2. 2
Table of Contents
Abstract.....................................................................................................................................3
1.0 Introduction........................................................................................................................4
1.1 Research topic ...............................................................................................................................4
1.2 Research background.....................................................................................................................4
1.3 Market trends.................................................................................................................................4
1.4 Data sources and collections .........................................................................................................5
1.5 Research methodology and techniques .........................................................................................6
1.6 Research process ...........................................................................................................................6
2.0 Literature review ...............................................................................................................7
2.1 Management summary..................................................................................................................7
2.2 Anti-combination and anti-trust law .............................................................................................7
2.3 The effect of market monopoly ....................................................................................................8
2.4 Risk analysis .................................................................................................................................9
3.0 Data collection and analysis............................................................................................16
3.1 Introduction to data collection and analysis................................................................................16
3.2 Data sampling methods...............................................................................................................16
3.3 Data analysis...............................................................................................................................17
3.4 Conclusion to data collection and analysis.................................................................................18
4.0 Hypothesis identification.................................................................................................19
3.3 Data analysis...............................................................................................................................19
3.3 Data analysis...............................................................................................................................19
5.0 Conclusion ........................................................................................................................21
5.1 Conclusion ..................................................................................................................................21
5.2 Future work.................................................................................................................................21
6.0 References.........................................................................................................................22
7.0 Gantt chart (Appendix)...................................................................................................24
3. 3
Abstract
In the Australia grocery market, Woolworth and Coles own most of market share,
and the supply chain. Other competitors may not easy to enter into the market,
and not be able to have enough ability to compete with their strategy. The
objective of this research paper is to analysis whether it is a good optimal market
situation for Australia grocery market and extend to forecast will other
competitors become one of the major competitors in the market via analyzing
some specific factors that is related to the grocery industry. Later, the conclusion
identifies the hypothesis and confirm the monopoly may not be beneficial to
Australia market and consumers with only two competitors. However, there still
exist opportunities for new competitors to compete with them via appropriate
strategies both in short term and long term.
4. 4
1.0 Introduction
1.1 Research topic
Woolworth and Coles occupies more than 60% market share of grocery shopping
in Australia, this research report aims to analysis that is this an optimal market
share allocation for Australia grocery market under governance?
1.2 Research background
The grocery industry is one of the most significantly competitive in Australia.
Until 2015, Australia grocery retailers are still dominated by conglomerated
Woolworth and Westfarmers and hold about 80% of supermarket sales, 60% of
alcohol retail. The strong position of supermarkets, such as Woolworth and Coles,
might probably continue to occupy most of the market share in Australia.
However, the competition within grocery industry is growing significantly. Other
competitors, like discounter Aldi, the reject shop and Warehouse club Costco
with similar offering commodities with lower competitive prices to curb and
reduce the retail power of control from Woolworth and Coles (Petrina, 2016).
Those competitors would further challenge the dominant position of
supermarkets Woolworths and Coles in Australia.
1.3Market trends
Regarding to the previous grocery industry performance, the research report
would mainly focus on two aspects: the commodity price and the power of control
to Australia grocery market.
Although the market is still dominated by Woolworth and Coles, the grocery
market prices dropped by 6% in the Jun quarter in a supermarket inflation survey
(Euromonitor International, 2016), which shows the deepest decline in more than
18 months.
According to Roy Morgan’s research, the market share of Woolworth and Coles
has fallen to 37.3% and 32.5% respectively, and the market share of other
5. 5
supermarkets, such as Aldi and IGA has significantly increased about 4-5%
(Mike, 2016). Although those two major supermarkets might potential loss their
clients, the combined market share is still about more than 70% of total market.
This would prospectively lead to have huge effect on the market supplier and
customer.
Source: Roy Morgan Research
1.4Data sources and collections
Regarding to the objective of this research report, there are two major data
collection methods that may assist us to analysis the scenario more effectively.
Financial reports from those companies are the most important guidance to be
familiar with the sales revenue and liabilities within company. Moreover, the data
in the financial reports would probably reflect the following business strategy in
developing the market.
Second-hand data issued by some organizations and auditing situations could
provide a professional and accurate information or forecasting with regarding to
6. 6
the development of grocery market in Australia. These various of information
could be gathered from major website and journal academic papers via internet.
1.5Research methodology and techniques
This research report may collect information and data for the purpose of
analyzing the hypothesis, and identify whether it can be used to conclude and
work out the objects based on qualitative and quantitative data. After that, the
data would be allocated by specific aspects in order to find out the correlation
among those data via Microsoft Excel or STATA software.
Then, regression data analysis method for the purpose of forecasting can be
collected from company’s financial annual report (Ullmann, 1995). We may
gather the data from 2005 to 2015 so as to analysis the information more effective.
Because some company’s data may not be easy to get, and some data might not
be accurate. Therefore, 10-year data would be the best time period to reflect the
scenario.
The research report would also focus on the risk analysis to compare and forecast
the future capacity of sample companies (Sample: The reject shop and
Woolworth) based on their strategy risk, operational risk, management risk,
political risk, financial risk, and exogenous risk. In this part, the report would list
several risk factors, and potential mitigations would be provided as
recommendations so as to assist the sample company to solve those kind of
problems for the purpose of gathering more market share from local large
supermarkets.
1.6Research process
The first step of research report is to determine the problem and define the
hypothesis. Then the process would be required to browse the general background
related to each research companies. After that, the data allocation can be used to
identify whether some data is misstatement or omitted. Meanwhile, the grant
7. 7
chart is useful to allocate the time spending on each specific parts of the report.
Later, the output data could identify whether research hypothesis is reasonable.
Eventually, the conclusion could provide a brief summary of research purpose.
2.0 Literature review
2.1 Management summary
Literature review would mainly focus on analyzing market legislation, effect of
monopoly, and risk analysis respectively.
Under the legislation part, the objective is to identify whether there exist some
effective laws to protect the market and consumers, and are these effective in
Australia? The Australia grocery market would probably be hurt when the
legislation system is not effective.
Secondly, this part would identify the is monopoly beneficial to Australia grocery
market or not, and what would be the effect. Sometimes, the monopoly power
would result in being involved in the market as new competitors rarely, which
may not be beneficial to the price setting because the new competitor has not
enough power to control the commodity price that have a direct effect on the net
revenue.
The third part of this section would identify the prospective risk to enter into
market as powerful competitor (ALDI and The reject shop) and provide some
solutions to cover those king of risks so as to be able to have more ability to
compete with major supermarkets such as Woolworth and Coles.
8. 8
2.2 Anti-combination and anti-trust law
The anti-combination laws were approved by numerous states in the late 1880 in
response to the use of stockholding trusts to create business monopolies.
Meanwhile, the anti-trust las is used to promote fair competition for the benefit
of consumers.
Stevens (1961) argued that Australia has strongly legislation connection with
England, and social trends and economics requirements as well. In later 1960, the
monopoly situation of Australia began to close to United States.
This could provide Australia government a fantastic opportunity to issue its own
laws or regulations to control the market more effective so as to avoid the
monopoly power that may hurt the market and customers.
Anti-combination and anti-trust law were able to solve the monopoly problem
effective via promoting fair competition for benefit of clients and market and
preventing the market controlled by only one or several big enterprises. However,
under the fast developing of century, these legislations may not still be useful
(Eisenhardt & Martin, 2000). Some enterprise may become the monopolist in the
market with being involved in some internal backwards that exists in the previous
legislation system. It is necessary to discuss and issue new legislation to improve
the whole system in order to prevent illegal activities that may hurt the market.
2.3 The effect of market monopoly
Mussa and Rosen (1978) argue monopoly would induce the possibility of
charging higher prices on commodities for consumers, which is not beneficial to
the market. Meanwhile, Manuel also illustrates that monopoly may not allow free
access to products with lower prices. He argues the higher prices is critical
detriment to consumers because of less competition in the industry. Moreover,
even under the high price, consumers may still not be able to substitute
sustainable qualities and services. Furthermore, the whole market is controlled by
the monopolist, it may control the product supply chain, which may indirectly
9. 9
result in losing competitors in the market (other competitors will shut down their
business because of not getting enough revenue to keep operating).
Manuel emphasizes that monopoly also may not have intention to improve its
business, because consumers still have huge amounts of needs for its current
products and services.
It seems to be that Australia grocery market should encourage more competitors
to enter into the market in order to reduce the control power of Woolworth and
Coles.
2.4 Risk analysis
This research report would apply risk analysis to identify and compare the difference
between major supermarkets and other competitors in Australia (Moore, 2001). The
sample size would be two, The reject shop and Woolworth respectively.
2.4.1 Strategic risk
The reject shop, as a retail business company, earned more than $756 million in
last financial year mainly compatible with Woolworth and Coles under high
competitiveness. Currently, the company has decided to issue a new strategy in
order to solve recent shares down and dispose previous operating strategy.
Risk Category Risk Factors Potential Mitigation
Market Risk • The retail sectors are
highly competitive.
Coles and Woolworth
are major competitors
in local market.
• Overseas retail
competitors, such as
Costco has occupied
partial market shares
from local retail
• Selling fewer items
enhances sales volume
and help drive
discounts, such as
Costco.
• Provide more valuable
wholesale products
instead of being
involved in lower price
strategy with other
competitors
10. 10
companies
significantly.
• The reject shop
currently suffers lower
price-match strategy
from its competitors.
• Clearly identify who
its customer is, and
provide suitable
products precisely.
• Pour value-oriented
marketing
advertisements on
social media under
specific timing (e.g.:
provide premium
oatmeal advertisement
in the breakfast time)
so that the company
could avoid spending
additional unnecessary
cost on social
marketing strategy.
Decision Making • Failure to provide
valuable product may
result in losing high
oriented value clients.
• Lower sales revenue
(almost no valuable
products) compared
with other competitors
would lose
shareholders
confidence.
• Prefer to import lower
valued products from
developing countries,
such as Vietnam,
China…
• Employ more
professional and highly
experienced employees
to work out current
issues.
• Acquire or merge with
other same-level
competitors in order to
enhance market share
and attract more
investors.
• Reduce inherent risk in
turning around stories
when new strategy was
implemented without
allowing competitors
to gain market share
and share of mind.
11. 11
Industry Risk • The reject shop
currently operates in
retail sales industries
under global recession
economy, may result in
potential adverse effect
on company’s
business, financial
condition, and
prospects.
• Enter into long term
contracts with third
party and local
suppliers for certain
grades of acceptable
price and fixed
volumes for the entire
recession period so
that minimizing the
adverse effect on
revenue deduction
under global recession.
2.4.2 Operational risk
Operational risk affects the cost estimation, distribution system, and sourcing of
retail business.
Risk Category Risk Factors Potential Mitigation
Cost Control Risk • The amount of cost of
doing business has
enhanced compared
with previous financial
year caused by a
changed advertising
mix
• Deliver suitable
advertisements that are
subject to target clients
in specific timing.
• Hire professional cost
control player to
optimize inherent cost.
Distribution Risk • Wide range of
products would result
in higher transportation
and storage cost that
enhance company’s
expense and cause no
further expenditure on
developing new
product range.
• Work out target clients
and reduce product
ranges.
• Apply FIFO strategy to
minimize storage and
transportation cost on
less-welcome products.
12. 12
Sourcing Risk • In a less globalized
world, retail shop
tended to source their
business products from
specific or same
country. However,
sudden location-
specific risks (such as
earthquake at Japan)
would cause large
impacts on costs and
profitability under
globally diverse
market.
• A program of
importing similar
products from different
countries in order to
ensure the availability
of specific products
during urgent
situations .
2.4.3 Management risk
The risk is mainly associated with company’s performance, and the adjustment
of company’s executive team.
Risk Category Risk Factors Potential Mitigation
Management Risk • Ross and his team
were appointed to
manage the whole
company as executive
team recently
undertaken in a
manner which ensures
the safety and
wellbeing of
company’s clients and
customers.
• Appoint current
experienced employee
to corporate with new
CEO in order to make
sure company’s new
CEO could be familiar
the business as soon as
possible.
13. 13
2.4.4 Political risk
The reject shop operates business under Australia and New Zealand markets, and
import its commodities from East Asian countries. Therefore, it is exposed to
risks with local political and economic situations in those countries.
Risk Category Risk Factors Potential Mitigation
Local Government’s Policy
Modifications
• Government subsidies
for employees
undertaking
traineeships currently.
• Australia government
applies around 10%
GST under taxation
system.
• Exporting countries
may issue higher tax
rate regulations on
company’s
commodities
• Establish relationship
between exporting
country’s government,
and tried to be notified
the change of
regulations in time in
order to minimize the
importing cost.
• Search for alternative
appropriate importing
suppliers to avoid
monopolist control
with specific
commodities.
2.4.5 Financial risk
The reject shop is facing significant pressure of overseas business that is mainly
involved in foreign exchange rate, and the sensitivity of interest rate as well.
Those factors would probably affect the revenue of current financial report. To
mitigate those risks, the reject shop applies hedges to minimize the potential risks.
Risk Category Risk Factors Potential Mitigation
Exchange Rate Risk • Company imports its
commodities from
overseas processing
with foreign
currencies.
• Enter into forward
exchange contracts to
purchase foreign
currency for overseas
14. 14
business for ensuing
financial period.
• Sensitivity analysis is
used to clearly identify
the consolidated entity
as at balance date to
movements in the
value of different
currencies.
Interest Risk • Financial instrument’s
value will fluctuates as
a result of movements
in market interest rates
and the effective
weighted average
interest rate relating to
company’s financial
assets and liabilities
• Sensitivity analysis is
used to clearly identify
the consolidated entity
to movements in
interest rates via
applying changes in
interest rate to the
financial assets and
liabilities in order to
show the correlation of
data under different
financial periods.
Credit Risk • Derivative financial
instruments are
potentially caused by
failure by
counterparties to the
contract to meet their
obligations both in
short term and long
term.
• Company should
assess the maximum
amount of potential
credit risk, and
construct portfolio to
minimize the risks and
avoid fraud.
• Issue more effective
debt collection system
to avoid huge loss of
credit risks.
15. 15
Capital Risk • The fluctuation of
company’s revenue
may affect the return
for shareholders and
benefits for other
stakeholders.
• The company may
adjust the amount
dividends paid to
shareholders, return
capital to shareholders,
and issue new shares
or reduce debt via
selling assets
Liquidity Risk • Global recession crisis
would lead to liquidity
situation to company.
• Monitor forecast and
actual cash flow and
match the maturity
profiles of financial
assets and liabilities.
2.4.6 Exogenous risk
Risk Category Risk Factors Potential Mitigation
Exogenous Risk • As retail industry, the
company requires
storage places to full
fill with importing
commodities from
overseas. Therefore,
the risk could be
caused by heavy floods
in Queensland at 2011.
• Exporting countries
may suffer from
earthquake, occurred at
Sichuan 2008, would
defer the supply chain
for company’s
commodities.
• Diversify the
importing suppliers
from different
countries to minimize
the effect on natural
disaster risk.
• Probably move the
storage factories to
safe areas.
16. 16
3.0 Data collection and Analysis
3.1 Introduction to data collection and analysis
The sample data to construct an analyzing portfolio is selected during a period
from 2005 to 2015 covering net income, total assets and other factors. This
timeframe is appropriate, because the larger sample size requires to obtain a given
level of precision and help decrease the standard error of the variance (Francisco,
2007). Furthermore, Wilson and Dan (1991) argues that sampling data from full
cycle economy timeframe could provide a reliable analysis of the impact on
specific factors over time, whereas short term data may distort the data precision.
3.2 Data sampling methods
In this section, the research report would use revenue regression to identify the
correlation among the data from different periods via collecting net income and
total assets from 2005 to 2015, and sample companies are The reject shop and
Woolworth.
Before applying the regression process, the objective is to calculate the EAR for
different time series.
𝐸𝐴𝑅 =
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
Then, we could work out the summary output that shows the regression statistics
from those data.
Finally, the conclusion for those data could be explained with regarding to the
specific outputs, and provide prospective recommendation or conclusion.
17. 17
3.3 Data analysis
After calculating the EAR, the following table show the result of information
for each periods.
The reject shop
Woolworth
Then, we may use regression analysis to work out the summary output via
Excel or STATA.
18. 18
The reject shop summary output
Woolworth output
3.4 Conclusion to data collection and analysis
Woolworth and the reject shop’s future earnings depend on the sales of
commodities in the supermarkets. Regarding to the previous summary output, we
could conclude that the market performance for Woolworth is much better than
the reject shop. This may conclude the current grocery market environment that
Woolworth is still the major supermarkets in Australia market.
19. 19
As grocery markets, revenue and profit driver is the price of commodity sales,
Woolworth seems to own slightly higher correlation between two different
periods. This may show that the change on price would have much more impact
on Woolworth than the reject shop.
4.0 Hypothesis identification
4.1 Discussion on results
After analyzing the data calculated, Woolworth’s profit still has huge impact
depending on its current market shares although the market share decreases
continuously. This may be caused by the lack of Australia laws to enforce
reducing the market monopoly appropriately.
Regarding to the effect of monopoly part, arguments shows that monopoly is not
beneficial to local markets and consumers (Adams & Yellen, 1976) , and may
enforce commodity to become higher prices than free competitive market. It may
not be a good phenomenon for Australia grocery market to develop in the long
term, and may hurt the revenue of Australia government with lack of foreign
competitors to enter into Australia market, such as Walmart.
The legislation system should be revised immediately so as to assist the market
to be more competitive, which will be beneficial to public.
4.2 Recommendations
The recommendations would be discussed by two parts. The first part is related
to government policy, and the other might be related to the strategy of new
competitors.
Australia government should issue new laws to support more local and foreign
competitors to enter into the market. For instance, the government may provide
subsidy to medium or medium to small competitors, and encourage them to
employee more professional staffs and import wide range of products to attract
20. 20
more consumers with sustainable lower price. Moreover, government could
provide more tax benefit to attract more foreign competitors to enter into the
market, such as further lower the tax rate when foreign companies set business in
Australia. Although it seems to cause less tax income for Australia government,
the amount of sales would probably cover that kind of lost based on reaching
specific level of product import tax and sales revenue tax.
Since Woolworth and Coles occupy more than 70% of the market share, the new
competitors, such as ALDI and The reject shop, may pay attention to establish
their long term strategy instead of focusing on short term. Within short term, new
competitors may not have enough ability face the major competitors directly.
They may be required to improve the service quality and enhance the loyalty of
consumer via providing VIP services with regarding to the continuous scandals
from Woolworth and Coles. In the long term, new competitors should plan to
establish the good relationship with local and foreign suppliers in order to wide
their product ranges and selling styles that can be isolated from Woolworth and
Coles. For instance, Costco provide big combination of products with competitive
prices that has attracted some of Woolworth and Coles consumers to change their
shopping preference. This might be a fantastic example for ALDI and The reject
shop to learn.
21. 21
5.0 Conclusion and future work
5.1 Conclusion
Although Woolworth and Coles are still two major competitors in Australia
grocery market, some new competitors begin to strike their market share rapidly
during the past few years, and this market environment seem to be more positive
than previous years which may eventually be beneficial to local markets and
consumers. ALDI and other competitors, like The reject shop, will probably
become one of the major competitors in Australia that may provide more options
for consumers to compare and consider before purchasing products.
5.2 Future work
Current legislation system is still not good enough to prohibit monopoly power
in the market, the future work is to keep observing the change of specific rules
and regulations to improve the backwards of the law system that be beneficial to
local markets and consumers. Moreover, the risk analysis for each company is
still unstable under assumption and collection because of the different timeframe,
it may probably change with regarding to the Australia and global economic
performance. Therefore, this conclusion is required to be revised when there will
be a huge impact on global market environment.
22. 22
6.0 References
Adams, WJ & Yellen, JL 1976, ‘Commodity bundling and the burden of
monopoly’, vol. 90, no. 3, pp. 475-498.
Amir 2013, Advantages and disadvantage of monopoly, Economics guide,
viewed 01 June 2016, < http://www.economicsguide.me/?page_id=1044>.
Emily 2016, Aldi is now more profitable than Coles or Woolworths and is set to
grab even more shoppers- if they sort out their fresh food and customer service,
Daily Mail, viewed 13 April 2016, < http://www.dailymail.co.uk/news/article-
3616925/Aldi-profitable-Coles-Woolworths-set-grab-shoppers.html>.
Eisenhardt, KM & Martin, JA 2000,’Dynamic Capabilities: what are they?’,
vol. 21, no. 10/11, pp. 1105-1121.
Euromonitor International 2016, Grocery retailers in Australia, viewed 13 April
2016, < http://www.euromonitor.com/grocery-retailers-in-australia/report>.
IBIS 2016, Supermarkets and grocery stores in Australia: market research
report, ANZSIC G4111.
Mike King 2016, ALDI is stealing market share from Woolworth limited, The
Motley Fool, viewed 15 April 2016, < http://www.fool.com.au/2016/04/15/aldi-
is-stealing-market-share-from-woolworths-limited/>.
Moore, G 2001, ‘Corporate social and financial performance: and investigation
in the UK supermarket industry’, vol. 34, pp. 299-315.
Nicole Manuel, How does a monopoly affect business and consumers, HEART
newspapers, viewed 01 June 2016< http://smallbusiness.chron.com/monopoly-
affect-business-consumers-70033.html>.
Petrina 2016, Woolies appears to be losing its battle with ALDI and Coles over
the $11 billion groceries market, viewed 4 May 2016, <
http://www.news.com.au/finance/business/retail/woolies-appears-to-be-losing-
its-battle-with-aldi-and-coles-over-the-11-billion-groceries-market/news-
story/ee619afcd95cab694d1a40687fef869c>.
23. 23
Stevens, RB 1961, ‘Australia: and anti-trust law or a monopolies and restrictive
practices act?’, Faculty Scholarship Series, page. 4185.
Supermarkets in Australia, Shop ethical!, viewed 13 April 2016, <
http://www.ethical.org.au/3.4.2/get-informed/issues/supermarkets-in-
australia/>.
The reject shop 2016, Financial report, viewed 13 April 2016, <
http://www.rejectshop.com.au/aboutus/investorinformation/financialreport>.
Ullmann, A 1995, ‘Data in search of a theory: a critical examination for the
relationships among social performance, social disclosure, and economic
performance of US firms’, vol. 10, no. 3, pp 540-557.
Woolworth 2016, Annual report, viewed 13 April 2016, <
http://www.woolworthslimited.com.au/page/Invest_In_Us/Reports/Reports/Ann
ual_Reports/>.
