BUSM3200 Assignment 1 PDF

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BUSM3200 Strategic Management – Assessment 1: Individual Assessment

Name: Wan Shi Ting, Stephanie Student No.: S3685679 Word Count: 1920 words

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Table of Contents Introduction 3 Micro-Environment Factors (PESTEL)3 Political

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Economic

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Social

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Technological

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Environmental

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Legal5

Porter’s 5 Forces

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The threat of new entrants 5 The threat of suppliers

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The bargaining power of suppliers

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The bargaining power of customers 6 Rivalry among its competitors

Conclusion

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References

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Introduction Coles supermarket was found in 1914, Collingwood, Melbourne. Coles targets customers in Australia through its chain of retail stores in different cities of Australia and has grown to be Australia’s second largest supermarket. The company have strategically positioned itself in more than 800 outlets across the country providing numerous products that are suitable for consumers with both high and low purchasing power in Australia. They provide a huge diversity of products such as baby products to fruits and mobile phones. In addition, Coles has opened an online retail store to provide customers with convenient purchasing experience.

I will be using the PESTEL analytical framework for macro-environment research and Porter's 5-force model for business analysis, this study will investigate and evaluate the Australian supermarket industry in which Coles works.

Macro-Environmental Factors Political In Australia, there are two major supermarket chains that is Coles and Woolworth, they control almost 80 percent of the share in the industry. However, the government is against this duopolistic nature as it has led to a number of problems for the industry. This concentration of power has shut down other competitors and this means that consumers do not have a choice between Coles and other supermarket brands, ultimately there would be an unfair struggle for the suppliers and manufacturers and it would kill other small business owners and employees. (White, 2014)

The Australian government tasked the Australian Competition and Consumer Commission (ACCC) to regulate the industry (Tootill, 2012). ACCC has launched a lawsuit against Coles supermarket as they had developed a strategy to improve its earnings by securing better favorable terms from its suppliers. In doing so, the suppliers were being mistreated by Coles using leverage against them. (ACCC takes action against Coles for alleged unconscionable conduct towards its suppliers, 2014).

Economic Current trends in the economic climate has contributed to a decline in the spending power of Australian customers. The Chief of Coles Steven Cain worry that the immigration will 3

continue to be suspended and this will impact the grocery industry by losing 3 percent of sales every year and two to three years of new customers as the pandemic continues. Immigration is not the only factor that has affected the supermarket sales, but as Australians spend lesser time at home is equivalent as spending lesser on groceries and more time dining out it could lead to a downturn in sales (Thomson, 2021). Coles saw a fall in their profits over the past year reporting that the consumers swap from other brands to the supermarket home brand this shows that there is a change in spending habits of consumers (Farrer, 2019). This presents an opportunity for the Australian supermarket industry to strength national wide presence and how they can be differentiated from its competitors.

Social One of the primary patterns is growing customers consciousness and awareness of their wellbeing. Coles collaborated with Redkite a national cancer charity support organization to provide support for families of children facing childhood cancer. They started a fundraising event through the sales of Coles traditional hot cross buns which helped to improve cancer care over the phone counselling for children and young. (Helping Australian families facing childhood cancer | What's Happening at Coles, 2020) Coles has aligned themselves with food relief groups and distributed excess unsold produce to those facing hunger and food shortages, this is carried out on a voluntary basis by supermarkets under corporate social responsibility. (Kethell, 2016)

Technological There are positive and negative effects on the performance of Coles as it has been affected by technological factors. Over the last five years, contactless payment and self-checkout technology has become increasingly popular in supermarkets. Cole has implemented the selfcheckout technology and plans to cut $1 billion in the next four years. With the self-checkout in operation, it has help customers complete their shopping faster and with ease. Despite the introduction of such technology, complaints about having to wait in long queues at checkouts could lead to Coles losing more money due to lack of business.

Environmental Coles has come up with numerous ways and has been working on managing its operations in a sustainable manner by taking up large sustainability initiatives and partnerships to reduce our environmental impact. An initiative Coles have launched is 'REDcycle' where customers 4

can use specially marked bins at entrances to recycle bread bags, frozen food bags and other soft plastic bags. Since the launch of the project in 2011, Coles customers have recycled more than one billion bits of flexible plastic and has diverted it from landfills around Australia. (Environmental Sustainable Projects | Coles, n.d.) With this, Coles is set to become Australia’s most sustainable supermarket as they have made progress and implement sustainable processes across its stores. This is an opportunity for Coles supermarket as it give competitive advantage towards its industry and the environment.

Legal The ACCC took legal action against Coles because of its mishandling of suppliers, they had violated consumer law and unconscionable conduct. Coles had used unfair tactics to pressure suppliers to make ongoing payments to the company in return for purported benefits from changes to purchasing decisions. A class action have been filed against Coles for underpaying their staff over $150 million, and in about 600 staff $20 million over the past six years. Five percent of the company's salaried managers in the liquor business were also underpaid, flagging $3 million in back payment provisions and an additional $1 million in interest and costs. (Patty and Powell, 2020). Overall, these lawsuits can pose as a threat against Coles and the company can be portrayed as dishonest or irresponsible.

Porter’s 5-Forces The threats of new entrants According to the IBIS World report, the entry to barriers remain high and has deterred new entrants from entering the market. For example, a German based multinational supermarket, Kaufland has pull out and decided not to enter the Australian market as there is high industry competition and the presence of other well established supermarket brands. This means that there is a low threat as there is high barriers to entry from the pressure of existing firms. When a potential company enters the supermarket industry offering goods at reasonable prices, the existing players can simply respond by pushing their prices down. This makes the competition between current and new players within an industry low. (IBIS World Report)

The threat of substitute In the supermarket industry, the direct threat of substitution remains low for Coles as they are in a duopolistic market and offer prices that are similar to its competitors. Coles has continue to stick with its low-price strategy to win over customers. However, there are indirect 5

competitors such as convenience shops and farmer’s markets that can pose as a potential threat to Coles because of the change in customer preferences and inclination for safe and organic products. This offers direct competition to the supermarket by giving customers the ease of options and a wide variety of items.

The bargaining power of suppliers There is low bargaining power of suppliers in the supermarket industry as the products that the suppliers provide have low switching costs which makes it easier for Coles to switch suppliers. In this industry, Coles and Woolworths has the biggest market share of almost 80 percent. So, the suppliers have to provide reasonable pricing as they have few selections of grocery chains to work with. However, this is expected to change at some point, as the growth of other supermarkets is set to hinder the influence that Coles supermarket have in the industry.

The bargaining power of customers In the supermarket industry that Coles operates in, the number of suppliers is much higher than the number of companies manufacturing goods. This implies that consumers have a few companies to choose from as they do not have enough leverage over costs. Most importantly, the low income of the customers within the industry also affects the bargaining power. As there is pressure to purchase at low prices, this makes the buyers more price sensitive. Hence, the bargaining power of customers is relatively weak in this industry.

Rivalry among competitors As consumers are price conscious, they want to be assured that they are paying for goods that are valued for money. Even though supermarket giants like Coles, Woolworths and ALDI cut prices to bring consumers in, it emphasizes the significance of the price in the industry. Although, the main determinant is the price, the location of the store and the choice of the product consumers purchase often plays a key role. For example, Coles and Woolworths are aggressive competitors with each other, when Coles has a product on sale this week, Woolworths will compete with Coles by providing a similar promotion the following week. (Kidman, 2020)

Conclusion

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To conclude the above analysis, the external environment for Coles that is within the supermarket industry is favorable as the environmental and social factor has played a part in providing support to those that in need like cancer care patients and taking up sustainability projects. This can make Coles and its customers a competitive advantage towards its industry and the environment.

References Coles, B., 2020. Coles to become Australia’s most sustainable supermarket. [online] MHD. Available at: [Accessed 21 February 2021]. Coles.com.au. n.d. Environmental Sustainable Projects | Coles. [online] Available at: [Accessed 17 February 2021]. Coles.com.au. 2020. Helping Australian families facing childhood cancer | What's Happening at Coles. [online] Available at: [Accessed 18 February 2021]. Crozier, R., 2019. Coles to use technology to cut its costs by $1bn . [online] iTnews. Available at:

[Accessed 17 February 2021].

Farrer, M., 2019. Australian shoppers are spending less – and Qantas and Coles see their profits

dip.

[online]

the

Guardian.

Available

at:

[Accessed 19 February 2021]. Future Directions International. 2014. Market Power in the Australian Food System - Future Directions

International.

[online]

Available

[Accessed 21 February 2021].

IBISWorld Industry Report G4111 Supermarkets and Grocery Stores in Australia 7

at:

Kidman, A., 2020. When you stack Coles vs Woolworths, who comes out on top?. [online] finder.com.au. Available at: [Accessed 23 February 2021]. Ketchell, M., 2011. Coles and Woolworths duopoly hard to swallow. [online] The Conversation. Available at: [Accessed 18 February 2021]. Kethell, M., 2016. Powerful supermarkets push the cost of food waste onto suppliers, charities. [online] The Conversation. Available at:

[Accessed

19

February 2021].

Patty, A. and Powell, D., 2020. Coles workers claim they were underpaid $150 million in new class

action.

[online]

The

Sydney

Morning

Herald.

Available

at:

[Accessed 21 February 2021].

the Guardian. 2020. Coles underpaid workers by $20m over six years. [online] Available at: [Accessed 19 February 2021].

Thomson, J., 2021. Coles’ big population worry will hit entire economy. [online] Australian Financial Review. Available at: [Accessed 19 February 2021]. Tootill, A. 2012. Cole In The Country. Sydney, Australia: Alan Tootill White, K., 2014. The grocery market duopoly is dangerous and oppressive – and the rules need

to

change

-

SmartCompany.

[online]

SmartCompany.

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at:

[Accessed 18 February 2021]. 8

Gunasekaran, A.L. 2008. Responsive supply chain: a competitive strategy in a networked economy. Omega, 36(4), pp. 549-564

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