External and Internal Analysis of Woolworth Supermarket - Case Study Example

 Table of Content 1.0 Background Error: Reference source not found 2.0 Strategy development Error: Reference source not found 3.0 External environment analysis 5 3.1 PESTEL Framework 5 3.1.1 Political/legal analysis 5 3.1.2 Economic analysis 6 3.1.3 Social analysis 6 3.1.4 Technological analysis 6 3.1.5 Environmental analysis Error: Reference source not found 3.2 Porter’s 5 Forces Network 7 3.2.1 Threat of new entrants 7 3.2.2 Power of buyers Error: Reference source not found 3.2.3 Power of suppliers Error: Reference source not found 3.2.4 Degree of rivalry 8 3.2.5 Threat of substitute Error: Reference source not found 3.3 Strategic group analysis 9 3.4 Internal environment analysis: SWOT analysis Error: Reference source not found 3.4.1 Strengths Error: Reference source not found 3.4.2 Weaknesses Error: Reference source not found 3.4.3 Opportunities Error: Reference source not found 3.4.4 Threats Error: Reference source not found 3.5 SWOT matrix Error: Reference source not found 4.0 Conclusion Error: Reference source not found 5.0 References……………………………………………………………………………………………..14 1.0 Background Owned by Woolworth ltd, Woolworth supermarket is the largest supermarket chain in Australian. Woolworth ltd was established in 1924 as a single basement store known as Woolworth Stupendous Bargain Basement in Sydney (Woolworths Supermarkets, 2012). Today, the supermarket is a household name operating over 2,330 supermarket stores and serves over 13 million consumers in a week. The supermarket offers different products which vary from fresh food stuffs including grocery, fresh foods, and general merchandise targeting all the Australian populations. Woolworth’s supermarket introduced a new slogan i.e. “Fresh Food People” which remains as a key part of its new logo as it’s known throughout Australia. In 2009, Woolworth supermarket opened stores in New Zealand (Global Data, 2011). 2.0 Strategic development A strategy is a unifying theme that offers direction and coherence to the decisions and actions of a company, and has an important role in success (Porter, 1985). In the practice of strategic, and in companies, strategies must be implemented to achieve the intended results. When developing business strategies, one must consider the resources available to the company such as facilities, technology, money, workers skills, and business know how. Strategy formulation refers to developing an overall approach on how to utilize the company’s resources to tap market opportunities in manner the offers competitive advantage (Gopinathan, 2010). These strategies also consider likely technology, economic and other kind of threats that damage the company. These strategies also consider likely technology, economic and other kind of threats that damage the company. Woolworth supermarket uses the following process when developing strategies. Strategy Development Process Objective Platform Issues Representative Activities Mission, vision and Values (what business is Woolworth in, and why) -To reaffirm the highest level guidelines about organization purpose and conduct Establish the vision in terms that are conducive to execution -mission analysis -vision statement -core values -Enhanced vision Strategic Goals (where is Woolworth going) -To clearly define the highest level financial or mission goals that will drive the strategy Establish the economic model that will be used throughout the strategy management process -Macro mission-measure -Value gap decomposition -Strategic themes -3-10 years goals -Financial model Strategic Analysis (what are Woolworths key issues) To identify, through structured analysis, the events, forces, and experience that impact and modify the strategy Define the linkage between the influencing forces and the process of value creation -Environmental scan (PESTEL) -Internal scan (SWOT) -Strategy of record review -Key issue identification Strategy Formulation (How can Woolworth best compete) To define where and how the organization will compete -Ensure that changes in strategy are linked to changes in the planning and execution processes -Establish the boundaries of permissible change -Where to compete -Differentiation -How to compete -Strategic change agenda 3.0 External environment analysis 3.1 PESTEL Analysis Many factors in the macro-environment affect the decision of any company. PESTEL analysis factors are political, economic, sociological, technology, legal, and environmental (David, 2010). In order to be strategically prepared for any change introduced in the company and have awareness of external environment, a company should conduct a PESTEL analysis to examine each factor to assess their impact on the company. 3.1.1 Political and legal analysis Different Legislations have different impact on the operation of a company. They can either an opportunity to a company or restrict it operations. For instance, It has been anticipated that value added tax will rise since the government require more revenue to finance it huge budget and this will affect Woolworth sales. Since Woolworth supermarket deals fresh foods and groceries, legislations containing Food Works Labeling Edition and FSANZ Food Standards Code may affects it operation. Moreover, a good political atmosphere is very important for Woolworth’s operations. 3.1.2 Economic analysis Economic factors have direct impact on the buying behavior of consumers, and therefore a matter of concern to Woolworth supermarket. The current economic climate has lead in lowers spending levels. For cost savings, customers have switched to private label brand. Subsequently, Woolworth has increased its private label offering to be able to compete on the basis of price while realizing the higher margins and on the basis of choice convenience. 3.1.3 Social analysis Australia’s population indicates that children are less as compared to retired people representing a Baby Boom generation (people aged between 42 and 61 years), (Australian Bureau of Statistics, 2012) . This is discouraging to Woolworth supermarket since older people tend to eat less. As compared to the young generation, the Baby Boom generation is less likely to travel to supermarkets to shop. Despite the fact that internet literacy level has drop over the aging population, they find online shopping more convenient. However, small deliveries are viewed to be expensive and ineffective. Customers have become more health conscious making their attitude towards food to continuously change. The increasing demand for organic food has been accommodated by Woolworth supermarket so as satisfy their customers. 3.1.4 Technology analysis Technology has a direct influence on the operations, processes and supply chain of grocery and food industry. The operations of Woolworth supermarket are being affected by the use of internet which has led to online grocery retailing. Internet subscription grew by 11 % in 2011 with 96% of internet connection being broadband and due to this; online retail shopping has gained considerable popularity in Australia (Australian Bureau of Statistics, 2012). Moreover, mobile technology has created a platform for distribution in the food retailing industry affecting the operations of Woolworth supermarket. 3.1.5 Environment analysis Woolworth supermarket is aggressively pursuing the mitigation of the use of plastic bags and instead, advocating for the use of reusable green bags (Flanagan & Sanderson, 2000). According to the National statistics (2010), customers trying to cut down on plastic bags they are taking from supermarkets grew by 3% while those using reusable bags grew by 7%. This is good for Woolworth’s SCR image and helps in reducing the overall cost. In addition, as a result of the customer awareness of the carbon footprint of the company, Woolworth supermarket has added carbon footprint on orange juice, dairy products, bread and potatoes, it also planning to expand it on non food items in 2012. Woolworth has also introduced its “Greener Living Scheme” which gives customers advice on environmental issues such as how to reduce carbon footprint and food waste when preparing meals (Woolworths Supermarkets, 2012). 3.2 Porter’s five forces analysis Porter’s five forces analysis include threat of substitutes, rivalry among competitors, bargaining powers of buyer and suppliers and threat of new entrance (Porter, 2008). This model is used to assess the profitability/attractiveness of s an industry (Hanson, 2010). We are going to examine the Australian supermarket industry by analyzing Woolworth supermarket position in the industry. 3.2.1 Threat of new entrants Threat of new entrants in this industry is very low. An “insidious combination of local zoning laws and leasing agreements with landlords” has lead to “an artificial scarcity of grocery sites” (Hewett, 2009). This has discouraged new entrants from entering the market. Also, huge capital investments are required in order to establish a strong brand name and be competitive. Moreover, getting planning authorization from the government through local government takes a lot of resources and time to put up a supermarket and this is a barrier to new entrants. 3.2.2 Threat of Substitutes Threat of substitutes is very high as Woolworth supermarket faces indirect competitors such as specialist grocery stores, convenience stores, and farmers’ market. These competitors are viable substitutes and pose a serious threat to Woolworth supermarket. For instance, convenience stores can compete directly with supermarkets in the provision of choice and “one-stopping shopping”. To reduce the risk of substitution, Woolworth supermarket ensures that their branded products are of high quality and well priced (Woolworths Supermarkets, 2011). 3.2.3 Bargaining power of suppliers The bargaining power of suppliers is very low. Coles and Woolworth supermarket control more that 80% of the market share and makes local Australian producers to have a limited selection of intermediaries to choose from. Furthermore, the switching costs are very low are there is no probability of the suppliers threading to purchase the company. 3.2.4 Bargaining power of buyers The bargaining power of buyers is high. The switching cost is low and therefore consumers can easily switch from one product/brand to another. Also, consumers are attracted towards availability of online retail shopping and low prices. To reduce the bargaining power of buyers of substitution, Woolworth supermarket ensures that their branded products are of high quality and well priced (Woolworths Supermarkets, 2011) . 3.2.5 Degree of rivalry There is a high degree of rivalry amongst existing competitors of Woolworth supermarket. This is because of lack of perceivable differentiation due to the nature of the product and services provided. Therefore, competition in this industry is based on price and store location. To have a competitive advantage over its competitor, Woolworth supermarket had developed strategies in order to remain as a market leader and attract new customer. 3.3 Strategic group analysis A strategic group refers to a group of organizations that employ similar strategies in an industry (Hodgkinson, 1997). Applying this model, one can analyse the Australia Supermarket industry by using factors that affect an overall strategies of a firm such as expense, quality of products and services, distribution, market segments, and research and development, to identify which companies compete in similar strategic groups. The diagram below show a strategic group map of Australia supermarket industry using price and quality of products. 3.4 Internal analysis The main function of Woolworth supermarket in the food chain is to offer suppliers with a channel to reach end customer. This is because the Woolworth’s producer concentrates solely on production and therefore those producers need intermediaries with retailing infrastructure and expertise. Woolworth exerts a huge influence over its suppliers as it’s a major buyer, and it can dictate things such as crop type, agriculture method, farm size, and the price that suppliers receive which is based on the supermarket’s product and quality specification. Internal analysis encompasses the evaluation of the strengths, weaknesses, opportunities and threats of a company. It offers direction and serves as a basis for formulating the company’s strategies which will help the company to focus on its strengths and available opportunities to overcome its weaknesses and threats from the external environment (Hill et al., 2004). 3.4.1 Strengths Woolworth supermarket has adopted an integrated competitive strategy i.e. uses a combination of differential and cost leadership elements to compete, with its brand image and its efficient supply chain to minimize cost. Therefore, Woolworth supermarket strengths are; high effective supply chain, effective top management brand reputation, strong financial position and a large market share. Woolworth’s efficient distribution network is viewed as strength in its in-bound and out-bound logistics. A culmination of assets (tangible and intangible) such as supplier relationship and technology capabilities is highly valuable as it is the important cost saving attained throughout the supermarket’s logistic network which enable it to attain a higher EBIT over Coles. Woolworth supermarket reputation as a fresh food distributor has been achieved through positive customer experience with its commodities which can be attributed to its “Fresh Food People” advertising campaign as well as its stringent quality assessment procedures throughout its supply chain. This brand reputation is valuable as it has directly contributed to high level of consumers’ satisfaction and also offered meaningful differentiation to its competitors. In addition, the company has a very strong financial position which is coupled with a large market share and this has lead to a continuous growth in sales of its products. 3.4.2 Weaknesses Lack of geographic diversification is one of weaknesses faced by Woolworth supermarket. Woolworth has a very high competitive advantage as compared to other companies operating in New Zealand and Australia. If Woolworth supermarket wants to be more successful in the future, it has to open more stores in other markets such as Asia and Europe. However, this is Woolworth major weakness as compared to international companies such as Wal-Mart, which has store in US, Asia, Canada, and Europe. Woolworth has no chance to compete with such companies unless it also expands internationally. 3.4.3 Opportunities Woolworth supermarket is growing rapidly in Australian grocery and retail industry. They are also creating new markets within Australia as well as New Zealand. However, Woolworth should open more stores in new markets segments within Australia as well as internationally. In addition, Woolworth supermarket should form alliances or merger with other global companies. Threats Woolworth is experiencing high competition threat from major competitor such as Coles. In addition, rapid technological growth means that Woolworths has to keep up-to date if it has to remain competitive in the industry and also maintain its market share. 3.5 How the company uses its strengths to serve its customer Woolworth has used its strengths to best satisfy its customers. To start with, Woolworth offers quality product to its customers and this attributed to its stringent quality assessment procedures throughout its supply chain. Due to its efficient distribution network, Woolworth has focused on product affordability which ensures that its consumers get the commodities that suits their budget without compromising on quality. Woolworths has heavily in technology and has introduced the Woolworths’s Internet store, (e-business) for online shopping which is more convenient for Baby Boom generation. However, Woolworth supermarket open more store to make their products available to customers. 4.0 SWOT matrix Strengths High effective supply chain Brand reputation Effective Top management Strong financial performance Leading market position Market Growth Low cost leadership Online presence Revenue growth compared to that of the competitors Weakness lack of geographic diversification Opportunities focus on global expansion attract new customers and reduce the overall cost resulting in more profit forming alliances with other global organizations geographic diversification which assist Woolworths in improvising its economy of scale, while minimizing its systemic risk exposure Threats Increased competition in Australia market Concentration in Australia Financial crisis Decreasing income Rapid growth in technology Source: Author (2012) 5.0 Conclusion From the analysis above, we can conclude that Woolworth supermarket continued to hold its leadership position in the highly competitive retail and grocery industry in Australia. 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. In addition, the core competencies of Woolworth have been viewed to be aligned with the external environment, thus showing a brighter future outlook for the company. References Australian Bureau of Statistics (2012) Retrieved on March 31, 2012 from http://www.abs.gov.au/ Hanson D (2010), Strategic Management: Competitiveness & Globalization, 3rd Edition, Cengage Learning Australia; South Melbourne Hill, CWL. , Jones, G.R. , Galvin, P. & Haidar, A. ,(2007), “Strategic Management: An Integrated Approach”, 2nd edition, John Wiley & Sons Ltd, Queensland, Australia, p. 64 Australian Food News (2011) Retrieved on March 31, 2012 from David, R., 2010. Strategic management: concepts and cases. Upper Saddle River: Pearson Prentice-Hall Hodgkinson, G.P. 1997. The Cognitive Analysis of Competitive Structures: A Review and Critique: Human Relations, vol.50 no.6, 625-654 Flanagan, B. & Sanderson, B., (2000) Woolies’ independent thrust, Retail World, Vol.50, p.5 Global Data, (2011) Woolworths Limited (WOW) ,Financial and Strategic SWOT Analysis Review Porter, M. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, (Location: The Free Press) Woolworth (2012) “the fresh food people” Retrieved on March 31, 2012 from http://www.woolworths.com.au/wps/wcm/connect/webSite/Woolworths/ Gopinathan T (2010) Business Strategy: How is it Developed? Retrieved on March 31, 2012 from http://tgopinathan.suite101.com/how-can-a-business-develop-an-effective-strategy-a246294 Read More