1. 325-333 Strategic Management
Assignment 1: Strategic Analysis of Woolworths
Ivan Matej Vodanovich (268940)
Tutorial Time: Monday 5.15- 6.15
Evan Brownlee Blythe (269087)
Tutor: Clarke
Khai Hoong Leong (275059)
Jia Yun Liang (282117)
Final Word Count: 2982 Words
(Excluding Footnotes, Appendices, Bibliography, etc)
1
2. Executive Summary
This report examines the Australian supermarket industry, highlighting strong
performance and potential future growth. It identifies Woolworths role as an
intermediary and retailer for producers, its strong growth over the past few years, and
its position as the market leader in the industry.
Significant socio-cultural trends identified by the report were the emerging trends
towards time-poor and health conscious consumers, as well as the deteriorating
economic climate. Industry attractiveness was found to have decreased in recent
times, due to a rise in supplier and buyer bargaining power, greater intensity amongst
rivals and higher threats from substitutes.
Woolworths‟ three main value-creating functions are: inbound logistics, where
Woolworths‟ control of the distribution network of its products helps ensure quality
and distribution efficiency; operations, through which inventory management and
strict quality assessment procedures assist in value creation; and marketing and sales,
in which promotional activities ensure Woolworths remains competitive.
Woolworths‟ three most valuable resources and capabilities were found to be its
highly efficient supply chain, its brand reputation, and its effective top-level
management.
Finally, it is recommended that in the short-term Woolworths invest further in
advertising to become associated in consumers‟ minds with convenience and healthy
produce. Longer-term it is recommended that Woolworths emphasise its differential
factors, for example by improving store atmosphere and customer service, and more
importantly diversify into more profitable businesses due to decreasing industry
profitability.
2
3. Contents
1.0Introduction .......................................................................................................................... 4
1.1 Industry and Woolworths Summary ................................................................................ 4
2.0 External Analysis ................................................................................................................ 5
2.1 Macro-Environmental Factors Affecting the Industry .................................................... 6
2.2 Porter‟s Five Forces Analysis .......................................................................................... 7
2.3 Comparison of Industry Attractiveness for Woolworths ............................................... 10
3.0 Internal Analysis................................................................................................................ 12
3.1 Examination of the Food Chain Woolworths participates in ........................................ 12
3.2 Value Chain Analysis of Woolworths ........................................................................... 13
3.3 Assessment of Woolworths‟ Significant Resources and Capabilities ........................... 17
4.0 Recommendations ............................................................................................................. 20
Appendix ................................................................................................................................. 22
Bibliography ............................................................................................................................ 23
3
4. 1.0Introduction
This report shall examine Woolworths, a Sydney Based, Australian grocery retailer,
and its position in the Australian supermarket industry. Through examination of
Woolworths‟ internal operations it is hoped that a better understanding of
Woolworth‟s strategy, and subsequent success, can be gathered. Hence
recommendations for future sustained competitive advantage can be formulated based
on the findings from an examination of the external environmental factors affecting
the industry.
1.1 Industry and Woolworths Summary
The primary function of the supermarket industry is to act as an intermediary for
producers, as well as to provide services to complement its sales. The industry in
Australia has experienced real growth in revenue for each of the past 4 years, with
growth in 2008/09 being 4.1%, taking total industry revenue to $68,500 million (IBIS,
2009). Industry GDP growth has also been strong the past 5 years, culminating in
growth of 4.4% last year to reach $7,850 million. There are currently 3,760
enterprises operating 4,340 establishments across Australia. The major players in the
industry include (in no particular sequence or order); Coles, Woolworths, ALDI,
CostCo, IGA, Foodland, SPAR Australia, Foodworks & Franklins.
4
5. Figure 1: Revenue growth rate for Australian supermarket industry (Ibis World, 2009)
The focal grocery retailer of this report is Woolworths1, specifically, its food and
retail grocery business. Woolworths operate 802 stores across Australia2, has taken its
total sales to $49.595 billion in 2008/09, a rise of $3.4 billion (or 7.5%), and now
controls around 42.0% of the industry. Hence, Woolworths is the market leader, with
its nearest competitor, Coles controlling 23% of the market (Business Day, 2009).
However, with major environmental changes on the horizon it is debatable if
Woolworths can maintain such impressive numbers in future.
2.0 External Analysis
Salient trends in macro-environmental dimensions will be discussed, specifically
socio-cultural and economic trends and how they will impact Woolworths
profitability in future. The Porters‟ five forces model shall then be utilized to assess
the state of the competitive environment, and finally the attractiveness of the industry
1
Woolworths parent company, Woolworths Limited, owns a diverse portfolio of businesses, including
the Big W chain of discount stores, Dick Smith and BWS liquor retailers. Its food and retail grocery
business is known as Safeway in the State of Victoria
2
This includes the 28 added in the past financial year, well ahead of the targeted 15-20
5
6. to Woolworths in the future shall be examined.
2.1 Macro-Environmental Factors Affecting the Industry
Socio-Cultural Factors: One major social trend is the increasing consciousness
towards health and well-being, reflected in a movement towards organic
produce and healthy alternatives. This trend offers an opportunity for
Woolworth‟s, as currently there are few players in the market offering organic
foods, and sales of organic foods are set to rise over the long-term (IBIS,
2009). It also constitutes a potential threat in that farmer‟s markets and niche
supermarkets which specialize in such produce will thrive in the environment3.
Woolworth‟s, through its acquisition of Macro Wholefoods in early 2009
(Speedy, 2009), have at the same time exploited an opportunity in the
marketplace and neutralized a threat4.
Another social trend would be the increasing number of consumers who are
time-poor5. Consequently, there is a higher demand for “time convenience”,
i.e. the ability to patronize a store when consumers have the time. The ability to
provide fulfill this need has been facilitated by deregulation in trading hours. In
addition, Woolworths is providing further convenience through expansion of
3
Farmers markets, for example, are more viable alternatives for consumers for grocery shopping . But
with growing sentiment towards organic produce, they become more of a threat. This ties in strongly
with the threat of substitutes in the competitive environment.
4
However, economic conditions such as lower consumer sentiment and lower income levels could
have a short-term detrimental impact on the purchase of organic produce, due to higher costs
5
I.e. Consumers who are time-poor. As a result, traditional „pantry-stocking‟ trips have been
increasingly replaced with more frequent „top-up‟ shopping5 (IBIS, 2009)
6
7. its product range and the creation of a „one-stop shop‟6.
Economic Factors: The current economic climate has resulted in lower
spending levels, especially with discretionary goods. Hence, consumers are
switching to private label brands for cost savings7. Subsequently, supermarkets
are increasing their private label offerings. This enables them to compete on
the basis of price while realizing the higher margins. Provision of private labels
also enables supermarkets to compete on the basis of choice convenience, i.e.
offering a low-cost alternative
2.2 Porter‟s Five Forces Analysis
In this section, the attractiveness/profitability of the Australian supermarket industry
in current times shall be assessed. This will be followed by an examination of
Woolworths‟ relative position in said industry.
Threat of Substitutes: The threat of substitutes is high, as Woolworths faces
many indirect competitors, such as convenience stores, specialist grocery
stores, and farmers‟ markets8. Evidence suggests these indirect competitors are
viable substitutes to Woolworths and pose serious threats in the future:
Convenience stores have also experienced an expansion in product offerings
6
I.e. consumers would not have to go to a collection of stores to fulfil their shopping requirements.
7
Private labels currently constitute 12% of the packaged goods market, with growth of 5.9% in the
year to August 2008 (IBIS, 2009).
8
These industries fulfill similar functions for consumers as they offer similar products sold by the
supermarkets. Due to the large range of items supermarkets offer, there may be a potential substitute
for every product category. For example, pharmacies are a substitute for the purchase of health-related
products, such as vitamin-supplements offered in supermarkets.
7
8. and would be competing directly with supermarkets9 in the provision of choice
convenience and „one-stopping shopping‟. With the increasing trend towards
healthy alternatives, Farmer‟s markets selling organic produce are also poses a
potential future threat. However, the threat posed by specialty stores is
perceived to be minimal with the rise of increasingly time-poor consumers.
Rivalry Amongst Existing Competitors: A high degree of rivalry exists in the
and is a direct result of the small number of major players in the market and
their lack of perceivable differentiation due to the generic nature of the services
and products provided. Therefore, competition is primarily based on price, but
other competitive factors include product choice and store location10. Two
main drivers of an increase in future rivalry are the entry of American retailer
Costco, as well as the turn-around of Coles, in which the replacement of senior
and middle management is set to make it more competitive and far more
dangerous threat in future (Palmer, 2009).
Bargaining Power of Suppliers: The bargaining power of suppliers used to
be very low. With Woolworths and Coles controlling more than 80% of the
market (Fenner, 2009), many local Australian producers have an extremely
limited selection of intermediaries to choose from (McKinna,2009).Therefore,
in many cases, Woolworths or Coles is the major purchaser, perhaps even the
only purchaser, of a producer‟s production. Even major international brands
9
In addition to providing a viable alternative choice, convenience stores pose a threat because they
provide “location convenience” for consumers.
10
Major market players such as Woolworths are able to compete effectively on the basis of choice
(Woolworths stocks around 30,000 products compared to ALDI‟s 600) as well as store location
(Woolworths operating 802 stores while ALDI operates 200) – (IBIS, 2009).
8
9. such as Kellogs and Nestle do not dare to upset either retailer, such is the
power of their market-share (Wade, 2002). However, this is set to change,
with the entry of Costco and the expansion of Aldi, along with the Federal
Government and ACCC‟s recent push to lower competition barriers in the
Industry (Hewett, 2009). Thus, the bargaining power of suppliers is set to be
“moderate” in future due to a potentially larger selection of intermediaries to
consign to.
Bargaining Power of Buyers: Whilst low, the buying power of consumers is
also set to increase in future. Once again, the aggressive push by the Federal
Government and ACCC to lower competition barriers and allow new
competitors to enter the market is set to increase consumer choice (Hewett,
2009), consequently increasing consumers bargaining power. Further driving
the increase of consumer bargaining power would be the rise of price
comparison websites such as grocery.bestpricedirectory.com.au which enables
consumers to compare prices and choose the cheapest alternative. Both factors
are set to bring consumers future bargaining to a more “moderate” level.
Threat of New Entrants: The threat of new entrants is very low, and is set to
remain unchanged. An “insidious combination of local zoning laws and
leasing agreements with landlords” have resulted in “an artificial scarcity of
grocery store sites” (Hewett, 2009). As such, this has deterred many new
entrants from entering the market, especially overseas players interested in the
Australian grocery industry. This is further aggravated by preferential
9
10. treatment for Woolworths and Coles by landlords, due to their enormous
pulling power in terms of consumer traffic (McKinna, 2009).
Furthermore, potential entrants to the Australian grocery market must compete
with Woolworths and Coles tremendous economies of scales. Thus the
investments in infrastructure, and facilities would be massive, and the
expertise to manage them all would be specialized and rare. Thus, very few
firms have the expertise or resources required for such a significant
undertaking, and only a few overseas players such as Costco and Aldi are able
to do so ( McKinna, 2009).
2.3 Comparison of Industry Attractiveness for Woolworths
Moderate
High entry
Threat from
Barriers
Substitutes
Weak Supplier Intense Rivalry
and Buyer Amongst
Positions Moderately Firms
High to High
Industry
Attractiveness
Figure 2 – Industry Attractiveness and Profitability of Woolworths up till a few years ago
From the Porters Five-Forces analysis in the previous section, the Supermarket
industry until a few years ago presented moderately high to high attractiveness for
Woolworths, the most important reason of which was the high barriers to entry and
10
11. weak bargaining power of suppliers and buyers. Hence profitability would be high for
Woolworths at that point of time. However…
Moderately
High entry High Threat
Barriers from
Substitutes
Moderate
Greater
Supplier and
Intense Rivalry
Buyer
Moderate Amongst Firms
Positions
Industry
Attractiveness
Figure 3- Attractiveness and Profitability of Industry to Woolworths in near future
… future environmental changes are set to change the attractiveness of the industry to
Woolworths to “moderate”. Hence, Woolworths profitability is set to decrease from
high to moderate in future as well. The main reasons for this would be the increase in
bargaining power of suppliers and buyers, along with the greater intensity of firm
rivalry with the entry of Costco and expansion of Aldi.
As such, the ability to outperform its rivals and maintain its competitive edge rests
on Woolworths resources and capabilities, and more importantly how those resources
and capabilities are utilized in the future, when industry attractiveness and
profitability has decreased from previous levels.
11
12. 3.0 Internal Analysis
This section will begin with an assessment of Woolworths position in the food chain (i.e.
extended value system) the firm participates in. It will be followed by an examination of the
significant functions within Woolworths Value Chain that delivers the most value to the firm.
Finally, Woolworths most significant resources and capabilities shall be identified and
discussed in detail.
3.1 Examination of the Food Chain Woolworths participates in
End
Producers Woolworths
Consumer
Figure 4 – Food Chain Woolworths operates in (Pierce, 2009).
From the above diagram, it can be observed Woolworths‟ function in the food chain is
to provide producers with a channel to reach end consumers. This is because the
producers Woolworths works with concentrate solely on production, hence those
producers require intermediaries with retailing expertise and infrastructure.
12
13. For many of Woolworths‟ suppliers, Woolworths is a major buyer, if not the only
buyer of their produce. Thus, Woolworths exerts tremendous influence over many of
the small local producers and can dictate things like farm sizes, crop type, agricultural
methods and prices the producers receive, which are based on Woolworths product
and process quality specifications11 (Wade, 2002).
3.2 Value Chain Analysis of Woolworths
Woolworths mission statement specifies how Woolworths “strives to provide
consumers with the freshest produce” and “an enjoyable and convenient customer
experience”. Thus, all the value-creating activities of Woolworths‟ business are all
geared towards delivering the above promises (Woolworths, 2009).
The three main value-creating functions involved in delivering the firm‟s promises
are:
1. In-Bound Logistics: Woolworths is essentially a retailer. Hence it does not
produce the products it sells12. Instead, it controls the distribution network
of its products. Within this function there are two significant activities which
contribute to the firm: Procurement and Logistics:
11
For instance, due to Woolworths stringent standards with regards to appearances, the use of
pesticides and herbicides used by Fruit and Vegetable suppliers have increased by a tremendous
amount in order to reduce blemishes on produce, coupled with the replacement of old plant varieties
with new ones to produce “shiny-er” fruit (Wade and Bradley, 2002).
12
Woolworths sends packaging and labeling material to its suppliers before the production process
even starts, and it is the responsibility of suppliers to pack and label finished products with the
packaging materials provided (Pierce, 2009).
13
14. • Stringent certification process in its supplier
selection and regualr QA audits to ensure high
Procurement quality products .
• Nationalization of buying activities to achieve
tremendous cost savings
• Ownership and operational control of the
trucks and warehouses involved in distribution
Logistics chain
• Installation of technology to ensure optimal
distribution efficiency and cost-cutting
Figure 5 – Summary of the most important activities within In-bound Logistics
Woolworths produce goes directly from producers to a national or regional
distribution centre, where it is certified for quality then transported directly to
stores. Simple and efficient, this system has enabled Woolworths to reduce
costs by $2.5 billion (Australian Food and Retail News, 2004). In addition,
Woolworths owns and operates of all the trucks and distribution centres
involved in its distribution network. This puts it in a better position to prevent
worker strikes and enables greater control in ensuring punctuality of
shipments13. Moreover, operating the distribution centres (DCs) and trucks in
its supply chain puts Woolworths in a better position ensure optimum
distribution efficiency14 and product quality15 (Pierce, 2009).
13
Due to high inventory turnover rates and the highly perishable nature of many of its products, worker
strikes and late shipments are highly detrimental to Woolworths as they would result in significant
revenue losses and high inventory costs (Pierce, 2009).
14
For example installing automated scanners in all its DCs to ensure there are no “Dags” or extended
tail ends in shipments which may result in unbalanced forklifts and injury to staff.
15
For instance how Quality Assessment is a major process in its DCs, with quality auditors certifying
product quality at their DCs before approving the shipments‟ transportation to retail store
(Pierce,2009).
14
15. 2. Operations: This involves two primary activities that ensure customer
convenience and value, Quality Assessment and Inventory Management:
Quality •Standardised procedures to detect and remove
defective products
Assessment
•P.O.S and EDI technology to ensure adequate
Inventory stock levels at all times
•Advanced forecasting methods to pre-empt any
Management sudden increases or decreases in product
demand
Figure 6 – Summary of the most important activities within Operations
From the time the stock arrives at the retail store to when the products are put on
display, constant checks are made to detect and remove defective products16 .
Furthermore, for each SKU17 there is a Minimum Presentation Level (M.P.L)18.
Sophisticated Point of Sale (POS) technology keeps track of the number of SKUs sold
for a particular product, and once stock levels fall beneath the M.P.L, a re-stocking
order is dispatched to the relevant distribution centre (Pierce, 2009). In addition,
16
New stock shipments usually arrive at night, and “backdoor store-men” then unload the products and
categorise them, at the same time quickly checking for quality. From there, store employees will stock
products in their relevant section, and a “cull” takes place where all identifiable defective products are
removed. A final check is conducted by the store managers and their subordinates to ensure no
defective products are on display (Pierce, 2009).
17
Stock-Keeping Unit (SKU) – The different product extensions/ variations of a product within a
product category
18
M.P.L - the minimal level of stock required to ensure a presentable stock display
15
16. Woolworths utilizes an advanced forecasting program to forecast future changes in
demand due to environmental factors such as seasonal changes or economic trends19.
3. Marketing and Sales: Two main activities are involved in increasing sales
and enabling Woolworths to compete effectively, In-store Promotions and
Organizational Dynamism:
In-Store • In-store weekly specials on certain products
combined with sales catalogues to achieve
Promotions short-term boost in sales
• Continual investments in consumer reserach
Organizational and staying aware to environmental changes
Dynamism in order to adapt strategies to compete
effectively in future.
Figure 6 – Summary of the most important activities within Marketing and Sales
Woolworths holds weekly specials to boost short-term sales of certain products where
prices of certain items are reduced by a large percent20 (Pierce, 2009). This is
supplemented by the distribution of sales catalogues21 informing consumers of the
weekly specials. Highly effective in boosting short-term sales and inventory turnover,
an example would be how Safeway Carlton would normally sell $2000-$3000 worth
of toilet paper per week, but that amount increases to around $8000 during its weekly
special (Pierce, 2009). A significant capability of Woolworths would be its ability to
19
This ensures their distribution centres has sufficient stock availability, and to ensure an optimum
M.P.L at all times (Pierce, 2009).
20
The aim of which is to increase cash-flow or get rid of old stock
21
A cheap and effective method of advertising (Pierce, 2009).
16
17. keep up with consumer trends and environmental changes22, enabling the formulation
of new strategies to compete effectively23 (Pierce, 2009). For instance, to keep up
with current consumer lifestyles and preferences, Woolworths recently introduced its
selection of easy to prepare meals under its Woolworths Fresh brand in conjunction
with its monthly online interactive Woolworths Fresh Recipe guide which provides
recipe suggestions and nutritional advice for healthy living (Pierce, 2009).
3.3 Assessment of Woolworths‟ Significant Resources and Capabilities
Highly Effective Brand Effective Top
Location
Supply Chain Reputation Management
Effective and
Technological Advertising and Favorable Local
Experienced
Capabilities Brand Image Zoning Laws
Managers
In-depth
Supplier Consumer Leasing
Consumer
Relationships Experiences Agreements
Insight
Ownership and Strategic
Operational Selection Highly Attuned
Longeivity
Control of Criteria Environmetal
Distribution Awareness
System
Stringent Relations with
Distribution Quality Credible and
Expertise Assessment Experienced
Procedures Consultants
Figure 7- Summary of Woolworths Significant Resources and Capabilities and their key
components
22
Examples would include the inclusion of Comparative Unit Pricing (C.U.P) on all of its sales labels
in anticipation of the ACCC‟s legislation on more transparent pricing later this year, and Woolworths‟
current focus on its Home Brand range of merchandise due to the current economic climate (Pierce,
2009).
23
This is a direct result of Woolworths continual investment in consumer research, and the macro-
environmental factors influencing the industry.
17
18. Woolworths adopts an integrated competitive strategy, i.e. it utilizes a combination of
both cost leadership and differential elements to compete, with its efficient supply
chain to minimize costs, and its brand image to differentiate itself based on quality.
In addition, strategic factors such as minimization of future threats and keeping the
firm flexible in wake of environmental changes are also critical to Woolworths
survival. Thus, with the above factors in consideration, Woolworths three most
significant resources and capabilities are:
1. Highly Effective Supply Chain: Woolworths efficient distribution network
is both a resource and a capability in its in-bound and out-bound logistics. A
culmination of tangible and intangible assets such as technological capabilities
and supplier relationships, it is highly valuable as it was the significant cost-
savings achieved throughout its entire logistics network that enabled
24
Woolworths to achieve a higher EBIT over Coles (McKinna, 2009). The
level of cost saving benefits provided is non-substitutable by any other
resource. It is also difficult to imitate as the level and scope of the
technological capabilities involved is highly specialized and staggering.
However, should Woolworths posses an unfavourable public image or sell
products undesirable to consumers, possessing an efficient distribution
network would be irrelevant. Thus, by itself an effective supply chain is
insufficient as a distinct competency, and must be supported by other
competitive advantages25.
24
Earnings before interest and tax – a measure of revenue of the firm
25
Examples include effective general administration and in-depth consumer insight.
18
19. 2. Brand Reputation: Woolworths reputation as the fresh food people was built
over many years. This was done via positive consumer experiences with its
products which can be attributed to its stringent quality assessment procedures
throughout its supply chain (Urban, 2007), as well as its “Fresh Food People”
advertising campaign. Hence, this brand reputation is valuable, as it provides
meaningful differentiation to its competitors, and has directly contributed to
higher levels of customer satisfaction. It is also non-substitutable, as the
benefits provided cannot be matched by any other resource. However, it is
neither rare, nor hard to copy, with most of its rivals also claiming to sell fresh
food26. More importantly, fresh food and quality products have come to
become a basic expectation of consumers. Thus, this reputation is not a
distinct competitive advantage, rather it is a point of parity that Woolworths
must possess in order to compete.
3. Effective Top Management: Despite recessionary pressures and rising
inflationary rates, Woolworths is still able to achieve growth rates at higher
than projected levels27 (Fenner and Raja, 2009). This can be attributed to
Woolworths effective top management, in particular CEO Michael
Luscombe28 (Fenner and Raja, 2009). Further, the establishment of relations
26
IGA also has the motto of providing 150% fresh food, and more recently, Coles claims to be able to
“feed your family with fresh food recipes for under $10"
27
Woolworths 12-month sales rose 7.5 percent to A$49.6 billion compared with the company‟s
forecast for annual growth in the “upper single digits” for the financial year ending 08/09 (Fenner and
Raja, 2009).
28
Whose $2 billion investment in expansion, store refurbishment and expanded loyalty program is
credited with acquiring market-share from Coles (Fenner and Raja, 2009).
19
20. between Woolworths and Wal-Mart‟s top management is a significant factor
perceived as enabling Woolworths to compete effectively with Costco in
future29, an American retailer that just entered the market (Fenner , 2009).
Thus, the capability of top management in steering Woolworths through the
current economic climate and continuously achieving high growth rates makes
it a valuable resource. As such, it is non-substitutable by any other resource,
and is hard to copy as it is difficult to acquire capable and effective senior
managers. However, it cannot be considered rare: as Due to the mature nature
of the sector, most of the companies operating in the Australian Grocery
30
Industry also have capable senior management . Therefore, effective top
management is not a distinct competitive advantage, but a point of parity that
is utilized in conjunction with other factors such as efficient supply chain to
enable Woolworths to outcompete its rivals.
4.0 Recommendations
The recommendations presented by this report are classified into short-term and long-
term recommendations:
Short-term Recommendations: In the short-term, Woolworths should invest
more in advertising. More specifically, Woolworths should create
advertisements depicting how their Woolworths Fresh range of healthy meals
to go fits into consumers everyday routines. This would heighten brand recall
of Woolworths in consumers‟ minds, which increases purchase likelihood.
29
The aim of which is to allow Woolworths to benefit from Wal-Mart‟s experience in competing with
Costco in the U.S.
30
Which has enabled them to survive and compete with Woolworths (and Coles) until now
20
21. More importantly, by creating advertisements linking Woolworths to healthy,
easy to prepare meals that are conveniently available at reasonable prices, this
would increase the chance of making Woolworths synonymous with
convenience and healthy consumption, a valuable point of differentiation in a
market where low prices and fresh food are now points of parity.
Long-term Recommendations: It is recommended for Woolworths to focus
more on convenience and an enjoyable shopping experience in the long-
term31. Woolworths current program to refurbish stores should be
supplemented by measures to improve store atmosphere, such as the inclusion
of relaxing music and having cheerful, enthusiastic and helpful staff to create
an enjoyable shopping experience32.
More importantly, in the long run it is recommended for Woolworths to invest
in more profitable industries and businesses. As mentioned earlier, the
attractiveness and profitability of the Australian supermarket is set to fall in
the future33. Thus, Woolworths should diversify in new businesses in which
sales growth are projected to rise over the long term, such as the home and
hardware business, or up-market organic produce34.
31
I.e. placing higher emphasis on differential factors to supplement its cost advantages
32
Which creates a valuable differentiation factor to competitors such as Costco and Aldi.
33
Due to higher bargaining power of suppliers and buyers, and the greater intensity of rivalry
34
Such as how Woolworths negotiated a partnership with Lowes, and American hardware chain to
open up a chain of hardware stores wihin Australia due to the home improvement industry being
valued at AUD $36 billion, and is set to grow even further over the next few years (Fenner and Raja,
2009), or as mentioned earlier Woolworths acquired Macro Wholefoods to fast-track its expansion into
the high end gourmet organic produce market (Speedy, 2009).
21
22. Appendix
On the 21st of August, 2009 from 1pm to 1.45pm, the Store Manager at Safeway Carlton,
Ethan Pierce, kindly granted an interview to the writers of this report and provided valuable
insight into the in-store operations and logistical network of Woolworths. His patience and
informative input is highly appreciated, and the writers of this report would like to extend our
sincere and utmost gratitude to him.
22
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