An analysis and evolution of the Woolworth Corporation using the Porter’s Five Force Framework
Contents
1.Introduction 4
1.1 Background 4
1.2 Report aim 4
2.Porter’s Five Force 4
3.Analysis and Evolution 5
3.1 Supplier power 5
3.2 The threat of substitutes 6
3.3 Industry rivalry 6
4.Conclusion and Recommendations 6
4.1 Conclusion 7
4.2 Recommendations 7
Reference 9
This report implements Porter’s Five Force to explore how Woolworth corporation has coped with the potential threat of business. It also aims to connect market issues and theories through market research and company reports to find good ways to address these potential threats to the company. However, it is evident from the research findings that the corporation has been faced by supplier power, or company should improve supply force and production of products that satisfy customers’ wishes; the threat of substitutes, or if substitution is high, company profit suffer damage; industry rivalry, or high rivalry limits the profitability of the corporation. Furthermore, according to a company research report, Woolworth responds to additional threats based on company annual reports and latest news.
To reduce the impact of these risks, this report suggests the Woolworth corporation should:
· Strengthen company power and improve product quality.
· Keep distance with substitutes that Woolworth can change the sales model, such as discounting different products
· Encourage innovation, establish monopoly products, and improve the company's level of competition in the industry.
1.Introduction
Woolworth manages in an environment with many consumers and a highly competitive environment. When formulating a long-term company plan, the company not only needs to pay attention to the cost of raw materials and employee salary expenses but also needs to do market research to deal with competition from other companies. Woolworth founded in 1879, it is Australia's biggest supermarket chain and the leader of the Australian supermarket industry, with annual sales of 60 billion Australian dollars. Woolworth owns more than 1,200 supermarkets in Australia and New Zealand and 2,000 other forms of chain stores. In Woolworths shops, there are as many as 24,000 products. The core business of Woolworths is the supermarket business, including the famous Woolworths, Countdown, Dan Murphy, Big W, etc. The Woolworth corporation ranked 21st in the 2016 global supermarket market ranking. (Matthews, 2017)
1.2 Report aim
Applying Porter’s Five Force framework in this report, and analyzing how Porter’s theory relates to corporation situation. Analyze the Woolworth's level of competition in the industry and how these potential threats threaten the company's profits. Especially, it aims to analyze the impact of external force on the corporation, evaluate how corporation handles those risks and provide some proposals on increasing the competitiveness of the corporation.
According to Porter (2008), he invented this theory in 1979, it can be used in coping with potential threats and increasing the company’s competitive in the industry. Those five forces consist of the following elements (Pringle & Huisman, 2011).
· the threat of new entrants, which refers to a new entrant puts pressure on companies in the original industry, it will use new capabilities to gain the market share
· the threat of substitutes, which means that if the substitutes for the products produced by merchant are high, the profit of the merchant will be affected. An industry needs distance itself from other alternatives in product quality and sales methods.
· supplier power, which relates to limited suppliers provide products to majority consumers, suppliers are powerful and they can earn enough profit to satisfied themselves.
· buyer power, which is when customers demand the product is high and suppliers are forced to provide better products and services, competition between suppliers will become motivated.
· competitive rivalry that means competition in the industry has many ways such as innovation, price discounting, methods of sales, and advertisements.
3.Analysis and Evolution
The Woolworth company faces three potential threats which are the supplier power, the threat of substitutes and industry rivalry.
3.1 Supplier Power
Supplier Power is one of the most factors to a company, increasing the company's supply will also increase the company's competitiveness in the industry. Porter (2008) claimed that limited suppliers provide products to majority consumers, suppliers are powerful and they can earn enough profit to satisfied themselves. The strength of the supplier is the basic element of the company's comprehensive strength. Increasing the strength of the supplier can make the company more competitive in the industry. Due to drought, higher energy price and the weaker dollar, the supplier power between the industry decline. Raising costs and failing to reach a consensus price on the same product makes the relationship between suppliers worse. Although retailers' reluctance to approve price increases, packaged food prices rose 4.5% in the March quarter, the highest increase in at least seven years. In order to respond to this threat, Woolworth wants to keep supplier power that it tries to pass rising costs to consumers and producers. That means Woolworth can keep good product quality in the industry. (Mitchell,2019)
3.2 The threat of substitutes
Many multinationals have similar business operations. This makes it easier for customers to choose products from other companies for more benefits. Customers can judge whether to buy products is attractive, the price is high or low, the advertising is attractive people, the quality of the product, and the brand effect. For example, Coles and Woolworth have a similar supermarket, they have similar products for the consumer to choose, they also have a similar price for the same products. Coles is Woolworth’s stronger competitor in a supermarket. As for the consumer, they would like to choose a low price products to reduce the cost of living, they also like to choose fresh and tasty vegetables and fruits. Other than that, a former supplier of Woolworth states that the retailer replaced Australia's best-selling cosmetics with similar Chinese products. Substitute products use high imitation methods to imitate genuine bottle packaging and labelling. (Trembath, 2016) These substitutes have a lower prices than the genuine and lower costs of production. This made consumers buy this alternative without their knowledge.
The appearance of substitutes brings a huge impact on the genuine. If the company cannot find a reasonable solution, the company's profits will be affected. Pringle and Huisman (2001) argued that industry should keep distance itself from substitutes through product quality, the method of market and product performance. Woolworth should make their cosmetic keep distance from substitutes. For example, it can add an anti-counterfeit serial number to the packaging of cosmetics. Consumers can determine whether the item they bought is genuine by looking for the add anti-counterfeit serial number on the product’s official website. They also can change the packaging material through innovation to make the packaging material unique, and a consumer can feel unique after touching this package. The corporation must truly treat the threat from alternatives. Through Porter’s theory (2008), analyzing and inferring the emergence of substitutes and making a good strategy to solve this problem.
3.3 Industry Rivalry
In the supermarkets and grocery stores, Woolworths is competing vigorously with Coles and ALDI, Westfarmers in Australia’s market. Woolworth certainly has several core competencies as compared with the other major competitors. First, Woolworths Supermarket has the ability of having a large scale production(Haskin et al., 2019). It can address customers’ demand through producing goods at a very short period of time. Besides, Woolworths also advocates for advanced technology in replacing manual labor. However, Woolworths is also facing potential problems with respect to high cost of machinery, maintenance, water and electricity. In other words, it is rather difficult for Woolworth to reduce the cost of production very significantly. On the contrary, potential competitors such as Coles and ALDI are all able to produce or sell at a much lower price. As shown in the fig 1 below, even though Woolworths Ltd have the largest market share in the local industry, Westfarms, ALDI, and other competitors are rapidly catching up. Like the aforementioned, it is rather difficult for Woolworth to reduce the production cost, Coles, ALDL, Westfarmers are competing with each other to lower the retailing price. According to the IBIS report 2019, Coles prices fell almost 2% in the first quarter of the 2018 fiscal year(IBISWorld,2019). Besides, ALDL is also strategically partnered with Amazon in order to promote sales through online marketplace and e-commerce business model. It will potentially challenge the traditional retailing industry and reduce the market share of Woolworths furthermore. IBISWorld also predicts that online grocery sales in Australia is going to grow at least 12.4% in the next five years(IBISWorld,2019). In order to compete with major competitors, Woolworth has to consider serious about how to reduce production cost and retailing price. IBISWorld advises that Woolworth has to lower its price at least 2% in order to compete with ALDI and Coles(IBISWorld,2019). In addition, as the online grocery is a relatively new area, Woolworths should invest part of its resources in this sector.
Source Credit: IBISworld, 2019
Fig 1: Market share in the supermarkets and grocery stores
4.Conclusion and Recommendations
4.1Conclusion
Woolworth is facing the threat of substitutes and increasing strongly competitors. Woolworth can improve the product’s quality to improve supplier power so that it can achieve profitable growth. The fewer suppliers of commodities, the stronger the supplier’s strength, and more profit the company can get. Confronting the threat of substitutes, improving the company's overall strength and having long-term development strategy and keep distance from substitutes through product quality, commodity performance, and sales methods. In a competitive industry, Price competition is important in sales. Reasonably arrange the coordination and cooperation of item prices to reduce competitors.
4.2Recommendations
As ways to mitigate these issues, it is recommended that the Woolworth
· Strengthen your company power and improve product quality.
· Encourage innovation, establish monopoly products, and improve the company's level of competition in the industry.
· When the quality of products from other companies is the same, Woolworth can change the sales model, such as discounting different products
· Finding a good way to transfer rising costs to consumers or material support so that it can increase supplier power, let considerable customers buy their commodity.
· Woolworth company can increase investment in innovation, and new product is unique which can keep distance form substitutes. The production of monopoly products can make business parents last long and has strong competitive.
· Woolworth corporation can obtain the market situation in the first place though professionals, understand the future direction of the market through analysis and deduction, and formulate the correct market strategy to make products most competition
Word count: 1779
Reference
Adam Matthews Digital (Film), digitiser. (2017). 50 years of Woolworth. Marlborough, Wiltshire: Adam, Matthew Digital
Haskins, B., Nehme, Z., Cameron, P., Bernard, S., Parker‐Stebbing, L., & Smith, K. (2019). Coles and Woolworths have installed public access defibrillators in all their stores: It is time other Australian businesses followed their lead. Emergency Medicine Australasia.
Janda, M. (2014, Aug 20). ACCC launches legal action against informed sources and retailers over alleged petrol price sharing; the competition watchdog is tackling Australia's largest petrol retailers over an information sharing service it says is leading to higher prices. ABC Premium News Retrieved from https://search-proquest-com.ezproxy.lib.monash.edu.au/docview/1554377492?accountid=12528
IBISWorld (2019). Supermarkets and Grocery Stores in Australia - Market Research Report. Retrieved from: https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/food-retailing/supermarkets-grocery-stores.html
Mitchell, S. (2019, Apr 18). Suppliers call on ACCC to tackle supermarket power. The Australian Financial Review Retrieved from https://search-pro0quest-com.ezproxy.lib.monash.edu.au/docview/2210413705?accountid=12528
Porter, M.E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 88(1), 78-93.
Pringle, J., & Huisman, J. (2011). Understanding universities in Ontario, Canada: An industry analysis using Porter’s Five Forces Framework. Canadian Journal of Higher Education: Revue canadienne d’enseignement supérieur, 44(3), 36-58
Trembath, B. (2016). Woolworths replaced australian-made products with chinese lookalikes: Former supplier: A former supplier to woolworths claims the retailer replaced top-selling australian-made cosmetics with lookalikes from china. the replacements had very similar labels and bottles. woolworths is renowned for driving hard bargains with suppliers. australia's official consumer watchdog alleged in the federal court this month that woolworths sought up to $60 million from suppliers in late 2014 to help reduce a shortfall in its half-year profit. Sydney: Australian Broadcasting Corporation. Retrieved from https://search-proquest-com.ezproxy.lib.monash.edu.au/docview/2121343741?accountid=12528