Woolworths Limited: Retail leader in Australia

A Case Study

Source: ALAM, Q. & MAJUMDAR, N. A. 2011. Woolworths Limited: Retail leader in Australia. Cases in Business and Management. 2nd ed.: Tilde University Press, Victoria, Australia.

Spokespersons
Kamrul Hassan
Australias Retail Industry Woolworths History Overview of Woolworths External Environment Analysis

Bahauddin Arafat
Internal Environment Analysis

Md. Mesbah Uddin

Answering the case Questions Conclusion Recommendation

Q&A

Australias Retail Industry

Around 140,000 retail businesses 10.7% of the total working population) works in this industry Contributes 4.1% of GDP

Cont.
Key players : Woolworths Ltd., Coles Group Ltd. and others, e.g. ALDI, SPAR Australia and Macro Wholefoods etc.

Large supermarkets are generally more profitable than smaller businesses

All other retailers selling 24% Mass Merchants Frankins 2% 1% Aldi 3% Metcash/IGA 17%

Market Share

Woolworths 31%

Coles/Bi-lo 23%

Woolworths History
1924 - First store opened
1930-40s Rapid growth 1970s Largest retailer for Fresh fruit and Vegetables 1980s Market leaders 1990s Entered Petrol

market with Caltex

Overview of Woolworths
Today over 3,000 stores
Employs over 180,000 people Serve over 13 million customers per day 31% market Share

Woolworths Brands

New Vision

Ambition

Woolworths Liquor Store

External Environment Analysis

Macro Environment
Political /Legal: Government has a direct impact on the supermarket industry Technology: Woolworths has adopted new technology and has first movers advantage Global Segment: Woolworths has expanded its business operation in New Zealand & India

 Macro Environment cont.

Demographic Segment:
Population 21 million (in 2008)

Mixture of ethnic and religious groups

% of older people increasing

Socio-cultural Segment:
Fast-paced society
concern about health and obesity demand for low-fat foods, easy to cook food, organic and GM-free

food.
Increased participation of women in workforces

 Macro Environment cont.

Economic Segment: slow economic growth growing unemployment rate

possible increase in fuel prices and wages

Porters Five Forces Model

 Porters Five Forces Analysis

Buyers: buyers have extremely high bargaining power Suppliers: bargaining power of suppliers is high to moderate Industry Substitutes: the availability of substitutes is

moderate to high.
Threat of New Entrants: the barriers to entry in supermarket industry are moderate. Rivalry among competitors: The rivalry between competitors in the supermarket industry is intense.

Internal Environment Analysis

Tangible Resources:
Around 3,000 stores

Strong financial position

Good technology Strong supply chain and distribution system approximately 180,000 Employee

Intangible Resources:
Brand image and reputation efficient management and human resources innovation skills market recognition for quality and fresh food

Capabilities:
Capabilities refer to an organizations skills in coordinating its resources putting them to productive use. Industry leading supply chain Deliver Fresh Food

Offer competitive low price

Core Competencies:
World-class supply chain

Core Competencies:
Branding & Market Position

Core Competencies: Innovation

Core Competencies: Marketing & Sales

Core Competencies: Integration

Vertical integration with some of the supplies by producing its own inputs to increase its market power and to respond to the private label trend

Value Chain

Value Chain Analysis

Primary Activities
Inbound logistics
Operation

Outbound logistics
Marketing & sales Customer Service

Value Chain Analysis Cont.

Support Activities
Infrastructure HR Management Technology Development Procurement

SWOT Analysis

Strengths
Strong Financial position Wide range of product Better supply chain management Brand image & Reputation Market leader with market share 31%

SWOT Analysis Cont.

Weakness
Operating cost is more because too large Debt increase Higher overall cost Reduced Petrol margin

SWOT Analysis Cont.

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 opportunity

SWOT Analysis Cont.

Threats
Slow growth and uncertainty in the Australian economy in recent time Recession and growing unemployment Increase in alcohol-related diseases and pressure from Government to reduce the business The growing dominate power of suppliers Technological advantage

ANSWERING THE QUESTIONS

1. Identify the main characteristics of the industry in which Woolworths operates.

Direct government interference in trading hours and close monitoring of the business activities buyers have extremely high bargaining power bargaining power of suppliers is high to moderate

The availability of substitutes is moderate to high.

The barriers to entry in supermarket industry are moderate.

The rivalry between competitors in the supermarket industry is intense.

What is a business model? Critically examine the principal features of Woolworths business model.

Business Model?

Business models describe, as a system, how the pieces of a business fit together, Magretta (2002).
MAGRETTA, J. 2002. Why Business Models Matter. Harvard Business Review, 80.

Business Model?
A companys business model explains the rationale for why its business approach and strategy will be a moneymaker. Absent the ability to deliver good profitability, the strategy is not viable and the survival of the business is in doubt, Thompson et al. (2010)
THOMPSON, A. A., STRICKLAND, A. J. & GAMBLE, J. 2010. Crafting and executing strategy : the quest for competitive advantage : concepts and cases, Boston, McGraw-Hill/Irwin.

Business Model Analysis

Critical Examination of the Principal Features of Woolworths Business Model using the four-box business model framework of Johnson et. al. (2008)

Customer Value Proposition (CVP)

Meet customers needs by delivering competitive low prices, consistent high quality, greater ranges, and better shopping experiences across all the brands.
JOHNSON, M. W., CHRISTENSEN, C. M. & KAGERMANN, H. 2008. Reinventing Your Business Model. Harvard Business Review, 86, 50-59.

Woolworths Business Model

Profit Formula:
Low prices, multi-option shopping Cost savings through efficient supply chain management & economies of scale diversification to increase profit High volume & low margin High resource velocity

Woolworths Business Model

Key Resources
World-class supply chain Efficient HR Wide range of products and product innovation skills brand image & reputation for quality and fresh food Online shopping platform Market experience Partnership and alliance management Strong relationship with vertically-integrated businesses

Woolworths Business Model

Key Process:
Industry leading supply chain Aggressive advertisement and promotional activities Continuous improvement in reducing price Innovation in Fresh Food Direct sourcing from Aussie Farmers Outside directors on Board to maximize shareholder value One-stop-shop concept: combination of petrol retailing with grocery retailing Product development & related diversification High standard of customer service

Viability of Woolworths Business Model

good business model begins with A profitable business is the best an insight into human motivations early indication of a viable and ends in a rich stream of business model, Johnson et al. profits MAGRETTA (2002). (2008).

Supermarkets EBIT (2007-2011)

Which important competencies did Woolworths use to add value to its strategic management practices to ensure its sustained growth?

Differentiation

Overall Cost Leadership

Generic Strategy for achieving SCA

World-Class Supply Chain

Branding

Innovation

Integration

Marketing & Sales

Sustainable Competitive Advantage (SCA)

Conclusion
Achieved resilience and sustainability in

business model.
has identified its strengths, added value to

multiple activities in new and innovative

ways

Conclusion
leveraged its capabilities to enhance the
flexibility of operations

Finally became the leader in Australian

retail industry

Recommendations
Short-term:
Should offer organic and GM-free foods Should participate in CSR activities Should adopt a social media strategy

Recommendations

Long Term:
should increase R&D finance for researching alcohol-related diseases should diversify in new businesses

Rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers.
Michael E. Porter

PORTER, M. E. 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review, 86.

Thanks To All