Woolworth Australia - External and Internal Environment, Porter's Five Strategic Analysis - Case Study Example

WOOLWORTH AUSTRALIA by Student’s Name Code + Course Name Professor University City/State Date Woolworth Australia Introduction Woolworth is one of the largest retail business brands in Australia, with a number of stores in both Australia and New Zealand. According to Alstete (2014, p.78), it currently controls about 31% of the total market share in the retail business, which is the leading market segment in Australia. Having been started in the year 1924, the chain of supermarkets and stores is currently the leading chain of stores, in terms of revenue, number of store outlets and presence in almost all parts of Australia (Alstete 2014, p.82). It has a global presence in over 22 countries, a fete that has greatly improved its profitability giving it a competitive advantage. This great fete has ensured its continuous sustained growth and development thus stirring my interest in its operations based on its strategic management. Woolworth operates under certain industrial characteristics, following effective internal and external environmental analyses and other competencies, which add value to its strategic growth management and made it a success both in Australia and globally. Basic Analysis of the Firm Characteristics Woolworth Australia company operations can be said to be oligopoly (Alstete 2014, p.79). This is considering the other numerous retail business entries in the retail market in Australia and the dominance of a small number of firms in the market share. This characteristic allows for the fair pricing as a result of crowded competition, basing the competition on product differentiation and distinctive services to the target clients. Controlling over 31% of the market share, the company's turnover at the end of 2011- 2012 financial year averaged $3.3 billion. Out of the stated total, $3.1 billion were generated from the Australian market while the remaining $196 million were generated from New Zealand (Dess, Lumpkin & Eisner 2008, p.27). Woolworth has had a consistent growth rate following its average sales increase at a range of 7.4% to 13.4% for a period of between 2006 and 2011. This in the long-run placed the company as per the October 2011 rating among the best top 10 largest companies in Australia, with an approximated market capital of $29.9 billion (Dess, Lumpkin & Eisner 2008, p.33). This business success cannot be achieved based on a vacuum strategy, but following a great mastery of the business environment. The Macro Environment Analysis Political/ legal Environment The Australian government has control over several factors that could affect the operations of the Woolworths chain of supplies both negatively and positively (Dobbs 2014, p.34). For instance, it can regulate the trading hours, the competition and consumers’ rights regulations, as well as the reviewing the foreign investors’ regulations Technology The company has adopted a sound technological approach, which helps it reduce its savings cost by improving the distribution and supply chain (Strautins 2015, par.13). Its online shopping facility together with its enhanced website has not only increased its visibility, but also increases its sales globally. Global Segment To maintain its huge profits and observe better growth, the company has opened overseas branches and stores; for instance, in New Zealand and India among other countries (Ghemawat 2007, p.22). The strategy ensures the sustainability of it growing profits and market command by giving it a competitive advantage. Social Cultural Segment The society is changing with the majority of the people's interest being inclined towards a healthy lifestyle and eating habits. This has and or could have a significant impact on the retail business and have an adverse long-term impact on the Australian supermarket business (Zander 2011, p.822). An organizational structure has a severe impact on its profitability and competition, whether it is regulated or otherwise (Dobbs 2014, p.37). This creates the need to analyse the Woolworths Company based on the porter’s five strategic analysis. Porter’s Five Strategic Analysis Bargaining Power of the Buyer This aspect is very high in Australian supermarkets considering almost all supermarket sell dissimilar products and or services. This is only different in big supermarkets like Woolworths that gives their customers customised products, thus making giving them a competitive advantage (Coman & Ronen 2009, p.5681). Bargaining Power of the Supplier This depends on the size of the supermarket and brand name of the supplier. This places big brands in a better position to bargain effectively. On the other hand, companies like the Woolworths have a big bargaining power because of their size and ability to buy and sell huge quantities of commodities (Dobbs 2014, p.38). This aspect leads to moderation on the bargaining power of the supplier upon the Woolworths supermarket chain. Industry Substitutes The substitutes are several for this kind of business field. They range from small retail, convenient stores, Tack shops, petrol station stores, grocery stores amongst others. Customers are likely to pay higher amount to get services within their residential or close to their vicinity, and around areas where the queuing will not be such a big problem (Coman & Ronen 2009, p.5683). These factors raise the possibility of an industry substitute. Threat of New Entrants The possibility of a new entrant in the supermarket business in Australia is minimal. This is considering several factors that are limiting the establishment of a related business. Issues like government regulations, capital, and competition from the small and medium retail shops which offer competitive prices, make the business field less friendly to join (Dobbs 2014, p.41). Rivalry among Competitors Being a crowded business field, the competition is stiff. Internal Environment Analysis This is very important in assessing the company’s strengths and weaknesses as well as strategies to achieve the best potential as a way of attaining competitive advantage (Dobbs, 2014, p 43). Resources By the end of 2011, the company had over 3000 stores in both Australia and New Zealand and an employee base of not less than 180,000 (Zander 2011, p.826). This shows that the company’s resources are immense as is its wide range of products, logistics, personnel and the brand name. Capabilities This entails the ability to use the company’s resources both financial and human personnel in a profitable manner. Since its inception, the company has had great strategic operations and management which has seen it grow to its current market position (Zander 2011, p.832) Branding and Marketing The company has always positioned itself since its inception with selling fresh products, a strategy that has given it an image that is easily associated with quality and healthy products. Integration To overcome the crowding in the same product delivery, Woolworths Company started making its products give the quality that is much desirable to its clients as well as at a much cost effective pricing. Marketing and Sales The company has a team of an aggressive sales team, which uses both human resource and the technology to create awareness about its products. This ensures that most of its products are moving at a high rate thus sustaining its profitability (Strautins 2015, par.18). Operation Woolworths has its chain of farm surplus providers. This means that the company can manage to buy fresh products right from the root to the top supply of the same at its store shelves. Numerous Chain Stores The variety of its service delivery has improved and become competitive following its ability to develop products through it chain supply (Ghemawat 2007, p.25). This has been the case following its ability to adopt the aspect of effectiveness and efficiency. Figure 1: SWOT Analysis Strengths Weakness A vast financial capability A diversified product range A streamlined supply chain management A reputable branding Commanding the market share (31%) A very high cost of operation based on its size High debts Unpredictable petrol margin Opportunities Threats Potential customer base growth Potential increase in the market share Growth opportunity in the healthy eating habits Globalization and population increase Technology reduces the cost of sales and marketing employment Many possible substitutes High rate of unemployment Recession Pressure from government regulations Technological advancement Changes in Market Conditions Woolworth has been operational since 1924 amid several challenges in the market these range from the competition, recession, government policies, cultural and social changes as well as technological changes (Coman & Ronen 2009, p.5679). These challenges have in one way or another affected the entire retail market in Australia affecting most stakeholders and not just Woolworths. The ability of Woolworth to withstand these challenges has placed it at the top of its competitors both locally and abroad. The major changes that have greater implication upon the operations of the Woolworths Company are; substitute threats and the technological advancement (Strautins 2015, par.16). Due to the increased population pressure, the need to have retail shops near the residential areas, has given people an option of getting services near their homes in a less tedious manner even in cases where the cost is a little bit high. Other customers want to enjoy the convenience of not having to stand in long queue to be served and or get parking spaces cheaply and more conveniently. Considering the challenge of the latter and the former, most of these customers are avoiding these huge supermarkets like the Woolworths irrespective of quality services and fair pricing. This will reduce the number of customers previously frequenting the outlet thus, reducing the rates of profits. Technological change has brought both positive and negative changes in the retail business operated by the Woolworths Company (Divol, Edelman & Sarrazin 2012, p.69). This factor is positive in the case of improving its sales and marketing strategies and negative in the sense that since firms have adopted a trend of selling products online (Strautins 2015, par.21). This being the case, there is a possibility of having the online purchased products delivered directly to the clients thus the customer base is likely to reduce. Conclusion Woolworths Company has been operational since its inception back in the year 1924. For the many years it has been operational, it has subsequently made huge profit margin and dominating a crowded business segment, by commanding the market share. Following its strong management and strategic planning, as well as other environmental factors, the company has managed to not only build a reputation in Australia and New Zealand but globally as well. Though facing several challenges ranging from government restriction, competition and technological challenges, the company has continued to enjoy great profits and growth rate proving that it has strong growth management strategies. References Alstete, JW 2014, ‘Strategy choices of potential entrepreneurs,’ Journal of Education for Business, vol. 89, no. 2, pp.77-83. Coman, A & Ronen, B 2009, ‘Focused SWOT: diagnosing critical strengths and weaknesses’, International Journal of Production Research, vol. 47, no.20, pp.5677-5689. Dess, G & Eisner, A 2008, Strategic management: Creating competitiveness, Fourth Edition, McGraw-Hill, New York, NY 10020. Divol, R, Edelman, D & Sarrazin, H 2012, ‘Demystifying social media’, McKinsey Quarterly, vol. 2, no. 12, pp. 66-77. Dobbs, M 2014, ‘Guidelines for applying Porter's five forces framework: A set of industry analysis templates’, Competitiveness Review, vol. 24, no.1, pp. 32-45. Ghemawat, P 2007, Redefining Global strategy: Crossing borders in a world where differences still matter, Harvard Business School Press, Hanson Strautins, D 2015, How is social media information affecting supply chains? [Online] Available at: [Accessed 11 May 2015] Zander, U 2011, ‘Knowledge and strategy creation in multinational companies’, Management International Review, vol. 51, no.6, pp. 821-850. Read More