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– 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

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

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

Woolworths31%

Coles/Bi-lo23%

Metcash/IGA17%

Aldi3%

Frankins1%

Mass Mer-

chants2%

All other re-tailers selling

24%

Market Share

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

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 mover’s 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

Porter’s Five Forces Model

• 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.

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

– 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.

• 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

• Support Activities

– Infrastructure

– HR Management

– Technology Development

– Procurement

Value Chain Analysis Cont.

SWOT Analysis

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

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

SWOT Analysis Cont.

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 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?

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.

Business Model Analysis

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.

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

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

Woolworths’ Business Model

“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

$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)

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

Generic Strateg

y for achieving SCA

DifferentiationOverall Cost Leadership

World-Class Suppl

y 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

Long Term:

• should increase R&D finance for researching alcohol-related diseases

• should diversify in new businesses

Recommendations

“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

Thanks To All