HI6006 Competitive Strategy For Vertically Integrated Chains

Answer:

Introduction

The competitive strategy can be defined as a long-term plan, which is devised to help an organization to gain a competitive advantage over the fluctuation conditions, and competitor's existing in the market. These type of strategies are often used in making effective advertisements to increase the sales of the products (Tanwar, 2013).

This report describes the main strengths and weakness of the Australian Supermarkets by analyzing their competitive advantages and finding out the strategies that are being used by the top market players to maintain their market position as well.

This paper includes business strategy, corporate strategy, external analysis, sustainability, acquisition and structuring of the Australian Supermarket to provide the overview of the overall competition existing in the market.

The supermarket industry of Australia is a major contributor to the economy of the country. In addition, it is an indicator of the economic health of growth prospectus of the country in near future. The main function of this industry is to serve the customers a variety of products and services under a single roof (Keith, 2012).

External Analysis

PESTEL Analysis

Political Factors

The political climate affects the Australian Retail Industry and also the performance of big market players. For example, the Federal government of Australia has lately launched a competition policy which tends to prevent the main market players such as Coles and Woolworths in abolishing the competition. The growing market power of these major retailers has increased the struggle of small retailers to perform effectively.

Economic Factors

A sharp decrease in the market conditions around the country has also affected the performance of supermarkets such as a decrease in demand and supply of products, increasing rate of suppliers and negligible profit margins etc. Apart from this, the economic fluctuations such as decreasing the Australian Dollar prices and currency exchange rates have adversely affected the international retail operations of Coles and Woolworths (Gibbs, 2015).

Social Factors

The organizations operating all over the country are required to take care of the values and social perspective of the consumer to achieve the higher sales. Australia has a high literacy rate and thus the customers prefer to purchase from the organization, which is highly socially responsible.

Technological Factors

The technological factors have affected the entire retail industry as Woolworths is considering the application of refrigeration technology so that it can store the perishable products for a long time. Similarly, it is also using robotic technology in its warehouses to manage the stock in an efficient manner (Gupta, 2013).

Environmental Factors

All the supermarket's companies are directed not to use to introduce any kind of food processing activity, which can harm the environment. Along with this, the wine and petrol making the business of Woolworths have the direct impact of environmental laws which also affects the performance of the business in food retailing business.

Legal Factors

The carbon tax has affected the business of all supermarkets. The research also indicates that the regulation by Australian Competition and Consumer Commission and need to follow the fair practices have affected the business operations as well as the profitability of the big market players (Kolios & Read, 2013).

The attractiveness of the Industry

Porter's five-factor analysis

Bargaining power of buyers

The bargaining power of buyers in the industry of Australian Supermarket is high as they have a number of option to make the purchase from. Along with this, all the supermarkets are offering continuously low prices to attract the customers as well.

Bargaining power of Suppliers

The suppliers bargaining power is moderate to high in the Australian Supermarket Industry. The giant market players have their fixed suppliers and their power is considered moderate. Moreover, the small retailers have to purchase the stock at high rates as compared to the big one because of a small number of purchases (Pervan, et al., 2018).

The threat of New Entry

The threat of new entry at a big level is low because some big supermarkets like Coles, Woolworths have covered almost more than half the area of the total industry. However, it is easy to state business at a low level but then the retailers have to face the high bargaining power of suppliers.

Threat of Substitutes

The threat of substitutes is lower as compared to the other industry in Australia. It is so because there are no substitutes for the items used in day to day life like groceries, vegetables, dairy products etc.

Competitive Rivalry

The level of Competitive rivalry is very high as there are some big competitors operating successfully such as ALDA, Coles, Wesfarmers, Woolworths etc (Dalken, 2014).

Competitive Dynamics

The Australian supermarket industry in highly competitive in nature and regularly attracting the new organizations.  ALDI, a German retailer has launched its business in 1990 having plans to open a number of stores with market differentiation strategy in the future. At present, ALDI is listed among the top most supermarket retailer in the Australian economy. All the players are much aware of all the competitive factors existed in the market and design the unique strategies to attract the customers along with maintaining the profitability of the business. The major supermarkets are moving to promote and expand their private label products that are quite similar to the products occurring in the local grocery market of UK (Butler, 2017).

As consumers prefer of make purchase of the inspected products from the point of view of freshness. Woolworths and Coles are creating the main competitive dynamics by enhancing the shopping experience of the customers by providing add-ons such as cooking demonstrations and in-store tastings.

Amazon is also going to launch its supermarket chain ‘Amazon Fresh’  in Australia which would tend to impact the profitability of the existing market players and increasing competitiveness by fluctuation in the prices offered (Armstrong, 2017).

Amazon will have to face the delivery networks and established logistics operated by the Coles, Wesfarmers, ALDI and other major competitors. In this scenario, the main competitive factor that would have to overcome by Amazon is the extremely low prices offered by ALDI in present scenario (Cloutman, 2017).

Internal Analysis

SWOT Analysis

Strengths

• It eliminates the links existed in the purchasing chain which results in decreasing the purchasing cost of products.
• Technology-driven market
• Presence of major organizations, which are working with service motive along with profit motive.
• Providing authentic products with a guarantee.
• Contributing to the development of GDP.
• Competent and research-driven manpower.
• Providing fresh products at low prices(Fatricia, 2010).

Weaknesses

• It tends to target the high segment of customers.
• Small retailers have to bear a huge loss and they are not able to establish their business because of the low prices offered by the supermarkets.
• High overhead and labor costs.
• Huge investment in technological advancements(Ellis-Chadwick, et al., 2007)

Opportunities

• Increasing customer’s demands for fresh and organic brand food.
• Preference is given by the customers to the availability of all food products in a shop.
• The attraction of foreign companies to the economy.

Threats

• Introduction of Amazon fresh and diversion of customers.
• Availability of substitutes.
• Improper supply chain management may lead to the loss of the company.

Strategies

Business Strategy

Business strategy can be defined as the set of actions that are planned to achieve the desired objectives and goals.  It can be of medium-term which tend to be from 1 to 2 years or it can be of long-term which can be of long-term from 3 to 5 years.

The strategy of an organization explains the whole process of working and functioning to build a sustainable competitive advantage in the business environment.

The supermarkets in Australia have adopted different strategies as per the availability of financial and human resources. However, there are some strategies which are common to all as the business criteria and functions are similar to each other (Mortimer, 2018).

Cost Leadership Strategy

This strategy involves offering the lowest cost products to the customers and thus to become the cost leader in the target market. This strategy demands the extraordinary management of the supply chain to get the products at the cheapest rates in comparison to the competitors. In Australia, ALDI is the only one who has adopted this strategy in an efficient manner is also very little time frame. The cost-leadership strategy is one of the main reason for the success of ALDI which it has gained in the Australian supermarket industry (Anon., 2018).

Product Differentiation Strategy

This strategy is one of the most popular strategies of Porter's generic strategies. It includes providing a number of products into the same target market to increase the attractiveness of the customers. The supermarkets like Coles, Wesfarmers and Woolworths have adopted this strategy in the initial stages. For example, Woolworths is dealing in groceries, cosmetics, fresh vegetables, organic food products, and dairy products.

Market Differentiation

This strategy has been adopted by ALDI successfully by entering into the Australian supermarket industry with the same products and services which are provided by the company in its home country. The degree of risk involved in the application of this strategy is very high as an organization needs to change all its procedures and functions as per the regulations and requirements of the new target market (Mudditt, 2017).

Structure and Acquisitions

Structure

The industry is based on the two main channels of distribution named as vertically integrated chains and horizontal independent chains including the whole seller. Both levels include the common cost which is also known as the fixed cost. The merchandise provided by the retailers and whole sellers includes the products as well as the services that enable the customers to receive the products on time.  

The Coles and Woolworths use the first model in order to create the competitive rivalry to the new entrants into the industry. The other retailers and small shopkeepers that are not able to influence the bargaining power of suppliers and tend to purchase the products at a low cost are using the second model.

Acquisitions

There are two main market players in the Australian Supermarket named as Woolworths and Coles which together have acquired approximately 70% market share of the total supermarket industry of UK. Both of the organizations possess the main power to influence the suppliers and to lead the market by providing low-cost products to the customers.

Corporate Strategy

The Australian Supermarkets mainly follows the decentralization strategy which aims the decentralization of business functions to enable the customers to get the products and services all over the country. Coles and Woolworths have successfully adopted this strategy by opening a number of stores. Wesfarmers is also working in this regard (Hanson, et al., 2017).

Opinions/Recommendations

• On the basis of above analysis, it can be concluded that the organizations like Coles and Woolworths should have the main focus towards entering into the online shopping which can also result in increasing the customer base of the company.
• For the companies like Wesfarmers, it is to be recommended that these should have the main focus on the expanding the business in all over the country by opening more stores and introducing the technological advancements to deal with the upcoming competition in form of Amazon Fresh.
• For ALDI, it is to re-recommended that it should use the product differentiation strategy to increase its market shares by following the footsteps of Woolworth.

Conclusion

On the basis of above study, it can be concluded that Australian Supermarket is highly competitive and thus there are a number of chances to the existing market players to get success in the long run by focusing on their business and competitive strategy. The major market players in the market are Coles and Woolworths which have created a duopoly in the market. Along with this, it can also be concluded that the supermarket industry is contributing a major part to the economic growth and success of the country by attracting foreign companies and retailers in the country.

References

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Armstrong, A., 2017. British supermarkets knocked after Amazon slashes prices at Whole Foods. [Online]
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Butler, S., 2017. Aldi becomes UK's fifth largest supermarket. [Online]
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Cloutman, N., 2017. Here's how Australian supermarkets are preparing for the arrival of AmazonFresh. [Online]
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Dalken, F., 2014. Are Porter’s Five Competitive Forces still Applicable? A Critical Examination concerning the Relevance for Today’s Business. [Online]
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Mortimer, G., 2018. Say goodbye to ‘down down’ and ‘cheap cheap’: Why Australian supermarkets are moving away from price. [Online]
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