Woolworths External Analysis PDF

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EXTERNAL ANALYSIS GENERAL ENVIRONMENT EXAMINE ALL FACTORS --> OPPORTUNITIES or THREATS? The general environment can be divided into six divided segments: demographic, sociocultural, political/legal, technological, economic, and global. Global  It is unquestionable that the global segment has significant impacts on the industry with due to the COVID-19 pandemic.  It creates both opportunities and threats in other segments of the general environment of the industry. First, … [psychographic] Psychographic  Panic buying causing o Current impacts  Inbound logistics  product shortages  Outbound logistics  inability to keep stock on shelves  online delivery service crashed quickly due to inability to handle the deluge of orders  Suspended click & collect service o The disruption caused by panic buying can be rather viewed as a short-term threat, creating an opportunity for WW to shift focus to online business. o Because it has given it the chance to reflect and review on:  relationships with suppliers  just-in-time strategy Sociocultural/Demographic  Has created substantial consumer demand for WW online grocery business without any intentional marketing effort.  Pushes WW’s online business into growth stage of the life-cycle.  Can see a trend of consumers moving to online groceries shopping, having experienced the convenience it brought during the pandemic.  This poses significant opportunity to WW because the Australian online grocery industry is still considered under-penetrated – only 2.8% of the total revenue in the Australian industry compared to 6% of US & UK industry.  Given the Australian population and 10 million households… Political  Additional costs associated with adhering to the social distancing policy and a much higher hygiene requirement in different states of Australia.

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Abrupt need to scale up its manpower to support the facilitation of higher hygiene requirement o Not only caused a higher cost of labour and hiring o puts a considerable amount of distress on WW’s human resources management

Economic  poses significant threats on the segment o Poor market performance o Threat of global recession Technological  

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Segment is less prone to the impacts of COVID-19. Though not mentioned in the case, technological advancement in market intelligence and mobile phone application development unquestionably brings creates some extent of opportunity. However, it also poses threats to the industry as it has given the consumer an exceptional convenience to compare players in the industry, which can escalate the price competition.

PORTER’S FIVE FORCES – SUPERMARKETS EXAMINE ALL FACTORS --> LOW/ MODERATE/ HIGH? Rivalry among existing firms = HIGH  Being in the maturity stage of the industry, it has very intense competition.  Though buyers’ demand is has grown due to panic buying, o Low buyers’ brand switching costs o Weakly differentiated products of the industry members o Creates strong rivalry pressure  The firms in the industry have high fixed costs or high storage costs due to the need for physical sites and warehousing.  Despite the near duopoly situation, the major competitor -- Coles is of roughly equal size and competitive strength.  Rivals face high exit barriers due to high level of investments in physical resources. Threat of potential entrants = LOW/MOD  Due to considerably high entry barriers  Incumbents have large cost advantages over potential entrants due to: o High economies of scale o Significant experience-based cost advantages or learning curve effect o Other cost advantages (e.g. favorable access to inputs, technology, location, or low FC)  Customers have strong brand preferences and/or loyalty to incumbent sellers.  There are strong network effects o Kaufland decided to back out of the Australian market because of the suppliers’ fear of incumbents’ power.  Capital requirements are high o $523 million investing in the supermarket industry here in Australia before hastily existing the market at the beginning of 2020. o Two major incumbents forward integrated into distribution stage of value chain.  There is limited new access to distribution channels and shelf space.  High switching costs for buyers. Bargaining power of buyers = MOD/STRONG  The industry’s products are standardized or undifferentiated.  Buyer has low switching costs of switching to competing products.  Buyers are large (10 MIL households) and few in number relative to the number of industry sellers (3 major players and several minor players).  Though buyers DO NOT pose a credible threat of integrating backward into the business of sellers.

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Buyers are well informed about the quality, prices, and costs of sellers through the convenience of IT and technology advancements e.g. Websites and phone apps. Buyers are moderately price sensitive. o Part of the buyers earn low profits or low income, esp. during the pandemic o Though the product does not commonly represent a significant fraction of their purchases.

Threats of Substitutes = MOD/STRONG  Online grocery retail market  Good substitutes are readily available (Amazon Fresh has the capabilities required) but not necessarily at attractively prices because Amazon Fresh does not have the network of suppliers (yet).  Substitutes have comparable or better performance features: convenience  Buyers have low costs in switching to substitutes: no costs at all.  Sales of substitutes are growing faster than sales of the industry being analyzed: growing 30% a year.  Producers of substitutes are moving to add new capacity.  Profits of the producers of substitutes are on the rise.

Suppliers’ power = WEAK/MOD but COVID-19  Prima facie weak: Suppliers planned to “withhold supply” to Kaufland “in fear of reprisal from Coles and Woolworths. o Suppliers’ products and services are not differentiated. o Industry members do not seem to incur high switching costs in switching between suppliers. (e.g. Transport costs to another location) o The supplier industry is scattered compared to the industry it sells to and is not dominated by a few large companies. o Industry members have high potential to integrate backward given their financial position. o Industry members DO account for a big fraction of suppliers’ sales.  However, due to COVID-19 pandemic and the Australian bush fire earlier this year, suppliers’ products are now in short supply --> gives some extent of suppliers’ power. o There are no good substitutes for what the suppliers provide. o Suppliers’ products do not account for > a small fraction of the total costs of the industry’s products.

PORTER’S FIVE FORCES – ONLINE GROCERY Rivalry among existing firms = MOD  Being in the growth stage of the industry, competition increasing. Though currently only Coles.  Weak: o Competitors are few, though is of roughly equal size and competitive strength. o Buyers’ demand is growing fast due to panic buying and fear of COVID-19  Strong: o Buyers’ brand switching costs are low. o Rivals face high exit barriers due to high level of investments in physical resources e.g. delivery systems, trucks and warehousing o The products of the industry members are commodities or weakly differentiated. o The firms in the industry have high fixed costs or high storage costs.  The firms in the industry have excess production capacity and/or inventory. Threat of potential entrants = MOD/HIGH  High: o Entry barriers considerably low --> no physical sites, less capital requirements. o Customers do not have strong brand preferences and/or loyalty to incumbent sellers. o potential entrants have some extent cost advantages over incumbents due to:  Other cost advantages (e.g. favorable access to technology) o Capital requirements are moderate because physical site requirements not high o Low switching costs for buyers. 

Low: o Incumbents have some extent cost advantages over potential entrants due to:  High economies of scale  Relationship with suppliers, favorable access to input - strong network effects E.g. Kaufland decided to back out of the Australian market because of the suppliers’ fear of incumbents’ power  despite experience-based cost advantages in groceries and some learning curve effect prompted by COVID-19 panic buying,

Amazon Fresh has certain extent of experience-based cost advantage as well as technologies in distribution business o Two major incumbents forward integrated into distribution stage of value chain. Bargaining power of buyers = MOD/STRONG  The industry’s products are standardized or undifferentiated.  Buyer has low switching costs of switching to competing products.  Buyers are large (10 MIL households) and few in number relative to the number of industry sellers (3 major players and several minor players).  Though buyers DO NOT pose a credible threat of integrating backward into the business of sellers.  Buyers are well informed about the quality, prices, and costs of sellers through the convenience of IT and technology advancements e.g. Websites and phone apps.  Buyers are moderately price sensitive. o Part of the buyers earn low profits or low income, esp. during the pandemic o Though the product does not commonly represent a significant fraction of their purchases. Threats of Substitutes = MOD/STRONG  Traditional grocery retail market  Good substitutes are readily available (strong establishment of WW/Coles) but not at attractively prices because the network of suppliers.  Substitutes have comparable performance features: o Once COVID-19 is over, consumer may return to physical shopping o even though it provides the same convenience and there may still be demand after pandemic and social distancing rules, existing sites of substitute are still convenient eg. near to workplace, transportation centre, CBD etc. can weaken the demand.  Buyers have low costs in switching to substitutes: no costs at all.  Although sales of substitutes are no necessarily growing faster than sales of the industry being analyzed which grow 30% a year.  Producers of substitutes are moving to add new capacity.  Profits of the producers of substitutes are on the rise.

Suppliers’ power = WEAK/MOD but COVID-19  Prima facie weak: Suppliers planned to “withhold supply” to Kaufland “in fear of reprisal from Coles and Woolworths. o Suppliers’ products and services are not differentiated. o Industry members do not seem to incur high switching costs in switching between suppliers. (e.g. Transport costs to another location)

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o The supplier industry is scattered compared to the industry it sells to and is not dominated by a few large companies. o Industry members have high potential to integrate backward given their financial position. o Industry members DO account for a big fraction of suppliers’ sales. However, due to COVID-19 pandemic and the Australian bush fire earlier this year, suppliers’ products are now in short supply --> gives some extent of suppliers’ power. o There are no good substitutes for what the suppliers provide. o Suppliers’ products do not account for > a small fraction of the total costs of the industry’s products....