Business Model and Feasibility Analysis of Woolworths Limited - Case Study Example

BUSINESS MODEL AND PLAN Name: College: Course: Tutor: Date: Business model and plan Executive Summary Woolworths Limited is a large retailer with operations in Australia and New Zealand. The company has enjoyed a substantial market share of about 30 % owing to its low price business model. However, the company had experienced dwindling sales in 2016. Prompting the management to undertaken a re-engineering of its strategy. After a feasibility study, various assessments were made regarding the viability of the business with some suggestions being provided for inclusion in its business plan going forward. For instance, the market feasibility study revealed that although the company has access to a 28.5 million strong market, it needed to be responsive to its changing want, by particularly addressing the increased health consciousness of customers and increased focus on healthier foods. The technical feasibility study indicated that while the company had embraced technology in the management of its internal processes, it needed to leverage emerging technologies such as social media, virtual reality and artificial intelligence. The human feasibility study revealed that the company invested in its employees to ensure their loyalty, while providing them with an inclusive and safe working environment. Finally, the financial feasibility revealed that while the company enjoyed robust financial health, it needed to continue with its divestiture and store refurbishment programs. Table of Contents Contents page Executive Summary 2 Contents page 3 4 Introduction 4 Business model canvas 4 Key partners 5 Key activities 5 Key resources 5 Value propositions 6 Cost structure 6 Revenue streams 7 Feasibility analysis 7 Market feasibility 7 Technical feasibility 8 Human feasibility 10 Financial feasibility 10 Conclusion 11 References 12 Appendix 1: The business canvas model for Woolworths Limited 14 Appendix 2: Profit and loss for Woolworths Limited for between 2014 and 2016 15 Introduction A business model of a company is generally an outline of the approach that a business entity would employ to make and maintain revenue inflows while guaranteeing present and future profitability. The business model also describes the architectural configuration of an organization that would underpin its operations and thus help the organization create value that would be attractive to customers (Morris, Schindehutte and Allen 2005). While Woolworths Limited, which is a diversified retailer in Australia, is a large corporation grossing 58.1 billion Australian dollars and with a longstanding history spanning 93 years, it has a relatively simple business model. Through its integrated competitive strategy that combines differentiation and cost leadership strategies, the company employs a low cost business model that targets the mass market with high quality consumer good at a low price (Zott and Amit 2010). The ensuing discussion focuses on the business model and plan of Woolworths Limited and starts by building the company’s business model canvas. Thereafter, a feasibility analysis involving market feasibility, technical feasibility, human feasibility, and financial feasibility is undertaken. In each of these segments, the business plan of the company is incorporated. Business model canvas A business model canvas describes the value proposition, finances, customers and the infrastructure of a firm or the product and thus documents the existing business model of a given business enterprise. Specifically, according to Osterwalder and Pigneur (2010), a business model canvas addresses 9 building blocks, which include the key partners, the key activities, the key resources, the value propositions, the customer relationships, the customer segments, the channels, the cost structure and the revenue streams of a business enterprise, in this case, of Woolworths Limited. Each of the nine aspects of the business model of Woolworths Limited is described as follows. Key partners The key partners of Woolworths Limited include farmers and manufactures of consumer goods, who are the suppliers to the retailer. Some of these partners include Vodafone, Turi Foods, British American Tobacco, Brita Waters, Caltex and Baiada Poultry among others (Alam and Majumdar 2011). In addition, the key resources acquired from the partners include consumer goods and fresh farm produce that are delivered to various warehouses and outlets of the firm. Further, the key activities performed by the partners are receiving and processing the orders from Woolworths Limited and delivering the orders to the outlets of the firm. Key activities The key activities required by the value propositions presented by Woolworths Limited include an elaborate and extensive supply chain in which commodities are delivered from the suppliers to stores and warehouses. In addition, the company engages in warehousing to hold its inventory. The company also engages in laying out merchandises in stores to enable customers make choices and subsequent purchases. To this end, the distribution channels of the firm include brick-and-mortar stores and online stores as well, which help avail the products to customers (George and Bock 2011). Key resources The key resources required by the value propositions presented by Woolworths Limited include human, physical, financial and intellectual resources. The human resources include an over 200,000-strong workforce engaged in Australia and New Zealand (Woolworths Limited 2017). In addition, the firm has 3,827 stores as its physical resources and intellectual resources in form of branded products. The company also has vast financial resources obtained from the sale of merchandises stocked at its outlets. From these sale transactions, the company was able to gross 58.1 billion dollars in 2016 (Woolworths Limited 2017). Value propositions The company promises to increase customer value by delivering competitive prices that are low, providing a wide range of high quality consumer products consistently, providing a better shipping experience (Woolworths Limited 2017). In addition, the company also endeavors to establish close and cordial customer relations through providing personal assistance to customers during shopping, providing automated checkout counters, and providing an online shopping portal. In addition, the company targets the mass market with its offerings, and particularly those who are interested in making bargain purchases. The company has also differentiated its stores to satisfy the wants of diversified customer segments. In this case, it has supermarkets to avail consumer goods and fresh foods, and has partnered with Caltex to avail petrol to clients. Cost structure Woolworths Limited engages a cost driven business model in which it creates and maintains a lean cost structure. Specifically, the company employs a low price value proposition strategy by being a budget retail outlet (Zott, Amit and Massa, 2011). The firm also outsources extensively particularly in the commodities it retails by dealing with commodity manufacturers rather than manufacturing the products it retails itself. Revenue streams The revenues streams of the company consist of the transactional revenues obtained from one-time purchases by customers who visit the various configurations of the company’s outlets be they the brick-and-mortar stores and the online outlet managed by the company as well. Feasibility analysis A feasibility analysis is a study performed on an organization or a project, to assess and evaluate its practicality viability, the likely positive and negative outcomes and the probability of being profitable on the short term and long term (Schaper, Volery, Weber and Gibson 2014). In this case, market, technical, human and financial feasibilities are performed. Market feasibility A market feasibility study is an investigation of the market in which an organization operates in with a view of describing the industry of operation, the size of the market, the segmentation of the market, the preferences of the market, the competition and the market potential among other market related aspects. Overall, the Australian and New Zealander market is considered mature and highly competitive due to the large number of large retailers operating in the marketplace (Frederick, Kuratko and Hodgetts 2007). Woolworths Limited operates in Australia and New Zealand, which has a total population of about 28.5 million, thus providing it with a large market in which it can employ its mass market targeting strategy. Currently, the population of the two countries is aging with the age of those aged over 65 years being projected to grow by 25 % by the year 2051 (Gordine-Wright 2017). This has an implication on the choice of products as exhibited in the customer preference trends, which indicate an increasing popularity of organic foods and other foods considered healthy and nutritious. For this reason, Woolworths has broadened its fresh fruits and vegetable offerings as a response to the changing customer preferences. It provides free fruits to children who accompany shoppers to instill healthy eating habits early, as part of its corporate social responsibility. In addition, the segment of the market that is aged 85 years and over has been touted to have the fastest growth rate, and is expected to increase four-fold by the year 2051, reaching 5 % of the population (Gordine-Wright 2017). The company will have to respond increasingly to the demands of the senior segment of the market such as low fat foods, low salt foods, easy to cook foods and foods that are free from genetic modification. However, the current dynamics of this market and the retail industry are such that the firm has to contend with vicious competition from over 30 other large retailers, both local and international. The main competitors of Woolworths Limited include Wesfarmers Limited, Wal-mart Stores, Inc., Costco Wholesale Corporation, and the Kroger Company among others (Woolworths Limited 2017). With this kind of competition, Woolworths Limited would gain competitive advantage apart from its robust brand, if it were to leverage technologies such as virtual reality, robotics, social media, and artificial intelligence, if it were to engage in flash sales and subscription services, and if it would fulfill the needs of on-demand customers, which were the emerging trends in retailing in Australia and new Zealand and in the world as well. Technical feasibility Technical feasibility is a study that evaluates the materials, labor and technology possessed by a company that aims at facilitating its operations. Specifically, the company has an elaborate distribution network characterized by warehouses, distribution centers and a fleet of trucks to ensure that the inbound and outbound logistics is efficient and its supply chain is flawless (Street and Cameron 2007). In this case, the inbound logistics ensure that the firm can leverage its ability to procure consumer goods in bulk because it is able to negotiate for discounts with the producers and manufacturers, thus reducing the cost price of the commodities. This saving in cost is transferred to customers as a benefit in form of low shelf prices of commodities. The firm has also enhanced it technical capacity through a series of mergers and acquisitions. However, this is regulated by the Trade Practices Act and is monitored closely by the Australian Competition and Consumer Commission (Fels 2009). The company has also adopted various technologies to improve its internal processes. Notably, the company enjoys a first mover’s advantage due to its early adoption of technology in many of its process ahead of its competitors. Specifically, Woolworths Limited subscribed to Global Electronic Marketing and Merchandising Network (GEMMnet) back in 1994 and thereafter undertook to use technology to improve its distribution and supply chain system, which have helped it sustain it low price business model. In addition, it has developed a company website on which electronic commerce can be performed, thus providing its customers with a personalized and convenient shopping experience. For online shopping, the company introduced a credit card dubbed ‘everyday money’ in collaboration with MasterCard and HSBC to ease the payment process. However, as recent as 2016, Woolworths Limited was experiencing challenges with its enterprise resource planning (ERP) system, and replaced it with a new ERP that introduced upgraded radio frequency (RF) guns for monitoring the inventory, a new payroll system, and a new point-of-sales system that was anchored on Retalix software by NCR. These changes were expected to improve the end-to-end view of the company’s supply chain, reduce operational costs and thus, increase profits (Malhotra and Temponi 2010). Human feasibility Woolworths Limited has a large workforce comprising of over 200,000 employees. In order to secure their loyalty, the company has created a working environment characterized by inclusivity and a reward system. Specifically, the company employs a free opportunity hiring policy in which ethnic, age, and cultural diversity, and gender parity is encouraged. To this end, the company has implemented initiatives such as Jawun Indigenous Community Secondment Program, Supply Nation and Employment Parity Initiative. While the company has made major advancements in having gender parity in its board of directors, and having about 40 % of the managerial positions being held by women, gaps still exist in wages and salaries. To eradicate the gender pay gap, the company has undertaken a gender equity salary review aimed at inform on the pay disparities that exist, which can then be addressed by the remuneration strategies developed by the management. In addition, Woolworths Limited undertakes professional development of its employees continuously to improve their service delivery abilities and facilitate career progression (Haber and Reichel 2007). Specifically, the company undertakes nutritional education for its employees through the Woolworths Nutrition Academy and Woolworths Support Office. To help employees manage stress, the company introduced an employee assistance program, which is ran by Convergence Australia and provides confidential counseling services. Moreover, to ensure employee loyalty and reduce employee turnover, the company provides its employees with an opportunity to invest in the stocks of the company through an employee stock purchase plan whereby the money for buying these stock is deducted from the employee salary. Financial feasibility Woolworths Limited has sound financial health although its sales dipped from 2015 to 2016 by 1.2 %. This reduction of revenues caused the board of directors at the company to reduce the dividend paid out to shareholders by 54.2 %. Therefore, the company had increased its focus on the food and drinks business, which were core, and undertaken the restructuring of various business units through divestitures and restructuring in order to offload those that had registered poor financial performance. For instance, the company had separated EziBuy and BIGW while considering the offloading of EziBuy. In addition, the company was planning to divest from Home Improvement. This is an indication that the company was rethinking its diversification strategy and operating model. In addition, the firm has frozen the opening of new stores and concentrated on refurbishing existing ones to improve the customer experience in those stores and drive sales upwards. Therefore, Woolworths Limited has undertaken the Store Renewal program for this purpose. These initiatives are meant to cut on operation costs of the company and thus deliver improved financial performance in the short and long term (Coleman 2007). Conclusion The company has core competencies that provide it with competitive advantage in the retail industry and market in which operates. These include an impressive supply chain, innovation, vertical integration and a well-differentiated brand and market niche. Although the sales of the company dipped in 2016, its future outlook of positive courtesy of its financial robustness and strategic management approaches that are sensitive to the changing needs, wants and preferences of the Australian and New Zealand customers and the dynamics in the retail market. From the feasibility analysis undertaken, the low cost business model coupled with leveraging of emerging technologies should help Woolworths Limited gain and maintain the sustainable competitive advantage over its rivals that it seeks. References Alam, Q. and Majumdar, N. A. 2011. Woolworths Limited: Retail leader in Australia. Cases in business and management. 2nd ed.: Tilde University Press, Victoria, Australia. Coleman, S., 2007. The role of human and financial capital in the profitability and growth of women‐owned small firms. Journal of Small Business Management, 45(3), pp.303-319. Fels, A., 2009. The regulation of retailing–lessons for developing countries. Asia Pacific Business Review, 15(1), pp.13-27. Frederick, H.H., Kuratko, D.F. and Hodgetts, R.M., 2007. Entrepreneurship: Theory, process, practice. Nelson Australia. George, G. and Bock, A. J., 2011. The business model in practice and its implications for entrepreneurship research. Entrepreneurship theory and practice, 35(1), pp.83-111. Gordine-Wright, C., 2017. 2017 set to be ‘fascinating’ year for Australian retail. Deloitte. Viewed 10 May 2017 from https://www2.deloitte.com/au/en/pages/media-releases/articles/2017-set-to-be-fascinating-year-for-australian-retail-240117.html. Haber, S. and Reichel, A., 2007. The cumulative nature of the entrepreneurial process: The contribution of human capital, planning and environment resources to small venture performance. Journal of Business Venturing, 22(1), pp.119-145. Malhotra, R. and Temponi, C., 2010. Critical decisions for ERP integration: Small business issues. International Journal of Information Management, 30(1), pp.28-37. Morris, M., Schindehutte, M. and Allen, J., 2005. The entrepreneur's business model: toward a unified perspective. Journal of Business Research, 58(6), pp.726-735. Osterwalder, A. and Pigneur, Y., 2010. Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons. Schaper, M.T., Volery, T., Weber, P.C. and Gibson, B., 2014. Entrepreneurship and small business. John Wiley & Sons Australia. Street, C.T. and Cameron, A.F., 2007. External relationships and the small business: A review of small business alliance and network research. Journal of Small Business Management, 45(2), pp.239-266. Woolworths Limited 2017. 2016 Annual Report. Woolworths Limited. Zott, C. and Amit, R., 2010. Business model design: an activity system perspective. Long Range Planning, 43(2), pp.216-226. Zott, C., Amit, R. and Massa, L., 2011. The business model: recent developments and future research. Journal of Management, 37(4), pp.1019-1042. Appendix Appendix 1: The business canvas model for Woolworths Limited Key partners Fresh food farmers Manufacturers of consumer goods Key activities Elaborate and efficient supply chain Warehousing of inventory Value propositions Delivering low competitive prices Providing consistently high quality products Providing a wide range of products Provide a better shopping experience to customers in all brands found at the outlets Customer relationships Personal assistance to customers Self-service checkouts at supermarkets and other retail outlets Online services for online shoppers Customer segments Mass market interested in bargain purchases Diversified customer segments served by different business units (general groceries, petrol fuel, and fresh foods) Key resources Human resources comprising of over 200,000 employees Physical resources such as physical stores Financial resources from robust sales Intellectual resources from proprietary brands and management practices Channels Brick-and-mortar stores (supermarkets, grocery stores) Online Cost structure Cost driven business model that focuses on minimizing costs Lean cost structure characterized by low price value propositions, extensive outsourcing and maximum automation Revenue streams Transactional revenues obtained from one time purchases by customers Appendix 2: Profit and loss for Woolworths Limited for between 2014 and 2016 Item 2016 2015 2014 Sales ($m) 58.1 58.8 50.8 Cost of goods ($m) 42.4 42.6 44.3 Gross profit ($) 15.6 16.2 16.4 Gross profit margin (%) 26.9 27.6 27.1 Selling, general and administration expenses ($) 20018.2 9316.2 9807.4 Net profit (loss) after tax ($) (2,347.9) 2,137.4 2,458.4 Read More