Analysis of Australian Supermarket Industry: Porter's Five Forces Framework

This paper analyzes the Australian Supermarket Industry using Porter's Five Forces Framework. It sheds light on the macro environmental factors affecting the industry and provides recommendations for companies to improve their strategies.

Running head: STRATEGIC MANAGEMENT
Strategic Management
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Executive Summary
This paper is going to elaborate on the analysis of Australian Supermarket Industry.
The aim of this paper is to shed light on the industry by analysis its macro environmental
factors that are changing or imposing an impact on the industry by using the strategic tool of
Porter’s Five Forces. It has also drawn a brief conclusion regarding the main competitive
threats present for the industry in the Australian region. Lastly, the report will end up
providing recommendations or suggestions for the companies to improve their strategies in
order to see their business flourish in the near future as well

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Table of Contents
Introduction................................................................................................................................3
Industry Analysis.......................................................................................................................3
Industry Analysis...................................................................................................................5
Competitor Analysis...............................................................................................................7
Strategy Analysis...................................................................................................................7
Conclusion..................................................................................................................................8
Recommendation........................................................................................................................8
References:...............................................................................................................................10

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Introduction
The Australian supermarket industry is classified as a mature industry. The
organizations who compete in the mature industries generally engage in initiates for cost-
reduction along with the competitive advantage developing from the cost-based, instead of
the differentiation-based factors (Aghazadeh 2017). Introducting the private-label
merchandise also falls under the cost-reduction initiative. The private-label merchandise was
introduced by Aldi in 2001 during its market foray in order to become a well-known cost-
reduction strategy undertaken by foremost competitors of the industry (Kumar, Gurunathan
and Reddy 2015). One of the most common characteristic of mature industries is slow
industry growth. The Australian supermarket industry, particularly a competitive duopoly in
between Coles and Woolworths, consisting joint market share of above 70%, is not a stranger
to the wars based on product price. Through targeting daily household commodity products
such as bread, milk, vegetables, fruits etc., with an intention to books the sales revenue, the
dynamic price wars have evolved in between the Coles and Woolworths.
However, the below analysis of the Australian supermarket industry shall assess the
macro environmental factors that are affecting the competitiveness of the industry. It will
further elaborate on the condition of the industry by using the Porter’s five forces framework.
It will also shed light on the strategies used by the industry and will further provide
suggestions in order to improve them if needed.
Industry Analysis
Macro Environmental Analysis
The disposable household income and the reduction in consumer sentiments have an
impact on the expenditure at supermarket. The results of international financial crisis has
changed the buying behavior of the consumers and the customers have now adopted a more

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conservative buying and spending patterns due to raid increase in the living cost and because
of continued economic uncertainty (Gong, Stump and Maddox 2013). As a response to the
downfall in the spending behavior of the customers, Woolworths has expanded its overall
portfolio of the private-label brands, providing the customers good quality at low prices and
setting a target of doubling its sale of the private-label groceries by 2011.
The change in the age and population demographics have furthermore influences the
location decisions for the development of new supermarkets as well as has affected the range
of products to be offered in between the supermarkets (Lysonski and Durvasula 2013). With
the same, the increase in population will also drive the formation of new supermarkets
because sustaining increased the foot traffic to the present stores becomes indefensible.
Furthermore, the increase in consciousness towards healthy living has changed the
customer’s purchasing behavior, reflecting an increase in the demand for the organic produce.
Along with that, the domestic retail sales too have grown more than 50% in two years from
623 million dollars to 947 million dollars (Cramb et al. 2017). The accessibility and the
distribution of the organic products are growingly facilitated throughout the supermarkets in
Australia. The buying habits of the customers towards buying organic products have indeed
changed considerably with the change in supermarkets responding to the increased demand of
the consumers. Coles, Aldi and Woolworth’s supermarkets in Australia stocks a wide range
of brand-name organic products. The Coles supermarket stocks more than 170 different
products under the tag of Coles Organic and the acquisition of Woolworths of the Macro
Whole foods in the year 2009 has led to its growth in retailing organic products.
Lastly, the technological developments have resulted in the Woolworths supermarket
to trial two important supermarkets in Sydney and Melbourne. According to the director of
Woolworth’s supermarket, Tjeerd Jegen, these two trial virtual supermarkets are just one idea

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to make the lives of their customers easier. Apparently, both Aldi and Coles supermarket too
have released iPhone application in order to not get beaten by in the competition for
technology-led customer convenience. In the late 2011, Coles had also introduced a system of
contact-less card payment in order to streamline their customer purchases. Hence, he could
now purchase items for above 100 dollars without providing their PIN numbers and
signatures.
Industry Analysis
1. Porter’s Five Forces analysis
Many industry conditions have an impact on the overall level of the industry
attractiveness, still the Porter’s Five Forces framework suggests that the industry
attractiveness could be determined through the application of 5 interrelated trends- 1) Power
of the customers 2) Power of the suppliers 3)Threat of new entrants 4) Threats of substitutes
5) Rivalry in between the competitors (Adi 2015).
1) Power of the customers- Powers of the customers are influenced as either the usual buying
public, being the end users of the production of supermarket or as the inherent power
exercised by the supermarkets over the suppliers (Emmett, Stuart and Barry Crocker 2016).
The suppliers indeed have some alternative to yield to the market power of the supermarket
as supermarkets accounts for about 40% to 60% of the revenue of the food processors in
Australia. The supermarkets are also very strong customers when they impose reliable
backward integration threat. According to the case study, Woolworths has involved in the
backward integration through acquisition activity. However, there is also presence of a trend
among the popular retail supermarket chains in Australia for replacing the brands of their
suppliers with their own.

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2) Power of the Suppliers- According to David McKinna, the agrifood expert, the food supply
of Australia has experienced a shift in the last 30 years. While in earlier days the suppliers
held the market power throughout the 1970s, exercised through the producer-owned
cooperatives and statutory marketing authorities, the corporation was needed to gain an
access to the capital. Apparently, almost all the organizations were taken over by the
multinational corporations and this has resulted in exercising important control by the
multinational manufacturers as the supermarkets did not wish to be in the absence of power
brands.
3) Threat of New entrants- The industries that have low entry barriers and present good
investment returns are attractive targets for the potential entrants (Drnevich and Croson
2013). As it is indicated earlier, the supermarket industry of Australia has experienced
moderate annual growth of about 3.4% in six years in 2012. Along with the decline in
revenue growth, the new entrants face notable entry barriers. Some of these challenges
include the limited sites for the development purposes, planning regimes, restrictive zoning
and notable capital outlay. Notwithstanding substantial entry barriers, the competitors Costco
and Aldi have entered the marketplace of Australia, indicating that in spite of the substantial
entry barriers, the returns present in the retail grocery industry of Australia are attractive to
the international companies (Hardaker 2015).
4) Threats of substitutes- As ‘convenience’ being of utmost importance to the customers with
less time, the supermarkets continue to supply them a one-stop shop for those people who
wish to buy a wide range of household items as well as fresh vegetables and fruits
(Ramaseshan, Rabbanee and Tan Hsin Hui 2013). The convenience stores like 7-Eleven tend
to be a substitute to the supermarkets from the perspective of convenience, but they only
supply a limited amount of items and products as compared to the Aldi and Woolworths
supermarkets. From the perspective of competition, the supermarkets attempt to achieve a

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large share of convenience market through installing self-checkouts, introducing private
labels, and repositioning of the traditional convenience store merchandise in the more
accessible locations.
5) Rivalry in between the competitors- With about 3500 competitors in the industry along
with combined profits of 3.3 billion dollars on 83.7 billion dollars of sales revenue in the year
2011 to 2012, the Australian retail industry is greatly concentrated as Coles and Woolworths
(Sutton-Brady, Kamvounias and Tom Taylor 2015). The two most dominant competitors of
the industry amassed a combined 71% market share. The industry concentration level affects
the competitive rivalry intensity. The supermarkets in Australia mainly compete on the basis
of product prices as the consumers are price-conscious.
Competitor Analysis
The threats to the Australian Supermarket industry primarily comes from the high
competition level within the industry, with Woolworths competing with the Coles
supermarket (Lawrence and Dixon 2015). Along with this, the intervention of government is
another significant factor that affects the growth and development of the Woolworths
supermarket in particular within the retail industry of Australia. The main competitors of
Woolworths are Aldi, Tesco, Coles and Walmart (Knox 2015).
Strategy Analysis
Woolworths has undertaken the sourcing strategy with an aim to achieve sustainable
performance conditions and the company also has adapted the strategy of local food sourcing
so that to make sure the growth and development of the local companies (Fleming et al.
2017). This strategy is implemented with an aim of supporting the local producers. The
purchasing process of Coles also indicates that the Coles too support sustainable
development. The products and services as sources are processed and they get sold under the

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brand name of Coles and Woolworths across the company shelves in its supermarkets. Aldi
on the other hand, targets the middle class people who look for product price more than
product quality. They give an edge over the competitors such as ASDA, Tesco and Penny
Market etc. by providing products at cheap prices along with high in quality as well.
Conclusion
Hence, the evidences in this paper suggest that there is a great influence on the rise of
prices because of the extreme competition in the industry. The buying power of companies
like Coles and Woolworths are influencing the price within the marketplace. With the same,
the scarcity of land has created a barrier for the new entrants in the market. Furthermore, a
critical strategic analysis of the Australian Supermarket Industry has been carried out with an
aim to assess the important strategies that are been undertaken by the companies and the
entire analysis has suggested that the Supermarket industry of Australia is focused towards
gaining high level of growth in its overall operation. However, there are the external
environmental conditions have influence the growth of this industry and based on the overall
strategies, the below mentioned recommendations are made.
Recommendation
 The companies such as Woolworths and Coles must adapt the fair price policy
strategy to its customers. They should aim at framing their strategies consistent with
that of the political conditions as widely spread across the Australia.
 They should also look forward towards enhancing their support from the skilled
employees by means of training and developing mechanism to their customer.
 They should also aim towards performing a continuous innovation within their
organization and must ensure that this factor should be made as an important part of
its overall strategy. Due to the social trends and preferences of the customers are

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determining the dynamism that can be effectively addressed by considering this
strategy of higher growth.
References:
Adi, B., 2015. An Evaluation of the Nigerian Telecommunication Industry Competitiveness:
Application of Porter’s Five Forces Model. World, 5(3).

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Aghazadeh, H., 2017. Marketology Organizational Contribution (MOC). In Principles of
Marketology, Volume 2(pp. 291-390). Palgrave Macmillan, New York.
Cramb, R., Manivong, V., Newby, J.C., Sothorn, K. and Sibat, P.S., 2017. Alternatives to
land grabbing: exploring conditions for smallholder inclusion in agricultural commodity
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