, B., 2000. Woolies’ independent thrust, Retail World, Vol.50, p.5. Global Data, 2011. Woolworths Limited (WOW) - Financial and Strategic SWOT Analysis Review. Hill, C.W.L., Jones, G.R.and Galvin, P., 2004. Strategic management: an integrated approach, Milton, Queensland: John Wiley & Sons. Hodgkinson, G.P. 1997. The Cognitive Analysis of Competitive Structures: A Review and Critique: Human Relations, vol.50 no.6, 625-654. Marc Pallisco, 2009. Woolworths Buys Prominent Suburban Retail Development Site, http://www.realestatesource.com.au/woolworths-buys-prominent-suburban-retail-development-site.html [Accessed November 14, 2011]. Porter, M. E. 2008. The Five Competitive Forces that Shape Strategy, Harvard Business Review, 86-104. Woolworths, 2007. http://www.woolworths.com.au/ [Accessed November 14, 2011]. Woolworth's Limited, Our Story. http://www.woolworths.com.au/wps/wcm/connect/website/woolworths/about-us/our-story/01our+story. [Accessed November 15, 2011]. Woolworths Ltd, 2006. Woolworths Item Sales Ranking Reports, Queensland. Woolworths Supermarkets, 2011. Culture and Strategy, http://www.woolworths.com.au/wps/wcm/connect/Website/Woolworths/About+Us/Our+People/Culture+and+Strategy/ [Accessed November 14, 2011]. Read More