Woolworths Strategy Report PDF

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Summary

This report was conducted surrounding a question that sought to analyse an organisation and their strategic issues surrounding a 5 year period. Analysis was conducted through internal and external environments and strategic issues have been identified and then solutions have been recommended. ...

Description

Executive Summary This report identifies and details the strategic issues in the supermarket industry within the time frame of the next 5 years and the subsequent recommendations provided through external environmental and internal capability analysis. The strategic issues faced by Woolworths within the supermarket industry are as follows: -

Differentiation within the industry in areas outside of price is needed. Political and its subsequent legal ventures into the industry with the ACCC and their policies for setting price floors. Technology and Woolworths ability to adapt and incorporate this within their retail outlet and delivery services. Intensification on climate policy or climate change and its subsequent effect on business operations.

The recommendations provided and reasoning behind recommendations are: 1. Differentiation through CSR and increasing brand value 2. Differentiation through maintaining existing advantages surrounding product line size, in store theatre + campaigns and customer service capabilities 3. Differentiation through increased investment in researching ‘up and coming’ breakthrough products and partners, encasing them within Woolworths as exclusive to maintain a lead in the industry and product differentiation in the subsequent years. Strategy (1) is recommended through the opportunity provided in the political legal external environment and the sociocultural situation surrounding supermarket suppliers. Woolworths can take advantage of this moving away from price wars as their sole advantage as through proposed policies may become increasingly unsustainable. Constructing a social campaign creating additional value associated with Woolworths’ brand is essential for diversion from prices. Strategy (2) follows through existing success and advantages within retail outlets which have been reported to have consistently outperformed competitors and when coupled with the social campaign and other intangible value associated with the Woolworths brand, can create reason and value for customers to shop at Woolworths exclusive of prices. Strategy (3) addresses future proofing Woolworths leadership in the market with its product line and differentiation brought forward by the previous strategies. This will create further differentiation through exclusive products to reduce the ‘sameness’ within competition products and create an association of prototypicality within Woolworths brands within their respective categories.

External Analysis In order to best plan for the near future of 1-5 years for Woolworths within the supermarket industry, analysis must be conducted on the external environment within Australia. The PESTEL framework (Political, Economic, Social, Technological, Environmental and Legal) analysis of relevant headings has been conducted to explain the present and forecast conditions for the next 5 years (Summary included in appendix).

The political policies being drafted by the major parties with the upcoming 2019 election and their specific relationship within the supermarket industry influences in how Woolworths business activities operate and their strategic planning and decision making going forward.

In particular, the proposed policies of the Liberal and Labor party that effect Woolworths are:

Liberal

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A continuation of its $11.4 million investment within the Australian Competition and Consumer Commission (ACCC) as outlined in their 2015 Agricultural Competitiveness White Paper (Department of Agriculture and Water Resources, 2015). This investment allowed the ACCC to examine the structural issues surrounding the dairy sector in a formal enquiry (2018) ‘Dairy Enquiry’. This enquiry resulted in the construction of a mandatory code of conduct within the industry. If reelected, in conjunction with consultation with Australian Dairy Farmers engage the Australian Milk Price Initiative (AMPI) to create pricing and marketing concepts for the industry aligned with the ACCC recommendations. The result of this new initiative will increase dairy supplier leverage and transparency through their supply chain, increasing overall control (Liberal Party of Australia, 2019).

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Implementation of the ‘AgriStarter’ concessional loans of 2 million to first time farm buyers or newly established farmers to allow ownership or part ownership of farms allowing for ‘new blood’ within the ageing industry (Liberal Party of Australia, 2019).

Labor

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Also pursue a mandatory code of conduct addressing the imbalance of power between farmers and processors within the market. Labor will also create a ‘Minimum Farm Gate Milk Price’ to give a minimum price set on dairy products. This will allow farmers to bargain for the highest price they can achieve but prevent buyers from setting a price that they are willing to buy from under the supposed product floor (Australian Labor Party, 2019).

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Proposes an extension in the existing pollution cap implemented by Malcolm Turnbull which seeks to reduce pollution levels of big businesses (0.01% total covered by this cap). Implementation of $300 million to fund businesses to reduce overall pollution levels. This proposed plan is to benefit the farming and forestry industry to earn income via carbon farming initiatives to increase income through pollution reduction (Australian Labor Party, 2019).

These proposed policies on the dairy industry concerns Woolworths business activities. Having the proposed price floor being introduced under the Labor Party could cause issues in increasing prices overall for dairy products sold by Woolworths. Adapting to the potential price increase and the subsequent complaints or decrease in their bargain dairy products should be considered.

The opportunity arises however in creating a marketing campaign in Woolworths support for their dairy suppliers, building the organizations reputation and relationship with the suppliers. This positive campaign in giving dairy farmers “a fairer go” is incorporated in both political parties’ policies

surrounding the dairy industry. In 2018, Woolworths had increased its famous $1 milk prices in support for their dairy suppliers (Brown, 2018). The approach marked the start of a campaign surrounding Woolworths and their continual support for their suppliers and relationships. Compared to their primary competitors Coles and Aldi who have chosen not to increase their cheap milk prices have received backlash for their lack of perceived support (Fordham, 2018). Woolworths can use this opportunity to further differentiate themselves from competitors in areas outside of price and increase their brand name and value delivery within the industry.

With the Liberal Party being elected, an increase in power and support given to the ACCC can cause issues with supply chain relationships and price fixing or price war competition which often heavily taxes on the suppliers. The ACCC has already had impact within the industry through its 2008 ‘Grocery Price Inquiry’ (ACCC 2008) which sought to deal with the increasing price competition with Aldi at the forefront. Liberal’s propose that through their AMPI, dairy farmers can increase their previously limited bargaining power and have a set standard on conduct between suppliers, processors and buyers. Woolworths must continue to build and maintain its relationship with its suppliers to prevent potential inquiries into supply chain activities causing disruption and brand name value degradation. The legal enforcement brought forward from the ACCC and their continual involvement within the supermarket industry and Woolworths business activities must be accounted for in future strategic planning.

There is potential significance in environmental issues and sustainability within Woolworths business practices and in particular the proposed Labor policy of increasing the pollution cap scope and the flow on effects within the farmers and suppliers should be noted. Drafting plans that incorporate the potential of being included under the cap and the benefits suggested through carbon farming initiatives is to be accounted within the supply chain.

Industry Analysis Understanding the competition within the supermarket industry is essential in constructing strategic plans for Woolworths future business activities. Porter’s (1975) ‘5 Forces’ framework will be used to analyze the competition within the marketplace (Summary included in appendix).

The power of buyers is high contrasted against the lower supplier power. This can be concluded through the interventions and enquiries conducted by the ACCC in its 2008 ‘Grocery Price’ and 2018 ‘Dairy’ inquiries which sought to balance the distribution of power within the industry. There has been increasing weight in supplier feedback towards their buyers as indicated in media articles in the case of competitor Coles and their lack of support for dairy suppliers calling for boycotts (Fordham, 2018) leading towards shifting public perceptions about their company practices. Woolworths has seized beneficial publicity in this area with Coles’ supplier scorecards revealing numbers to suggest Coles needs to shift its strategy and tighten their relationship with suppliers in comparison to where Woolworths is situated (Mitchell, 2018).

This information with the notion that the supermarket industry faces fierce competition surrounding price wars provides Woolworths with the opportunity to differentiate itself through means of supporting suppliers and the construction of a campaign surrounding this. This will help create a competitive

advantage within the industry outside of price wars in which they cannot compete against Aldi. Not only does it prevent extensive unwinnable price wars against competitors Aldi, it also differentiates itself from how Coles has handled their relationship with suppliers and their publicly perceived support for these suppliers.

This opportunity also seeks to safeguard against emerging threats through replication and stagnant product ranges offered by competing stores. In particular, the potential rise of Amazon GO within Australia could seek to shake the market with their unique technological integration in their delivery of value of convenience and ease of access ( Rice & Martin, 2017). In using the social campaign and constructing value around what Woolworths stands for and their support of Australian suppliers, Woolworths can use this opportunity to increase its foothold in the industry and reduce stagnation.

Care must be taken in preventing cannibalization within the increasingly competitive marketplace. Woolworths has continued to refurbish its already existing stores in contrast to Coles who have chosen to invest in new locations and stores. Aldi has also been victim of this and through their previously rapid expansion and market share growth have relatively subsided as a result ( Oseogowitsch & McCabe, 2018). This results in market oversaturation resulting in a classic form of economic imbroglio.

Overall, managing the levels of competition surrounding price and Woolworths ability to differentiate itself from competitors are key aspects to be integrated into future strategic planning. The need to account for increased technological integration (Amazon Go) within the retail outlets or tightening down on online sales and delivery are also to be speculated in strategic goals. Woolworths as a result of media and internal supply chain management success, has a platform to launch itself from to create a competitive advantage within the next 5 years centered around differentiating itself from competitors in aspects outside of price and building upon its existing brand, trust and values. Internal Analysis

VRIO Analysis

VRIO analysis was conducted to determine the competitive advantage held by Woolworths within the industry.

Woolworths has a public ownership structure and when compared to its primary competitor Coles, have very similar business models unlike Aldi’s private ownership. The advantages Woolworth has currently focused around having competitive parity with the other supermarket giant Coles in terms of price focus. The difference however is seen in the range afforded to Woolworths shoppers when compared against the diminishing range Coles have been employing in order to continue their ability to wage the price war (Fernyhough, 2018, Hatch, 2018).

Woolworths also sports advantages over its competitors in its retail store theatre and special campaigns that entice customers and differentiate themselves from competitors (Fernyhough, 2018). This in contrast to Woolworths previous focus on price war and cost leadership within the industry which was once considered to be a sustainable competitive advantage is now considered to be temporary and competitive parity. It is important that Woolworths look towards other ways to differentiate themselves due to very little significant price differences between products of Coles and Woolworths compared to Aldi’s lowest prices.

Using the relationship between Woolworths suppliers and promotion of supporting them can be an effective marketing campaign to create a brand value difference between Coles and Aldi. More specifically, the factor of being ‘The Fresh Food People’ as a sustainable competitive branding advantage has diminished in its ability to create differentiation between competition with notions of fresh groceries being taken for granted and seen as automatic. An interview on the subject with Monash University Professor Stephen King who is also a former ACCC commissioner on the matter supports this claim. King reveals in the past (1908’s) Woolworths was behind Coles until it took up the ‘Fresh Food People’ branding and eventually overtook Coles. In response to this, Coles replicated Woolworths freshness promises showcasing the ‘sameness’ within the organizational strategies and marketing campaigns. This trend follows through in Coles’ ‘Down Down’ campaign which was soon copied by Woolworths instigating the price war (Knox, 2014).

The cycle the industry is going through and its lack of real differentiation must be considered and taken into future strategic planning. Even Woolworths’ own direct input in its ‘Woolworths Select’ product range has been appropriated within Coles and is reflected within Aldi’s entire store product branding.

Value Chain Analysis

Value chain analysis was conducted to identify which areas of Woolworths business operations create value for customers and can be forwarded or changed to create sustainable competitive advantages (Matias et al. 2018)

The analysis concludes advantages surround the notion of cost leadership and differentiation as a hybrid strategy. The issue of sustaining the advantage surrounding the current strategies is questioned however in the stagnant strategic techniques employed by Woolworths and their competitors within the market. Woolworths should look to incorporate differentiation branding surrounding its CSR and supporting suppliers as well as its advantage of store theatre and customer service. Research should also be conducted into ‘break out’ brands or partners and fostering an exclusive or limited product range or partnership with brands to lose the ‘sameness’ within product ranges of competitors.

Strategic Issues and Recommendations

The internal and external analysis provided has been summarized and implemented within a SWOT framework to best identify strategic issues and the opportunities that have arisen within the industry.

The strategic issues that have arisen through the conducted analysis are as follows:

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Differentiation within the industry in areas outside of price.

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Political and its subsequent legal ventures into the industry with the ACCC and their policies for setting price floors.

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Technology and Woolworths ability to adapt and incorporate this within their retail outlet and delivery services.

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Intensification on climate policy or climate change and its subsequent effect on business operations.

Differentiation Is Needed

The lack of real differentiation within the industry competitors is of primary concern to Woolworths and their need to differentiate themselves from the ‘sameness’ within the industry. In the past, Woolworths has used the price leadership approach and has successfully built its foundations around it. Now and into the next 5 years however, this has become increasingly unsustainable with competitor Aldi leading overall and Coles matching Woolworths’ prices. Porter (1996) furthers the importance of creating a sustained advantage as opposed to temporary tactics and when considering the future operations of Woolworths, should not solely be relied upon for competitive advantage. Organizations that use multiple strategies (hybridization) outperform competitors with singular selling points (Salonen et al. 2007). Aldi and Coles both at present are more focused on price sensitivity as opposed to range or brand value. Moving away from a price oriented competitive advantage is strongly recommended in future business strategies around differentiation.

The role of technology within differentiation should also be noted and competitors that use this method like Amazon Go should be accounted for. Looking to apply ease of access mechanisms throughout retail outlets or improving the scale and experience of online + delivery options are to be researched due to their likely prevalence within the 5-year future.

Differentiation through CSR, branding and existing advantages

The political propositions made by both Liberal and Labor, their empowerment of the ACCC and subsequent affect within the supermarket industry has created a unique opportunity for Woolworths and its ability to differentiate itself from competitors in areas outside of price. The construction of a campaign surrounding support of suppliers will create additional value within the brand name creating tangible supporting relationships within the supply chain network and adding intangible value for customers who support Woolworths business behaviors. Moving away from price dominated competition as the real differentiation between Woolworths and its competitors is extremely important as Porter (2008) suggests:

“Rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers directly from an industry to its customers.” (Porter, 2008 p. 32)

This strategy will avoid unsustainable price wars that have taxed suppliers and, in the future, will change due to external political and legal forces creating price floors and increasing supplier powers within the relationships with buyers. This should extend onto Woolworths already existing advantages in store theatre and campaigns to entice customers to shop there. Attention in this area should be directed towards using children as a vehicle to change parents shopping habits (Jeevananda & Kumar, 2012). In conjunction with the CSR campaign and incentives for children both intangible and tangible value is created around the Woolworths brand.

Differentiation through research of new products and exclusivity

Furthering the need for differentiation, research should be conducted to identify prospective partners and ‘up and coming’ products in areas rapidly advancing like the health and fitness supplies department. Using these new partners of desired products contracts that specifically restrict their ability to sell to other outlets should be considered to further product differentiation. Furthermore, such products can be placed under Woolworths own direct input name to ensure its exclusivity and limitability to Woolworths. The importance of advancing research in these new ‘break out’ areas especially within the future will allow for ...