Woolworths Limited- Retail Leader in Australia
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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.
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Spokespersons
• Kamrul Hassan– Australia’s 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
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Australia’s Retail Industry
• Around 140,000 retail businesses
• 10.7% of the total working population) works in this industry
• Contributes 4.1% of GDP
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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
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Woolworths31%
Coles/Bi-lo23%
Metcash/IGA17%
Aldi3%
Frankins1%
Mass Mer-
chants2%
All other re-tailers selling
24%
Market Share
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Woolworths’ History
• 1924 - First store opened
• 1930-40’s – Rapid growth
• 1970’s – Largest retailer for
Fresh fruit and Vegetables
• 1980’s – Market leaders
• 1990’s – Entered Petrol
market with Caltex
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Overview of Woolworths
• Today – over 3,000 stores
• Employs over 180,000 people
• Serve over 13 million customers per day
• 31% market Share
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• Woolworths’ Brands
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• New Vision
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• Ambition
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Woolworths Liquor Store
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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 mover’s advantage
– Global Segment: Woolworths has expanded its business operation in New Zealand & India
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• 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
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• Macro Environment cont.
– Economic Segment:
• slow economic growth
• growing unemployment rate
• possible increase in fuel prices and wages
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Porter’s Five Forces Model
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• Porter’s 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.
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Internal Environment Analysis• Tangible Resources:
– Around 3,000 stores
– Strong financial position
– Good technology
– Strong supply chain and distribution system
– approximately 180,000 Employee
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• Intangible Resources:
• Brand image and reputation
• efficient management and human resources
• innovation skills
• market recognition for quality and fresh food
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– Industry leading supply chain
– Deliver Fresh Food
– Offer competitive low price
Capabilities:
Capabilities refer to an organization’s skills in coordinating its resources putting them to productive use.
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• Core Competencies: World-class supply chain
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Core Competencies:
Branding & Market Position
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Core Competencies: Innovation
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Core Competencies: Marketing & Sales
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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
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Value Chain
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Value Chain Analysis
• Primary Activities
– Inbound logistics
– Operation
– Outbound logistics
– Marketing & sales
– Customer Service
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• Support Activities
– Infrastructure
– HR Management
– Technology Development
– Procurement
Value Chain Analysis Cont.
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SWOT Analysis
Strengths
• Strong Financial position• Wide range of product • Better supply chain management • Brand image & Reputation • Market leader with market share 31%
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Weakness
• Operating cost is more because too large • Debt increase• Higher overall cost • Reduced Petrol margin
SWOT Analysis Cont.
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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.
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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
SWOT Analysis Cont.
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ANSWERING THE QUESTIONS
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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
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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.
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What is a business model? Critically examine the principal features of Woolworths’ business model.
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“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?
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Business Model?
“A company’s 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.
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Business Model Analysis
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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.
Critical Examination of the Principal Features of Woolworths’ Business Model using the four-box business model framework of Johnson et. al. (2008)
JOHNSON, M. W., CHRISTENSEN, C. M. & KAGERMANN, H. 2008. Reinventing Your Business Model. Harvard Business Review, 86, 50-59.
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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
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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
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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
Woolworths’ Business Model
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“A good business model begins with an insight into human motivations and ends in a rich stream of profits” MAGRETTA (2002).
“A profitable business is the best early indication of a viable business model”, Johnson et al. (2008).
Viability of Woolworths’ Business Model
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$1,837.6 million (2007)
$2,169.1 million (2008)
$2,448.3 million (2009)
$2,782.4 million (2010)
$2,988.4 million (2011)
Supermarkets’ EBIT (2007-2011)
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Which important competencies did Woolworths use to add value to its strategic management practices to ensure its sustained growth?
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Generic Strateg
y for achieving SCA
DifferentiationOverall Cost Leadership
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World-Class Suppl
y Chain
Branding
Innovation
Integration
Marketing & Sales
Sustainable
Competitive
Advantage
(SCA)
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Conclusion
• Achieved resilience and sustainability in
business model.
• has identified its strengths, added value to
multiple activities in new and innovative
ways
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Conclusion
• leveraged its capabilities to enhance the
flexibility of operations
• Finally became the leader in Australian
retail industry
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Recommendations
Short-term:
• Should offer organic and GM-free foods• Should participate in CSR activities• Should adopt a social media strategy
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Long Term:
• should increase R&D finance for researching alcohol-related diseases
• should diversify in new businesses
Recommendations
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“Rivalry is especially destructive to profitability if it gravitates solely to price because price
competition transfers profits directly from an industry to its customers”.
PORTER, M. E. 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review, 86.
Michael E. Porter
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Thanks To All
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