Competitive Position of Coles Supermarket in Australia - Case Study Example

COLES SUPERMARKET, AUSTRALIA Table of Contents Table of Contents 1 Abstract 3 1.0 Introduction 5 2.0 External environment: PESTEL framework 6 2.1 Political/legal analysis 6 2.2 Economic analysis 7 2.3 Social analysis 7 2.4 Technological analysis 7 2.5 Environmental analysis 8 3.0 Industry and sectors: The Porter’s five forces framework 8 3.1 Threat of new entrants 8 3.2 Power of buyers 9 3.3 Power of suppliers 9 3.4 Degree of rivalry 10 3.5 Threat of substitute 10 4.0 Competitors and markets 10 4.1 Strategic groups 10 4.2 Market segment 11 4.3 Blue Ocean thinking 11 5.0 Success of Cole supermarket in terms of external factors 11 5.1 SWOT analysis 12 5.1.1 Strengths 12 5.1.2 Weaknesses 12 5.1.3 Opportunities 13 5.1.4 Threats 13 5.2 Significant resources 14 5.2.1 Human resources 14 5.2.2 Physical resources 14 5.2.3 Intellectual capital 14 5.2.4 Technology development 15 5.2.5 Financial resources 15 6.0 Core competences and capabilities shaping the competitive position 15 7.0 Conclusion 16 Abstract This academic report has focused on the status of the competitive position of Coles Supermarket in Australia. Coles Supermarket was established in 1914 as a chain store and later in 1960, the first supermarket was established. The supermarket sells grocery, foodstuffs and liquor. Coles is the second largest supermarket in terms of market share in Australia behind Woolworth. The firm has been able to acquire this position due to the effective strategies employed which include advertising/promotion, branding, market innovation, quality products and reduced price strategies. The industry’s external environment which includes the PESTEL factors has been deemed favourable. Australia’s economic and political stability has ensured the success of the firm. More so, the technological factors which include the adoption of IT in its business operations have contributed greatly in its marketing, and shopping activities. Furthermore, the use of internet has been the main factor for the firm’s achievement in terms of high customer satisfaction and financial revenue. The industrial environment of the supermarket industry is also favourable. The analysis of the Porters five has revealed that customers and suppliers have low bargaining power which has alleviated the firm’s revenues. Although the threat to entry in the retailing industry is high, Coles always substitutes this with effective strategy. Coles’ internal environment has also contributed greatly to the firm’s position. Research has indicated that, the firm is one of the most successful in the supermarket industry in Australia based on retention, customer satisfaction, marketing strategy, innovation in product strategy, financial capacity, and IT adoption. The increased advancement in information technology will offer the supermarket a great opportunity in terms of innovations and customer satisfaction. The growth of Coles Supermarket in terms of market share in Australia means that its 34 percent market share has the expectations of increasing in future. The firm can employ its strategy to accelerate its growth. However, the firm faces stiff competition from other supermarkets including Woolworths, Franklins, David Holdings, QIW, Jewel and Composite Buyers. Woolworths, which leads in market share is the firm’s major competitor. The utilization of significant resources such as physical resources, intellectual capital, human resources, technology adoption, and financial resources together with the firm’s core competences and capabilities which includes marketing strategy, customer satisfaction, retention, innovation in product strategy, IT development and adoption, and financial capacity has made Cole supermarket to overcome its weaknesses and threats and build up its strengths while focusing more on the available opportunities to grow. 1.0 Introduction Coles Supermarket, established in 1914 as a variety store, is the second largest supermarket chain in terms of market share (35%) behind Woolworth’s Supermarket (40%) in Australia (Coles, 2006). The supermarket is owned by Wesfarmers and it has employed over 100,000 employees. The first Coles Supermarket was opened in 1960 in Melbourne. Coles has 741 stores throughout Australia incorporating 45 BI-LO supermarkets which also stock and sell Coles private label brands (Coles, 2006). It is apparent that the key priority for any business is to satisfy its customers. Cole supermarket makes certain that this is met by taking its clients views very seriously. 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 second chain supermarket in Australia (Coles, 2006; Australian Competition and Consumer Commission, 2002). Since 1980’s, the Coles Supermarket has employed various slogans which are meant to attract and retain customers. Some of them include ‘best value’, ‘serving you better’, ‘save everyday’, ‘quality food costs less at Coles,’ and ‘down down, prices are down.’ In 2005, the firm was looking forward to implement the Three Tier Strategy - Good (house brand), Better (leading brand by sales/profit), and Best (market leading brand) strategy (Coles, 2006). Additionally, as a marketing strategy, the supermarket has also run various programs, for instance Sports for Schools in 2010. This academic report will focus on the status of the competitive position of Coles Supermarket in Australia. In particular, the report will include the firm’s external environment, industry and sectors, competitors and markets, internal environment, and resources and capabilities shaping the firm’s competitive position. 2.0 External environment: 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. 2.1 Political/legal analysis Countries have various legislations which influences how businesses are conducted. Such legislations may either restrict or give opportunity to such businesses. Coles Supermarket is a chain that deals with different consumer products including electronics, apparel, grocery, fresh foods, and liquor. As such, the firm has to abide by various rules and regulations in Australia related to the sale, packaging and labelling of foodstuffs. Such legislations may include FoodWorks Labelling Edition and FSANZ Food Standards Code. Coles must also abide by different set environmental laws which include safe disposal thus the firm has to come up with measures to deal with this issue to make certain that it keeps in line with Australian legal requirements. Political uncertainties which may result to economic instability may also affect Coles Supermarket. 2.2 Economic analysis The firm has indicated an upward growth trend since its establishment in 1914. Apart from the major and innovative strategies the firm has employed since then, its accelerated growth may be linked to stable macroeconomic environment. This encompasses general stability, low interest rates, stable currencies, and international and global competitiveness which have formed a basis for the firm’s growth. Nevertheless, Coles Supermarket may be affected greatly by a depressed economy, making the firm modify its marketing strategies which may affect its success (Walters, 1994). 2.3 Social analysis This includes consumers’ tastes, preferences and demand and usually varies with disposable income (Kotler and Kevin, 2006). Cole supermarket offers diversified products suitable to individuals of all ages and gender. Most of these products which include foodstuffs and groceries are essential for human survival. The fact that Coles targets individuals of all ages, gender, and low and high income earners putting in mind their tastes and preferences contributes significantly to the firm. 2.4 Technological analysis The rapid technological growth in the modern society is influencing greatly the way companies operate. This is based on the fact that companies have to adopt the new technologies and combine them with the existing ones in order to remain competitive in the highly competitive market and respond positively to the amplifying technological development (David, 2010). In this case, Coles Supermarket has to keep up with the new technologies, for instance, customer serving computers must be installed with the latest technology to ensure quick customer service. Other technologies such as CCTV cameras for monitoring customers during self service must also be up to date to ensure efficiency. In addition to this, the use of social media such as Facebook, Twitter, Flickr, and You Tube can also assist the firm greatly in terms of advertisement. 2.5 Environmental analysis Some companies may engage with environmental unfriendly acts so as to maximize profits without putting in mind people’s welfare (David, 2010). Coles Supermarket is deemed to be environmental friendly as it engages in ethical acts. This has made the firms brand very successful and popular nationally. 3.0 Industry and sectors: The Porter’s five forces framework The porter’s five forces are used to analyze the industry’s competitive structure. The probability of businesses making profits depends on these forces. 3.1 Threat of new entrants This is the degree to which entry barriers to the business exists (Porter, 2008). In Australia, entering into the supermarket industry is very easy. Though the cost of establishing a supermarket are high, low government regulation, low level of brand loyalty, and low control over the suppliers will enable individuals to establish their own supermarkets (Hodgson, 2004). In this case, Cole will be required to use effective strategies to limit competition. 3.2 Power of buyers If the bargaining power of buyers is high in a certain industry, they are likely to force the prices down and this may affect a firm negatively as it may reduce its profits (Porter, 2008). In the supermarket industry, the bargaining power of buyers is very low as there are many buyers and all are important to the firm. In addition, it is not easy for the buyers to switch to other firms as in most cases prices and quality of products in a supermarket is almost the same (Jacenko & Gunasekera, 2006). Furthermore, all supermarkets offer almost similar products and what differs are those products produced and branded by the supermarket. Cole supermarket is very keen on this and it ensures that its branded products are unique and of high quality which is a strategy of attracting and retaining customers. 3.3 Power of suppliers If the bargaining power of suppliers is high in a sector, it is hard for firms in that industry to make profits as such suppliers can determine the conditions of conducting a business (Porter, 2008). In the supermarket industry in this case, the bargaining power of suppliers is low as there are comparatively many of them, it is easy to switch to another supplier, and there is no likelihood for the supplier threatening to purchase the existing firms (Fernie, 2004). This is an advantage to Coles Supermarket as the firm can be able to make decisions on how they will conduct their business. 3.4 Degree of rivalry This measures competition levels between the existing businesses (Porter, 2008). It is apparent that there is high competition in the supermarket industry and this makes it hard for the operating firms to make high profits (Jacenko & Gunasekera, 2006). This is due to the fact that, there are several supermarkets operating in Australia which compete with each other for clients. In addition, there is low transferability of resources due to high costs incurred as a result of leaving the industry. 3.5 Threat of substitute In the retail industry, there are few substitutes as supermarkets produce and sell almost similar products. This is of benefit to Coles as it is able to generate increased profits. However, firms branded products differ, and in some cases, customers may tend to substitute. Coles’ products compete with other products produced by other supermarkets. 4.0 Competitors and markets 4.1 Strategic groups 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. Coles Supermarket and Woolworths fall under the fourth group. Members of this group sell almost the same products and this increases competition in the retail industry. 4.2 Market segment Coles Supermarket targets customers from all locations, of all ages, gender, and income, putting in mind their behaviours and lifestyles in order to satisfy their wants and needs. The firm targets Time saver buyers, Family Shoppers and International students. This means that, the firm encompasses geographical, demographic, behavioural and psychological market segmentations. This is based on the fact that the firm deals with final consumer products/organic products ranging from food stuffs, groceries and liquor which have short life cycle. 4.3 Blue Ocean thinking Blue ocean thinking incorporates the strategies employed by a firm to ensure fast growth. These include hiring and retaining competent personnel who will assist the firm implement its strategies, promotions, pricing and innovative strategies (Graiser and Scott, 2004). Coles Supermarket has an advantage over its competitors as the firm utilizes unique strategies which have made the second largest supermarket in terms of market share. 5.0 Success of Cole supermarket in terms of external factors The success of Coles Supermarket is linked to technological factors which have assisted the firm to engage in online marketing strategies (Hodgkinson, 1997). This online presence has offered Coles an extension in revenue generation, sales and profits growth and minimization on operational costs. The firm has integrated IT in its business operations which have contributed greatly in its marketing, and shopping activities. Furthermore, the use of internet has been the main factor for the firm’s achievement in terms of high customer satisfaction and financial revenue. Other activities such as supply chain and operational activities are also managed efficiently by the use of internet. 5.1 SWOT analysis 5.1.1 Strengths Coles Supermarket is considered as one of the most successful firms in the retail industry around Australia. One of the success factors behind Coles is its innovation in product strategy. The firm produces innovative products which keeps up to date with customers’ tastes and preferences. A strong work culture with great leadership values are also a contribution to the success of Coles. Furthermore, the strong financial capability and efficient marketing strategy such as low prices for its products, and adequate promotions has enabled Coles to be a major player in the Australian supermarket industry. The increasing market share of Coles means that the firm has a capacity of accelerating its growth in its products while amplifying space contribution which will result to increased share in other products. Furthermore, the increased brand value linked with high quality products; and the firm’s innovative ways of bettering client shopping experience is also a major strength. 5.1.2 Weaknesses The reliance on the Australian market is a major weakness to the Coles Supermarket. This is evidenced by the fact that any changes in Australian supermarket industry in future may modify the balance of the supermarket industry which as a result will affect the firm’s market share. Craig Woolford, Citi retail analyst, argued that the company is faced by management challenges which are centred on store format, staff service, pricing strategy and produce range (Carson, 2009). 5.1.3 Opportunities The growth of Coles Supermarket in terms of market share in Australia means that its 34% share has the expectations of increasing in future. The firm can employ its strategies to accelerate its growth. In addition, the increased advancement in information technology will offer the supermarket a great opportunity in terms of innovations and customer satisfaction. Furthermore, its number of store implies that, there is capacity of expanding premises which as a result will generate more profits for the firm. 5.1.4 Threats Coles Supermarket is facing stiff competition from other Australian supermarkets including Woolworths, Franklins, David Holdings, QIW, Jewel and Composite Buyers. Woolworths is the firm major competitor and it is the largest supermarket in Australia in terms of market share (Woolworths Ltd, 2006). Furthermore, the high technological growth in the contemporary society means that Coles has to keep up-to-date in order to remain competitive in the supermarket industry. This is based on the fact that, currently, the global market is driven by innovations and customers prefer latest technologies (David, 2010). 5.2 Significant resources 5.2.1 Human resources Effective human resources are deemed as the core to the success of every firm. Human resources cover management development and recruitment (Johnson and Scholes, 2002). Coles Supermarket aims at increasing the number of its training schemes and also develops further its recruitment programmes. This will make certain that customers’ needs are met by well trained and recruited personnel. Coles persists to invest in client service, whereby training and remuneration are directly linked thus, motivating the workers. The staffs are also encouraged to advance their quality of service provision and their approach to clients. 5.2.2 Physical resources Coles Supermarket has a diversity of physical resources including warehouses sued to store their products awaiting resale, transport facilities used to transport these products from the suppliers, or from the warehouse to the supermarket stores, and customer service facilities including computers. Coles also has various stores located all over Australia with different departments assigned various responsibilities to ensure the success of the firm. 5.2.3 Intellectual capital The firm believes that investing in intellectual capital is one of the major factors for its success (Johnson and Scholes, 2002). Coles has employed a number of intellects and competent personnel who assist in the effective running of the firm. These person who include the senior managers and firm advisers help in formulating and implementing strategies which will ensure the firm emerges successfully in the highly competitive supermarket industry. Due to similarities of products sold, the firm has to ensure that it utilizes unique strategy to out do the rivals in the market. 5.2.4 Technology development The development and adoption of new technology has assisted Coles Supermarket to offer new innovative products to its customers. Furthermore, the company has been able to offer solutions that foresee client wants and needs. Technology adoption is also the main factor for competitive advantage and adds value to the firm’s brand name. 5.2.5 Financial resources Coles Supermarket greatly depends on revenues and profits made after sale to meet its expenses and increase stock. Currently, the firm has a high financial position meaning that, it generates high returns (Coles, 2006). The reliance on firm’s revenue as the only source of revenue may be greatly affected in case of a change in the supermarket industry in Australia. This modification may reduce the firm’s revenues and profits making it hard to meet its expenses. 6.0 Core competences and capabilities shaping the competitive position According to Johnson and Scholes (2003), superior performance is determined by how a firm’s resources are employed in creating competence in the firm’s activities. Core competencies are defined as the processes or activities that significantly strengthen a firm’s competitive advantage. The key target for a firm then is to make out that competition between firms is a race both to obtaining competence, market position and power (Drejer A. 2000). Thus Coles’ objective is to utilize competencies which influence competitive advantage. Coles Supermarket is deemed as a firm that offers the most effective and customized services which is based on efficient client relationship management. Research has indicated that, the firm is one of the most successful in the supermarket industry in Australia based on retention, customer satisfaction, marketing strategy, innovation in product strategy, financial capacity, and IT adoption. This implies that Coles designs and implements efficient supply systems and offers an effective customer interface. Coles has also a strong position in the supermarket industry due to its good corporate reputation, and introduction of quality products in to the market. Baker (2006) notes that the effect of some Coles outlets opening 24 hours daily has had phenomenal impact on the growth and popularity of the firm. 7.0 Conclusion The success of Coles Supermarket indicates how effective strategy and customer approach and service delivery are vital as far as business is concerned. These strategies which include the 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 second chain supermarket in Australia. In the highly modifying business environment in the contemporary society with increased competitors, Coles needs to adopt new strategies or advance the existing ones in order to retain its market position in the industry. The quality of these strategies and their rate of implementation will depend on Coles’ behavioural, cognitive, and corporate factors. References Australian competition and consumer commission, (2002). Report to the senate on prices paid to suppliers by retailers in the Australian grocery industry. Canberra. Baker, R. (2006). Dynamic trip modelling: from shopping centres to the internet Burt, S. (2000). The strategic role of retail brands in British grocery retailing. 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