Financial Anlysis: Woolworths

ContentsMacroeconomic factors.........................................................................................................................2

Global economy.................................................................................................................................2

Australian economy...........................................................................................................................2

Retail industry analysis- Porter’s five forces......................................................................................2

Bargaining power of consumers – Very High.................................................................................2

Bargaining power of suppliers – lower..........................................................................................2

Rivalry among competitors – Moderate........................................................................................3

Threat of new entrants - Moderate...............................................................................................3

Threat of substitute - Low..............................................................................................................3

Business strategy analysis......................................................................................................................3

Success Factors......................................................................................................................................3

Getting momentum in food and liquor segment...............................................................................3

Focus on innovations on online selling..............................................................................................4

Restructuring of business units..........................................................................................................4

Risk Factors............................................................................................................................................4

High Competition...............................................................................................................................4

Offline sellers vs. online retailers.......................................................................................................5

Rising cost of input materials............................................................................................................5

References.............................................................................................................................................5

Appendix...............................................................................................................................................6

Movement of world GDP...................................................................................................................6

Employment rate in Australia............................................................................................................7

Australian GDP and Export................................................................................................................7

Top Industries in Australia.................................................................................................................8

Inflation rate......................................................................................................................................9

Relative postion of Woolworths liquor division.................................................................................9

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Macroeconomic factorsGlobal economyThe global economy has shown a downward trend since the global financial crisis of year 2008. Since then the major economies of the world are trying to improve their positions. However the global economy is affected by one or other problems (Tucker, 2010). The recent issues is the crisis of Greece and Euro Zone, where Greece was not able to repay its debts. The global economy affects the economy of the countries and which in turn affects the local business. The developed economy as well as the developing countries are trying to recover from this phase (Marthinsen, 2014). However it is not an easy task and even the developed nations are facing problems of unemployment and slow growth rate. After the global financial crisis the recovery of global economy is in progress and the economic recovery is an ongoing process (Hein & Stockhammer, 2011).

Australian economyAustralian economy was affected by the global financial crisis of year 2008 along with the other economies of the world (TC, 2015). There was decline in the growth rate and recently the value of the Australian dollar is declining as compared with the value of USD (CCE, 2014). This means that the business based upon the exports are more likely to benefit and the business based upon import will get a hit. The Australian industry is based upon the mining industry and the exports of the almonds and dry fruits. The mining industry has seen a slowdown in the recent times though the export of dry fruits is helping the country. The Reserve Bank of Australia is gone for rate cut in order to boost the economy. This will release money in the local business and will help the Australian economy.

Australia was lucky as it was not much affected by the global financial crisis and was able to recover from this in a quick manner as compared to other countries (Arli, V., 2013). On the top of that the retail industry was much supported by the individual customers and it was least affected by the recession. Thus the global financial crisis affected the Australian economy but the effect on the retail industry was minimal and the retail industry was able to recover.

Retail industry analysis- Porter’s five forcesBargaining power of consumers – Very High Woolworths operates in retail department industry. The unique fact of this industry is that the most of the products sold are of similar brand and similar nature. Thus the differentiation strategy does not work for the retail industry. Hence the company which can sell the product at lower price will be able to attract the customers. The bargaining power of the customers in retail industry is very high as the customer are looking for lower price products. Company cannot compromise on the quality front and the only option to attract the customers is to provide a lower price. Thus the customer is driving the company strategy. None of the company can boast a reliable customer base as the customer is driven by the low price quotes. Thus the retail industry is really a customer’s paradise. The bargaining power of the customer is very high for retail industry.

Bargaining power of suppliers – lower Suppliers in the retails industry are the small and medium sized business. These provides goods to the big retailers and departmental stores. As the retail industry is price driven suppliers are under pressure to provide the goods at lower price, besides meeting the high quality standards. Thus the suppliers work for their survival all the time (Dikson, 2013). If suppliers provide low quality goods than they are sure to be blacklisted by the big retailers. Also the suppliers has to provide the goods at the lowest quote all the time. Thus the bargaining power of the suppliers is really on the lower side as compared to the other stakeholders. The interesting fact is that the retail industry cannot

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work without the contribution of the suppliers, still the bargaining power of the supplier is on the lower side. In the retail industry the suppliers works for their survival and nothing more than that.

Rivalry among competitors – Moderate There are a number of players in the retail industry still the number of major players is limited. There are only five to six major players in the department retail industry. Besides these players there are small retail shops and online retailers. It may be noted that though there only limited number of players in the retail industry, still the competition in the retail industry in on the higher side. The small online retailers are giving competition to the big players.

Threat of new entrants - ModerateThe entry in the retail and departmental store industry is not any easy task. First of all a high amount of capital is required in order to enter in this industry. Thus a company with a huge investment power can only enter in this industry. Besides the big initial investment a huge working capital is also required in order to operate the departmental stores. It is true that the small players can also enter in this industry but they also need to expand in order to survive and for this a huge capital is required. The number of established players in limited and this creates problem for new entrants as the most of the customers are already attached with the existing big players. It may not be possible for a new player to attract these customers. Thus the threat of new entrants can be considered as moderate.

Threat of substitute - LowLiquor and grocery are two items which are purchased by a number of persons. Grocery is a daily need and liquor is a sort of habit for most of the persons. Thus there is no point to argue that the customers may find alternative products to the liquor and grocery items. Even the recession was not able to stop the customers to stop spending the money on these items. Thus the threat for substitute is on the lower side. The traditional channel for sales was the departmental stores. Now the sale of these products are supported by the online sales. Thus the chance that the customers will substitute the retail industry are on the lower side.

Business strategy analysis

Success FactorsGetting momentum in food and liquor segmentCompany has focused on the liquor segment and the sales in this segment has increased in past years. The market share of the liquor segment of the company has also increased. Company has opened 11 new liquor stores which has helped in sales. Besides that the company is also selling liquor through online. Company has also launched liquor low price campaign in New Zealand. Focusing on the liquor business segment has helped the company in increasing the sales revenue and this strategy has worked for the company in short run.

Though the company have a diversified business, still it focused on the liquor business in order to increase its sales revenue and profit. This strategy proved successful and company saw a huge rise in its sales revenue (Woolsworth , 2011). Company is selling liquor off line as well as online. It has a dedicated online portal for the sale of liquor. There is need to appreciate the strategy of the company not only company is able to increase its sales revenue but also it has created customer base. Once the customers are loyal to one business segment of the company they are more likely to purchase products from another business segment of the company. Focusing on the liquor business

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also helped the company to increase its customer base for other segments without spending much amount on the advertisement and sales promotion.

Focus on innovations on online selling With the help of innovative technologies company was able to increase its online sales by 50% in the year 2014. Company has introduced several new features in online selling such as “Track my orders” feature which helps the customer by GPS tracking. Another feature was “Click & Collect”(Woolworths, 2014).

Company has made investment in the technology and logistics to provide customers a great user experience. In today’s era it is necessary for the company to move along with the fast pace of the technology. Companies which are not able to move along with the fast pace of the technology are bound to fail. Woolworths realized the importance of the technology and thus invested amount on the implementation of technology and this move proved fruitful for the company.

The recession of year 2008, reduced the purchasing power of the individuals and this in turn reduced the turnover of the corporates. However retail industry was able to survive the recession and was able to get back on the track. Besides that the emergence of the online selling of goods has helped the retail industry in increase its business. There are several companies which are doing only online sales of the products. Now the big retailers such as Woolworths has also shown their online presence and their online portals are generating good revenue.

Restructuring of business unitsDuring the year company has sold several business units and also acquired some business units. Company has acquired EziBuy and Hudson Building Supplies. During the past years company also sold its freehold business sites amounting to $ 600 million.

Company is working well with its business strategy, at one had it is focusing on the liquor business at the same time it has come up with the restructuring of the existing business. It has sold some of the old business and has started some new business segments. Thus the company is going well with the diversification aspect and this strategy will help the company in long term.

Risk FactorsHigh CompetitionThough the number of big players in the retail industry is limited, yet this industry has witnessed high level of competition. The bargaining power of the customers are on the higher side in this industry and it is the customer who decides the fate of the companies. Most of the customers in the retail industry are price conscious and tend to shift to the retailer which offers the lowest price.

Today the information for the price of a particular product is available online and this helps the consumer to identify the retailer who is offering the lowest price. Thus the customer is tend to purchase the product from that retailer only. It is not possible for the company to provide lowest price for each and every product. Thus some of the products of the company will be lower than the competitors. For these products company will be able to get customers without much effort. However for the products which have price at par with the competitor companies Woolworths need to create goodwill for the services it provide to the customer. If the company is able to attract the customer for at par price than it can survive in the competition. Selling products at lower price all the time is not going to help the companies in long term.

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In retail segment the companies which can create value for the customer at the lowest price will survive. Woolworths has tried to provide value to its customers especially the liquor purchasing customers. However Woolworths is still lacking in certain areas. It does not run any acclaimed membership program in order to enhance its customer base. Such techniques are used by its competitors such as Myer Holdings. Woolworths need to pay attention to these aspects as such membership program. These programs can help the company increasing the customer base.

Offline sellers vs. online retailers Woolworths is basically an offline retailer though it has showed its online presence in the recent years. The company was facing high competition from the online retail sites. In order to counter attack those sites company has opened its own online trading portals. This move has helped the company in intensifying its sales revenue. However still company needs to be alert of the online competitors. There are a lot of online competitors as well as the offline retailers. Thus the company needs to make a backup strategy to counter these competitors. It is obvious that a single strategy will not work in this case. Company need to make strategies for each competitor individually. This is a daunting task but it is necessary for the survival of the company.

Woolworths not only face competition from the Australian companies but also from the international online retailers such as Amazon. In today’s global most of the customers prefer to purchase goods from global overseas online retailers if the cost of the product is on the lower side. Thus Woolworths has also to take care of such competition.

Rising cost of input materials As the rate of inflation increasing the cost of the various grocery items has increased. Thus it is very difficult for the company to maintain the low price level. The retail industry is very sensitive to the price. Thus the company has to keep special attention to price and cost management. It has to keep a constant watch on the price offered by the competitors.

In order to the cost of the inputs on the lower side company need to put pressure on the vendors. At the same time company need to ensure that the goods it purchase follow the quality guidelines of the company. Thus an effort has to be put on this front as this aspect is directly related to the survival of the company. At all the companies in the retail industry need to keep the cost on the lower side and this creates pressure on the vendors. If vendors deny to reduce the price this will affect the company. Hence it is necessary for the company to develop its own brand products. Woolworths has some well-established products which belongs to its own brand and produced by the company itself.

ReferencesArli, V., 2013. Woolworths Australia and Walmart us: best practices in supply chain collaboration. Journal of Economics, Business, and Accountancy| Ventura, 16(1), pp. 233-337.

CCE, 2014. ECONOMIC FACTORS AFFECTING EXCHANGE RATES. [Online] Available at: http://www.consensuseconomics.com/Foreign_Exchange_Consensus_Forecasts/Economic_Factors_Affecting_Exchange_Rates.htm[Accessed 15 August 2015].

Dikson, L., 2013. Woolworths Australia and Walmart US: Best Practices in supply chain collaboration. Journal of Economics, Business and Accountancy, 16(1), pp. 233-337.

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Hein, E. & Stockhammer, E., 2011. A Modern Guide to Keynesian Macroeconomics and Economic Policies. Sydney: Edward Elgar Publishing.

Marthinsen, J., 2014. Managing in a Global Economy: Demystifying International Macroeconomics. NY: Cengage Learning.

TC, 2015. Australia’s ‘five pillar economy’: mining. [Online] Available at: http://theconversation.com/australias-five-pillar-economy-mining-40701[Accessed 19 August 2015].

Tucker, I., 2010. Macroeconomics for Today. UK: Cengage Learning.

Woolsworth , 2011. Annual Report 2011, Australia: Woolsworth.

Woolworths, 2014. Investors Relations. [Online] Available at: http://www.woolworthslimited.com.au/page/Invest_In_Us/Reports/Reports/[Accessed 18 August 2015].

AppendixMovement of world GDP

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Employment rate in Australia

Australian GDP and Export

7

Top Industries in Australia

8

Inflation rate

Relative postion of Woolworths liquor division

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