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The assignment explores the various strategic plans of Woolworth, one of the dominated organization in retail sectors

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Introduction

The retail sector in Australia, which comprises of about 14,000 organizations, the key players are Coles, ALDI, Woolworths and a few others. Being one of Australia’s largest employers, about 10.7% of the population works in the Australian retail sector. The organizations of the retail sector offer a variety of groceries, gourmet food products, dairy products, toiletries and cleaning merchandise. As per the 2011 reports published by the productivity commission, the retail sectorcontributes significantly to the economy of Australia, which is reflected by the fact that the sector generates annual revenue of $53 billion and makes up to 4.1% of the GDP (Woolworths Ltd - A Case Study Report | Strategic Management | Retail, 2018). The Australian retail sector is largely dominated by two organizations namely Woolworths and Coles and this assignment would explore the business environment of Woolworths and help in the development of strategic management plan for the same.

Evaluating organizations environment

External environment

Porter’s five forces

Bargaining power of buyers: Owing to the fact that the most of the retail sector organizations of Australia offer similar products, switching costs are comparatively low which empowers the buyers with a significantly high bargaining power. Bargaining power of suppliers: Depending on the brand value of the suppliers and the size of retail sector organization, the bargaining power of suppliers varies considerably. For instance, suppliers like Coca Cola and British American Tobacco enjoy a high bargaining power, while not so famous brands have a moderate power (Tanwar, 2013). Industry substitutes: In Australia, there exist a large number of organizations belonging to the other sectors that offer products, which might act as substitutes of the products offered by the retail organizations. Consumers might choose grocery stores, open fresh food markets, and pharmaceutical stores over retail to avail those products, owing to several convenience factors, such as location, better parking facilities and others. Therefore, there is a moderate to high availability of substitutes in the retail industry. Threat of new entrants: Owing to the low price of goods offered by the Australian retail industry, it is not an attractive choice for new entrants as it offers lower profit margins as compared to the other industries. In addition, the little availability of land, high prices of the same, requirement for huge investments, the strict government regulations act as significant barriers to new entrants and hence the threat of new entrants in the retail sector of Australia is quite low (Jenkins & Williamson, 2015). Competitive rivalry: With a large number of retail sector organizations functioning in the nation, the business environment is highly competitive.

PESTEL analysis

Political environment: In the words of Alam and Majumdar (2011), the Australian government exerts a significant influence on the retail sector by legislating the hours of trade and through the strict regulation and monitoring of the Commonwealth Government, the trade practice Act, the foreign investment review board and Australian Competition and consumer commissions (Woolworths Ltd - A Case Study Report | Strategic Management | Retail, 2018). This implies that the nation has a strict political environment regulating businesses in the same. Technological environment: Woolworths was among the first retailers to subscribe for the Global Electronic Marketing and Merchandising network annotated as GEMNet in 1994. Moreover, the technologically advanced nature of the organization, is reflected by the fact that organization has made significant investments in order to enhance its supply chain management, improve the distribution channels and has come up with a company website and an online store Internal environment

Core competencies 

The organization focuses on improving the efficiency and sustainability of its supply chain (Arli et al., 2013). The high market position of the organization can be attributed to the ‘The fresh food people’ slogan that emphasized on making the high quality organic healthy range of food products available to the consumers at affordable prices. The organization has incorporated several innovations namely “new idea program” and “re-fresh”. Woolworths has started to put in individualistic efforts to respond effectively to the demands of the private sector that would help it enhance its market power.

Value chain analysis:

The organization uses its own distribution centres in order to procure goods in bulk and thus reduce the cost price of products. Having their own farmers helps them to procure food products from the grass root level and thus cut down on the cost price. The vendor quality management is a strategy used by the organization to ensure the high quality and freshness of its food products (Dos Santos, Svensson & Padin, 2013). The company spends substantial amount of time on marketing to improve the brand awareness, while customer services are highly enhanced by refund policies, mounted barcode scanner that saves the time of standing in long queues and providing trolleys for carrying groceries.

 Analysis of competitive advantage

Although Woolworths was able to gain a competitive advantage in the business environment of Australia and managed to gain significant market shares, in recent years the organization is facing stiff competition from the other retailers like Coles and ALDI. In the recent years Coles has reduced the prices of its products considerably in order to attract the customers. Moreover, the sudden advent of ALDI, Cotsco and Amazon acts as a major force determining the competition in the retail sector of Australia (Roberts, 2017). Reports by Industry Analysts suggest that Woolworth have been taking constant efforts to reduce the prices of its products in order to gain a competitive advantage over Coles. As a result of such persistent efforts the prices of the products of Woolworth reduced by 2.1% as per the reports of the last financial year (Hot competition is back in Australian supermarkets, 2017). In the words of Nathan Cloutman, IBISWorld senior industry analyst, Woolworths have been focusing on the food division of Australia following the failure of its hardware business in 2016. As a result of emphasizing on the food division, the company gained significant market shares in accordance to the business reports of the year 2016-17. Such pattern of growth is predicted to continue in upcoming years and the company might contribute to about 36.8 % of the retail sector industry (Annual Reports - Woolworths Group, 2018). However, this year it has been seen that company’s profit margins have gone down significantly and have been experiencing a massive failure in their DIY business due to the competition faced from the overseas entrants.

Strategy formulation and choice

Vision: The vision of Woolworths is to be the customer’s first choice by providing value to the consumers and promoting a sustainable development of the organization by appropriate strategic management.

Goals: The organization has five prime goals, which are listed as below: To build a store and customer led organizational culture and team. To encourage sustainable growth in sales of it food division. To enhance the organizations value by improving its business concerning drinks and to provide a better shopping experience to the consumers. To improve shareholder value by enhancing the portfolio business of the organization. To encourage end to end process and promote systems excellence in order to become a lean retailer

Initiatives

Retailers need to innovate and evolve everyday in order to respond to the rapidly changing consumer needs and preferences and the advent of new technology. In order to be the consumer’s first choice the organization gives prime importance to them by keeping an account of their needs and incorporating innovations that would enhance the consumer value. Woolworths believe that due the advent of mobile technology, consumers have the ability to gain access to a wide variety of products in a diverse price range from all across the globe. Therefore, the organization is making significant investments in developing mobile apps, websites, online stores and incorporating newer options for delivery, all of which promises to enhance the consumers shopping experience. A loyalty program of the organization known as “Woolworths Rewards” gives its members an opportunity to avail discounts on their purchases and provides them access to diverse offers and promotions of the organization(Woolworths Ltd - A Case

Recommendations and conclusion

The study focused to provide Woolworths with a strategic direction, so that it was able to overcome the reduction in its profit margins and recover from the massive failure of it DIY retail business and thus gain a competitive advantage over other organizations in the same sector. From the Porters five forces analysis it can be said that competitive rivalry is a major threat to the profit margins of an organization, which is the prime reason that minimises the threat of new entrants in the Australian retail sector. However, in spite of the intense competitive rivalry that prevails in the Australian retail sector industry. Woolworths have shown a growth of 10.7% that reflects its highly effective strategic management plan and an advanced business model. The PESTEL analysis reveals that the Australian government strictly regulates the functioning of the retail sector organizations employing a variety of legislations. In addition, in recent years the organization has shown significant technical advancements. The core competencies of the organization have been illustrated and the value chain analysis has been done. Following this, an extensive analysis of the competition prevailing in the Australian retail sector has been done. Lastly, various strategies that have been undertaken by the organization to overcome the existing market competition have been discussed in detail. Both short-term and long-term recommendations can be made after studying the organizations functioning and its strategic management. Some of them have been mentioned as follows:

Short term

The company might make use of social media in order to make its promotional activities cost effective. The company might consider undertaking CSR activities to enhance its reputation among the consumers

Long term

The company must invest in its R&D department, in order to ensure researches pertaining to the ill effects of alcohol, so that the organization is able to protect itself from the strict government regulations concerning the same. 

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