Case Study on
Woolworth Limited
Course Code: MBA/EMBA 600 Strategic Management Course Teacher: Dr. Nazmul A Majumder
Prepared by: Md. Mesbah Uddin Kamrul Hassan Bahauddin Arafat 2010-3-95-078 2010-2-91-015 2010-3-91-031
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Letter of Transmittal
July 03, 2012 Dr. Nazmul A Majumder Course Instructor: Strategic Management (MBA/EMBA 600) East West University, Dhaka
Subject: Submission of case study report on Woolworths Limited: Retail leader in Australia
Dear Sir, Here is the case study report on Woolworths Limited: Retail leader in Australia as you asked us to prepare for the partial fulfillment of the Strategic Management course. With great pleasure we are submitting this report as an integral part of the course. Working for this report has definitely enriched our knowledge about the External and Internal Environment analysis, SWOT analysis, Business Model, Core competencies & competitive advantages of a business, generic business strategies etc. and writing case study report, which ultimately strengthened our overall understanding of the Strategic Management. As per your direction, we tried our level best to highlight our findings by applying strategic management concepts and models. We tried to gather a collection of information to make our report specific and coherent, and make the report as reflective as possible. We are really thankful to you for giving us such a splendid opportunity to present you the report, which is authentically based on team effort and we appreciate this kind of work by our heart. We also appreciate to provide any information or clarification if necessary. Thank you for your consideration. Sincerely Yours,
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Table of Contents
Sl. No. 1 1.1 1.2 1.3 2 2.1 2.2 3 3.1 3.2 3.3 3.4 3.5 4 5 6 7 Overview
Titles
Australias Retail Industry Woolworths Overall Business Objectives External Environment Analysis Macro Environment Analysis Porters Five Forces Analysis Internal Environment Analysis Resources Capabilities Core Competency Value Creating activities SWOT analysis Answering the Questions Conclusion Recommendation References
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1 Overview
1.1 Australias Retail Industry
The Australian retail industry consists of almost 140,000 retail businesses (Productivity Commission, 2011) with a very few major players in the supermarket industry; and the key players are Woolworths Ltd., Coles Group Ltd. and others, e.g. ALDI, Metcash/IGA, Foodworks, AUR/Foodworks, SPAR Australia and Macro Wholefoods (Alam and Majumdar, 2011). The retail industry is one of Australias largest employers. There are about 1.2 million people (10.7% of the total working population) employed in this industry (Productivity Commission, 2011). Businesses in this industry retail widest choice of groceries and non-specialized food lines, including fresh fruits & vegetables, bread & pastries, cigarettes, canned goods, toiletries, dairy goods, deli items, and cleaning merchandise (Alam and Majumdar, 2011). The retail industry is a significant contributor to the Australian economy, generating $53 billion or 4.1% of GDP (Productivity Commission, 2011). In Australia larger businesses in retail (i.e. large supermarkets) are generally more profitable than smaller businesses and enjoy better returns on capital than their overseas counterparts, and the supermarket industry is now dominated by two large chains, Coles and Woolworths (Cotterill, 2006).
stores there which generated sales revenue of $104 million in 2007-2008 (Alam and Majumdar, 2011). Woolworths EBIT in the 2011 financial year was $3.3 billion, with approximately $3.1 billion coming from Australian operations and $196 million from New Zealand. Woolworths has demonstrated consistently strong financial performance. Sales and EBIT have exhibited solid growth over each of the past five financial years with a compound average growth rate for sales of 7.5% and 13.7% for EBIT from the period 2006 - 2011. As on 14 October 2011, Woolworths was one of the 10 largest companies listed on ASX, with a market Capitalization of $29.9 billion (Woolworths Limited, 2011).
1.3 Objectives
The objective of this case study report is to answer the following questions with a brief internal and external environment analysis.
Identify the main characteristics of the industry in which Woolworths operates. What is a business model? Critically examine the principal features of Woolworths business model. Which important competencies did Woolworths use to add value to its strategic management practices to ensure its sustained growth?
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the situation prevails for long. The growing unemployment rate, possible increase in fuel prices and wages are also a matter of great concern for the participants in the industry. 2.1.5 Demographic Segment: Australias population was 21 million in 2008 and there is a mix of ethnic and religious groups due to its immigration policy. In Australia, those over the age of 65 currently constitute approximately 12% of the population and the forecast is a 25% growth by 2051. The 85+ group is experiencing the fastest growth rate; with the number of people in this age group expected to almost quadruple to approximately 5% in 2051 (Pettigrew et al., 2005). 2.1.6 Socio-cultural Segment: Changing societal concerns, attitudes and lifestyles have resulted in dramatic changes in the supermarket industry in Australia. People are very much concern about health and obesity now-a-days. Hence, there is a demand for low-fat foods, easy to cook food, organic and GM-free food. The participation of women in workforces has also increased in recent time (Alam and Majumdar, 2011).
enjoy strong power in the supermarket. Hence, the bargaining power of suppliers in the supermarket retail industry in Australia is high to moderate. 2.2.3 Industry Substitutes: In the supermarket industry there are also a number of substitutes for consumers such as convenience stores, pharmacies, non-affiliated petrol stations, online stores, grocery stores, delicatessens and fresh food markets. Consumers are willing to pay high prices for the convenience e.g. closer to home, no queues, easier parking. Thus the availability of substitutes in the supermarket industry is moderate to high. 2.2.4 Threat of New Entrants: Due to low price offer in Australian retail shops & domestic supermarket industry it is not an attractive industry to enter, with a low profit potential. The scarce availability and high market price of land, huge capital requirement, government restrictions and regulation etc can act as barriers to entry. The relationship of existing big players with the suppliers and requirement of establishing own distribution centers by the new entrants can also be a barrier. It seems that the barriers to entry in supermarket industry are moderate. 2.2.5 Rivalry among competitors: The rivalry between competitors in the supermarket industry is intense.
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3.1 Resources:
At the end of the 2008 calendar year, Woolworths operated 3,000 stores across the Australia & New Zealand, and Employee approximately 180,000 people. This means that its tangible & intangible resources are very strong. Woolworths has efficient management and human resources, wide range of product and product innovation skills, well designed logistics management, strong brand image and reputaion for quality and fresh food, partnership and alliance management and strong relationship with vertically-integrated businesses
3.2 Capabilities:
Capabilities refer to an organizations skills in coordinating its resources putting them to productive use (Alam and Majumdar, 2011). We have found that from 1924 Woolworth is running business very successfully, it means that it capable to use right person in right position and Woolworth knows how to use or set the resources.
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Strengths Strong Financial position Wide range of product Better supply chain management Brand image & Reputation Market leader with market share 31%
Weakness Operating cost is more because too large Debt increase Higher overall cost Reduced Petrol margin
Opportunities The potential to increased the customer base The potential to increase market share Growth opportunity in the health food sector Population increase & diversity The opportunity to use ICT to cut costs and pursue new sales
Threats Slow growth and uncertainty in the Australian economy in recent time Recession unemployment Increase in alcohol-related diseases and pressure from Government to reduce the business The growing dominate power of suppliers Technological advantage and growing
opportunity
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Woolworths Profit Formula: Low prices Cost savings through efficient supply chain management & economies of scale; difersification to increase profit High volume & low margin High resource velocity Woolworths Key Resources: Efficient management and human resources Wide range of product and product innovation skills Well designed logistics management Strong brand image and reputaion for quality and fresh food Partnership and alliance management Strong relationship with vertically-integrated businesses Woolworths Key Process: Continuous improvemnet and adopting best practices in operation Aggressive advertisement and promotional activities Overall value chain initiatives o To the reengineering of processes, o To stop needless work o To get every process pointed in the direction of consumer satasfaction o To reduce cycle time o And to achieve total quality Outside directors on Board of Directors to avoid conflicts of interest and maximize shareholder value Offering more services e.g. one-stop-shop concept: combination of petrol retailing with grocery retailing Product development & related diversification High standard of customer service Despite the intense competition and low profit potential, Woolworths have a 10.7% growth in its sales (Alam and Majumdar, 2011) which is a clear indication of its superior business
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model. And a profitable business is the best early indication of a viable business model (Johnson et al., 2008).
4.3 Important Competencies Woolworths Uses to Add Value and to Ensure its Sustained Growth
Michel Porter (1996) presented three generic strategies that a firm can use to achieve competitive advantage and ensure sustained growth. These are: 1. Overall cost leadership: is based on creating a low-cost-position relative to a firms peers. With this strategy, a firm must manage the relationships throughout the entire value chain and be devoted to lowering costs throughout the entire chain. 2. Differentiation: requires a firm to create products and/ or services that are unique and valued by the customers. 3. Focus: finding a market segment and concentrate activities there. From researches it is evident that businesses combining multiple forms of competitive advantage (e.g. cost & differentiation) outperformed business that used only a single form and the highest performers were business that attained both cost and differentiation advantages (Dess et al., 2007). Woolworths adopts an integrated competitive strategy, i.e. it utilizes a combination of both overall-cost leadership and differentiation strategies, in search for sustainable competitive advantage (SCA) over its rivals in the supermarket industry. According to Porter (1996), a company can outperform rivals only if it can establish a difference that it can preserve. From the Woolworths case, we can clearly identify the following important competencies- which make the firm a leader in its chosen industry. World-Class Supply Chain: Woolworths innovation and competitive advantage have developed through its supply chain. Woolworths efficient distribution network is both a resource and a capability in its inbound and outbound logistics. Woolworths has significantly focused on efficiency and cost cutting in managing unnecessary expenses. A culmination of tangible and intangible assets, such as technological capabilities and supplier relationships, is highly valuable as it contributes to the significant cost reduction throughout Woolworths entire logistics network. The level of cost saving benefits provided by the efficient supply chain is non-substitutable by any other resources and also difficult to imitate as the level and scope of the technological capabilities involved is highly specialized and staggering.
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Branding and Market position: Woolworths has positioned its stores with The fresh food people slogan, creating a differentiated image of quality and healthy product range at reasonable prices. Consumers have positive experience with the products which can be attributed to its stringent quality assessment procedures throughout its supply chain. At present, 100% of fresh meat and 95% of fresh fruit and vegetables are from Australian producers. This brand reputation is valuable, as it provides meaningful differentiation to its competitors, and has directly contributed to higher levels of customer satisfaction. Innovation: Woolworths has many innovative projects including re-fresh, new idea, and petrol retailing. It also introduced everyday money credit card in partnership with HSBC Bank and MasterCard. Woolworths has also introduced different consumers rewards and convenience programs, including everyday rewards and everyday money shopping cards. These innovations in products and offerings are clearly a competitive advantage of Woolworths over its rivals. Integration: Woolworths has vertically integrated some of its supplies by producing its own inputs to increase its market power and to respond to the private label trend. Through this integration it now has a wide range of products available under the Woolworths Select brand that aim to deliver consistent high quality. Marketing & Sales: Woolworths marketing strategy is one of its key strengths which have helped Woolworths to differentiate its product and secure its place as Australias largest retailer. Woolworths spends more on marketing expenses through magazines, newspapers, television and distributed leaflets. All of its marketing and sales activates contributed to the successful brand awareness and the fresh food image that Woolworths has achieved.
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5 Conclusion
According to Porter (2008), Rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers. The retail industry in Australia is mature and intensely competitive with a low profit potential and thus is not an attractive industry to enter. Despite the intense competition and low profit potential, Woolworths have a 10.7% growth in its sales (Alam and Majumdar, 2011) which is a clear indication of its superior business model. From the above discussion we can say, Woolworths has understood the business as a process and expanded its boundaries to include customers and suppliers. It has identified its strengths, added value to multiple activities in new and innovative ways, and leveraged its capabilities to enhance the flexibility of operations through close integration and coordination of independent activities. As the company broadens its product offerings and expands into new markets, e.g. New Zealand and India, it is likely that the benefits will only grow, entrenching Woolworths as the dominant player in the retail market and preserving the sustainability of its competitive edge.
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6 Recommendation
From this case study we are recommending the followings: In the short-term, Woolworths should adopt a social media strategy to take the advantage of low-cost promotional activities. Should offer organic and GM-free foods should participate in CSR activities- which will improve the goodwill of the firm In the long run, Woolworths should increase its R&D finance for researching alcohol-related diseases, to protect itself from the introduction of new government regulations restricting or further regulating the sale of alcohol. Woolworths should diversify in new businesses in which sales growth are projected to rise over the long term, as the attractiveness and profitability of the Australian supermarket is dry in the future.
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7 References
ALAM, Q. & MAJUMDAR, N. A. 2011. Woolworths Limited: Retail leader in Australia. Cases in Business and Management. 2nd ed.: Tilde University Press, Victoria, Australia. COTTERILL, R. W. 2006. Antitrust analysis of supermarkets: global concerns playing out in local markets. The Australian Journal of Agricultural and Resource Economics, 50, 17-32. DESS, G. G., LUMPKIN, G. T. & EISNER, A. B. 2007. Strategic Management: Creating Competitive Advantages, McGraw-Hill/Irwin, New York. JOHNSON, M. W. 2010. Seizing the white space : business model innovation for growth and renewal, Boston, Mass., Harvard Business Press. JOHNSON, M. W., CHRISTENSEN, C. M. & KAGERMANN, H. 2008. Reinventing Your Business Model. Harvard Business Review, 86, 50-59. MAGRETTA, J. 2002. Why Business Models Matter. Harvard Business Review, 80. PETTIGREW, S., MIZERSKI, K. & DONOVAN, R. 2005. The three big issues for older supermarket shoppers. Journal of Consumer Marketing, 22, 306-312. PORTER, M. E. 1996. What Is Strategy? Harvard Business Review, 74, 61-78. PORTER, M. E. 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review, 86. PRODUCTIVITY COMMISSION 2011. Economic Structure and Performance of the Australian Retail Industry. Canberra. RESEARCH AND MARKETS. 2012. Internet Retailing in Australia [Online]. Available: http://www.researchandmarkets.com/reports/1607489/internet_retailing_in_aus tralia [Accessed 22 June 2012]. THOMPSON, A. A., STRICKLAND, A. J. & GAMBLE, J. 2010. Crafting and executing strategy : the quest for competitive advantage : concepts and cases, Boston, McGrawHill/Irwin. WOOLWORTHS LIMITED. 2011. Annual Report [Online]. Available: www.woolworthslimited.com.au [Accessed 1 July 2012].
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