Domination of Coles and Woolworths in the Australian Economy - Essay Example

Domination of Coles and Woolworths in the Australian economy Contents Introduction Part I: Domination of Coles andWoolworths in the Australian economy Part II: Competition is good for Australian consumers  Conclusion Introduction Australian supermarket industry In the Australian industry, Coles and Woolworths are both companies that have duopolistic characteristics.Both these companies have a huge magnitude in terms of the market power within the Australian economy.A duopoly is a situation in a market whereby two companies has complete control in all the business activity within that particular market structure (Kumar & Sharma 1998).This scenario typically occurs when barriers are present which limit entry of other firms into that particular industry dominated by these enterprises.Within this market structure, several factors enhance the survival of these companies. Factors such as regulatory policies imposed by the government, significant economies of scale and also the barriers to entry.Production from such companies is mainly done with complete disregard of the consumer due to their dominance in the market share of the industry.Their business operations are done mainly with a self-interest purpose. Regulation policies such as patent laws enable investors within this market structure to secure exclusivity rights for the production of goods for a particular period.Barriers such as licensing restriction discourage new companies from conducting business operations within a particular geographic area already controlled by the companies (Hardy 1978). .Part I: Domination of Coles and Woolworths in the Australian economy One major characteristic of this market dominated by these two firms is that this structure enables them to control the supply of products from the producers. Also, lack of significant competition from other businesses has led to these two companies copying and adapting the other companies’ techniques in production and marketing.This has resulted in a decline in innovation as they both have so much market power that quality production does not matter especially since the products are necessities needed by consumers.Market power has led to abnormal profit margins generated from their business operations. In the venture of gaining massive profits, the companies have initiated price discrimination strategies whereby when several consumers highly demand a commodity, these companies can hike the prices especially when the consumers are high-income earners.These companies are the set the standards in terms of price used within the market (Motta 2004). Both West farmers also known as Coles and Woolworths have dominated the supermarket industry in Australia.These companies have experienced substantial growth over the last four decades.Their combined market share has double to a combined market share of over 70 percent of the whole country’s supermarket sector.The profit margins of Coles and Woolworths have also increased to over 40 and 24 percent respectively.An increase in growth remains a significant possibility for these two conglomerates. Due to their significant market power, they can determine the prices, entry barriers and establishment of expectation within the grocery sector.This factor puts pressure on the rest of other areas involved in the food chain in Australia.Farmers have become more vulnerable due to these restrictions and policies imposed by these two conglomerates. Market power refers to an abnormal advantage in terms of influence over the terms of trade within a market sector.A typical increase in market share by the retailers enables them to secure their position within the food supply chains.Consolidation is through control during expansion in production and also the processing and distribution sectors. Coles and Woolworth customers have experienced numerous advantages from the development of these two chains.Food security has increased within the Australian economy as a result. In hindsight, Coles and Woolworths have generated significant economic wealth in Australia.These conglomerates combined, have led to the creation of around 300,000 Australians.Due to the availability of a broad range of products, these two chains have been able to meet the preferences of the customers (Perloff, Karp & Golan 2007).Their magnitude in terms of their purchase operations has enabled them to dictate low-cost terms with producers when obtaining products.Short term food security provided by Coles and Woolworths is important to the public. Prices of their products have also decreased significantly over the last three years.These strategies applied by both conglomerates have led to the availability of a broad range of products for the customers to purchase. Woolworths and Coles are huge conglomerates within the grocery and supermarket sectors within Australia.Woolworths holds a diversified portfolio that contains brands of retail establishments that range from groceries, hardware, liquor and general discount retail.Coles is much huger as its operations extend into issues of insurance on products, the mining of coal and industrial safety. Wars in pricing of products between competitors have facilitated the steady increase in grocery operations of these two companies.This has attracted some customers.Diversification into several sectors has enabled them to be protected against small food price pressures that are faced by independent and small grocers. The limited number of retailers in the market has led to the increase in the dependency of suppliers to these two companies in order to reach the final consumers.This dependency issue has discouraged and restricted farmers and producers the power in negotiating suitable contract terms.Negative competitive practices have been widespread within these supermarkets (Veron 2011). Privately labelled goods that have been proliferated are now being introduced on supermarket shelves at an alarming rate.Under strict production demands from particular suppliers, Coles and Woolworths have begun the expedition of introducing these home brand items.Not only are these products being produced in vast quantities but also sold at the cheapest affordable price and thus ends up controlling the shelf spaces.Home branded items are affordable than branded products that have consequently led to the lack of exposure to these independently branded products due to their high costs.Consumers will likely purchase these home branded items because they are cheap.Within these two supermarkets, the separately branded products have diminished in terms of their value and their longevity on the shelves of Coles and Woolworths.The two companies further responded to criticism concerning this issue by stating that if customers were unhappy with the range of products being displayed on the shelves, the final decision is theirs to make and they can shop somewhere else.However, this choice is not available to all consumers as some don’t have the income to afford the price ranges on other supermarkets.Home branding has diminished the aspects of competition and diversity within the system of domestic foods which ultimately has led to the vulnerability of small independent branded products to fade slowly away into oblivion due to these home brands. Regulations and standards imposed on produce by these supermarkets have a huge impact on the dynamics of the food system.Retailers have determined all the aspects of the production process that have been integrated to accommodate the needs of a wider consumer market.Standardisation of food leads to the development of an increase in pressure on farmers to provide a product that is ideal.Due to the significance of Woolworths and Coles in terms of customer access, several suppliers are forced to comply with these regulations and demands.Standardisation policies further cripple suppliers with production processes that require intensive capital investment.For small scale providers who have just begun production, significant costs on packaging become a problem as they lack an established economies of scale. High instances of food wastage occur when these items produced by the suppliers fail to meet the specifications and standards set by Woolworths and Coles.This has led to a significant decrease in food security in Australia (Smith Page 13). Challenges such as climate change and high levels of debt have portended a catastrophic future for the financial security of most agricultural businesses in Australia.Practices applied by Coles and Woolworths in food market have only led to further pressure being placed on suppliers while they continue suffering decreases in their profit margins.Suppliers have also been forced to reduce their expenditure in their daily operation due to the demands in quality production fromWoolsworth and Coles.Measures taken by providers include the development of techniques that provide quality products but at low costs, and also cutting the wages of their employees is another test that has been used.These rules may be applicable to some suppliers with established economies of scale, but for other smaller firms, this would become a huge disadvantage as time evolves.The concentration of stock and distribution networks of supermarkets expose the food systems to several vulnerabilities.Due to the limited number of storage facilities for both Coles and Woolworths in Australia, concentration of products within these facilities make the products susceptible to environmental risks.The best possible solution to these trends would be the encouragement of small independent suppliers which helps in diversity promotion within the food system sector.Empowerment of small scale retailers and formulation of policies that protect their independence from the government will enable these small growers to the development of quality produce. Part II: Competition is good for Australian consumers Within the Australian economy, suppliers and retailers both need to understand how to set and change their strategic objectives to make them more responsive to changing consumer needs and expectations in the market. In addition, they need to adopt appropriate learning and knowledge transfer methods to make their internal and external operations more competitive in their respective industries. This will help them to increase their general appeal in the industry thereby strengthening their competitive edge in the long run. The dynamic strategic capabilities concept enables a firm to know when it needs to adjust existing objectives to conform to its marketing, human resource and technology needs. Therefore, this allows a firm to use information acquired from its business processes to develop high-quality relationships with its customers in different markets. Business firms need to streamline their internal operations by setting high-quality standards to ensure their products are appropriate for customers’ needs (Houston, Ratneshwar, Ricci & Malter 2010, p. 29). As a result, this approach enables them to improve the quality of their business processes to help them attract more customers in the market. Companies need to understand how they can adjust to specific competitive factors in emerging economies to enhance efficiency in performance in the long run. Therefore, this allows a firm to be aware of potential opportunities in the industry that have positive effects on its long-term growth plans. Changes in consumer behaviour, entry of new firms into the industry and changes in government policies are some of the issues a firm needs to be aware of to find out how they affect its competitiveness. This requires a firm to improve its ability to adapt to such changes to help it maintain its long-term appeal in the industry (Zhou & Li 2010, p. 227).As a result; this allows a firm to be well prepared to deal with risks that arise from high competition and low-profit revenues in the industry. Collaboration practices can also be adopted for the economic structure of the United States.Collaboration between the retailers will lead to healthy business relationships being formed. Several companies in the United States within particular regions are collaborating with each other to boost their revenues and growth. These firms have discovered that they need to use their regional proximity to developing their competitiveness in their respective industries. For instance, some agricultural processing industries are producing electric energy and biofuels from their waste products to reduce their energy costs and toxic emissions. These firms have also developed technologies that enable them to share their power with other enterprises that are located nearby. Consequently, many businesses have realised that self-interest and isolative business practices do not contribute positively to their future operations (Porter 2009). These companies have, as a result, contributed to high-quality infrastructure projects in locations they are operating from to increase their long-term performance. In addition to that, such firms are likely to benefit from favourable tax policies in regions they are operating, and this can enable them improve their economic performance Economic market structures with high competition among the firms lead price factors being used in order to dominate the influence on prospective consumers within the economy.The most common methods of influence that companies use are lowering their prices, and being considerate on the level of income of the consumer.Within the Australian economy, once the monopolistic structures have been broken down by the government to allow other suppliers into the market, competition can be enhanced further.Woolworths and Coles will also have to adapt to the emerging trends within the economy in order to survive. The necessities required by consumers can be lowered in terms of price through the promotion of their products, with new prices to the customer.This will enable them not to lose their consumer base entirely.They can also discuss with other firms within the markets on the price strategies they should use in order to consider and promote harmony during their sales expeditions. Development of make strategies that would entice suppliers to reduce their price is important.In the interest of the consumer, Woolworths and Coles can create policies through the proper channels to make the suppliers reduce their prices.Competition for a decrease in expenditure on produce will be highly favorable to the winning company if they also translate these small expenses into lower prices of their products.This will be beneficial to the consumer.Some small independent firms may not be able to beat Woolworths and Coles in terms of their price.Such companies should mainly concentrate on offering better services to their customers who would draw some potential clients to their products.Secure, efficient and quality service from the company leads to significant loyalty from the consumers.The consumers will feel that their needs and interests come first. The importance of the government to improve their policies on protection and incentives for independent groceries must be emphasized.This is to ensure the diversification in the creation of dynamic food systems for the market.The government can also finance regional marketing ventures for local farmers.When several small independent suppliers with a quality food system merge under one significant banner, there is high potential in the creation of a brand that would appeal mostly to the vast consumer market.This would provide a platform for these suppliers to develop and integrate all their techniques of production and create suitable quality products for the customers. In an open market, once the vendors have produced a unique profound product, they can provide the customer with a choice of a better product in comparison to the product currently available in the market.This enables this firm to gain a competitive advantage over other rival companies within that particular market structure.This eventually leads to the benefits of the company increasing in terms of revenue generation and simultaneously, the quality of life of the consumer also increases. Regulatory reforms that have been implemented by the government in the United States can be used by the Australian government as well which are likely to contribute positively to economic productivity and innovation. The new government’s strategy of focusing on investments and human capital will enable the economy to move away from high consumption practices because more people understand the importance of saving. In effect, such a situation may encourage more companies to hire new workers to increase their productivity levels. More importantly, such an approach is likely to rejuvenate manufacturing sectors in different parts of the country, which in the past were the backbone of positive economic growth in the country (Lee & Tang 2000). Producers without partnerships with supermarkets highly depend on support from consumers within their region.In terms of food affordability, Australia is globally ranked among the top five countries.This has enabled many Australians to increase their expenditure in the significant support of s diverse food system within the nation.The consumers could directly purchase the products from independent suppliers, and this would become an incentive for Australian farmers to challenge the dominance of the market by Coles and Woolworths effectively. However, products directly from the supplier are relatively more expensive than in Woolworths and Coles. An increase in competition leads to the informed conclusion that information is readily available to the consumers.This information helps them make informed decisions before purchasing a product.Woolworths and Coles can develop websites that can be used by their customers to enquire the specifications of various aspects of the product while comparing them with several companies producing the same product.Through comparisons, the consumer can be satisfied with their final decision on whether or not to purchase the desired product. Conclusion In conclusion, the issue of market power in the food system sector needs to be addressed immediately in Australia.The enormous control on the market by Coles and Woolworths have become a hindrance to small independent retailers and farmers who don’t have the necessary capital and economies of scale to existing together with these conglomerates.Customers will only benefit from this market situation temporarily due to lack of long-term food security.To ensure better business relations are enhanced, transparency and effective collaboration between the suppliers and retailers must drastically improve.This will provide the competitive food system will not be vulnerable at the expense of these strategies. Diversification of the producers and their produce is a significant factor in the development of a permanent food security system in Australia.Government policies must be integrated into the system and sequentially, followed by these supermarkets to ensure that the balance of power between the consumers, producers and suppliers, is not negatively affected by any other factor within the market. Within the Australian food system, the restoration of the balance of power between the buyer and seller is highly critical.This will ensure diversification of food producers exist in large numbers in Australia.However, the shift should be of equal magnitude because an enormous shift towards in the selling power would lead to suppliers controlling and dictating the retail prices above the reasonable levels of competition.This will undermine the accessibility of food within the nation. References Hardy, C., C. 1978, The Investors Guide to Technical Analysis, Tata McGraw-Hill Education. Joseph,C. 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