Strategic Management Analysis of Coles Supermarket

This article provides a strategic management analysis of Coles Supermarket, one of the two dominant supermarkets in Australia's retail industry. It includes macro environment analysis, industry analysis, company analysis, competitor analysis, and strategy analysis.

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Date

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Introduction
Coles is an Australian supermarket and one of the two dominant supermarkets in Australia’s
retail industry. It is also among the big 20 across the globe (Palmeira and Thomas 2011).The
supermarket’s market share is approximated at around 40 percent in Australia. Woolworths
which has not been able to be shaken for almost a millennium now also enjoys almost a similar
market share. The Coles and Woolworths Supermarkets are both facing a major challenge from
the entry of low-cost GermanAldi. Coles has been facing big challenges from its rival
Woolworth which outperformed it a decade ago, before getting rescued by Wesfarmers which
had enough resources to fund it and rescue itfrom being thrown out of the retail industry
(Wardle, and Baranovic2009). The main challenges in the retail industry today is understanding
how to make purchases, insufficient data limiting knowledge of the customer, improving
customer experience as many companies still depends on in-person transactions and the industry
has not embraced the web as quickly as advisable. This is a challenge because the modern
easiest way to understand state of customer experiences is to use digital marketing (Price 2009).
The retail industry also faces a challenge in providing Omni-channel experience to its customers
through online integration, in-store, and mobile channels to make information available in all
ways about their products with an aim of improving customer experiences across all channels
and devices (Sutton-Brady, Kamvounias and Taylor 2015).
Macro environment analysis
Socio-Cultural Factors: there is increased attention towards health and well-being, seen in the
movements towards embracing organic produce and healthy alternatives. The sale of organic
food is set to rise in the long-term and this provides a good opportunity to Coles Supermarket

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because there are few players offering organic food in the market space (Bogomolova, S. et al.
2016). This is also a threat which needs Coles to be cautious because farmers’ market and niche
supermarkets specializing in that product are likely to thrive in the environment.
The other social trend is the increased number of time conscious consumers. As a consequence,
there has been an increased demand for time convenience high (Bogomolova, S. et al. 2016). The
ability to provide and fulfill this need is made possible by Coles who are extending trading hours
(Thornton et al. 2012). Coles, in addition, has tried expansion of its products range as much as
they are able and has been able to create Coles business such as Coles Express.
Economic Factors: there are low spending labels in the current economies especially with
flexible products and consumers are trying to save through switching to private level
brands(Davidson, Timo and Wang 2010). Coles should therefore increase its private label
provision offerings to enable it to compete on the basis of price as it realizes its higher margin
while it competes on basis of choice convenience, i.e. offering a low priced alternative
(Hattersley, Isaacs and Burch 2013),(Nenycz-Thiel 2011).
Industry analysis
 Life cycle stage of the retail industry
 Early growth; the retail company enters the market where other retailers exist, invest
money into the business and faces little competition and market share rises gradually
and profits could be little due to initial capital invested.
 Accelerated phase; the retail market share start to rise and there is an increase in
profit. Price discounting is also experienced here.

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 Maturity phase; this is the longest stage of a retail company as it tries to establish,
sales peak and start to decline. The maintenance of suppliers is paid a lot of attention.
If the company fails to survive the completion it enters decline stage.
 Decline stage; the retailer may opt to go back to drawing table or give-up on the
business.
 5 forces analysis
 Buyers power; in retail industry buyers have little or no bargaining power like
retailers who buy in bulk but have an alternative to choose the cheapest products that
they need from different retail outlets. Choosing an alternative retail outlet is their
indirect bargaining power.
 Suppliers power; Lynch, 2009, put it that "If there are only a few suppliers" they have
the power over the retail industry. In the UK there are many suppliers retail
supermarkets can choose from and this means that the suppliers are many and
struggling to get their supplies in the market or supply to the supermarkets. In fashion
retail industry, suppliers have less power almost insignificant towards the supply.
This is because most retail companies source their products from third world
manufacturers who receive too little profits.
 Competitive rivalry; there is little competition in fashion retail industry due to lack of,
or, very little innovation in the space, allowing saturation of the similar products and
the presence of large numbers of retailers who are selling similar products without
forgetting the concepts that allows some to sell at low rates(Richards et al. 2012).
Therefore getting into this industry is not very easy at all and this makes fashion retail
industry to thrive in the space.

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 The threat of new entry. There is little threat of new entry in this industry since there
is little that is unique to be introduced in the industry. Unless new entries are able to
come up with unique ways to popularize what they produce making their brands even
more novel even when nothing special in them. The biggest challenge to new entries,
therefore, is high risks, but also high rewards in case of uniqueness.
 Threats of substitution; this retail industry (fashion industry) has little to substitute
clothes. There is nothing that replaces clothing and this is an advantage to the
industry.
In conclusion, fashion retail industry is unique compared to other industries because of high
demand for clothing by all people in all times (Dwivedi et al. 2012). The future of clothing
remains bright as demand is not likely to fall. Profit will be a guarantee every time as people
increase bargaining power. The emergence of new entrants, Australia’s changing tastes and
emergence of new technologies is an emerging stressor in the retail industry.
Company analysis
Coles’ history can be traced back from early 1900, and it is one of the pioneering retail
companies in Australians’ Smith Street. The supermarket was founded by George Coles who had
a key influence in the retail industry. Coles is currently under Wesfarmers, a western Australian
cooperative. The company operates over 750 full-time supermarkets, 2 hotels, 600 fuel and
smaller convenience stores. A decade ago it had a turnover of $17 billion before it was taken and
started getting funding from Wesfarmers in 2007. The survivability of this company depends on
the tight competition it faces from Woolworths supermarket and funding it receives from
Wesfarmers. It survives on copying what the rival (Woolworths) is doing and also through

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lowering prices of its products. It also practices strictness in time adherence and has well-
established supply chain through the signing of a contract for fruits and vegetables. The company
is a retail and consumer service provider and employs over 100,000 employees (Vella, Gountas
and Walker 2009). In 2016, Coles was worth $22.1 billion in assets, $33 billion in revenue and it
had an operating income of $1.9 billion (Price 2016).
Competitor analysis:
Woolworths Supermarket is the main competitor of Coles Supermarket and was started in
December 5, 1924. It is an Australian general merchandise consumer store and supermarket and
has 5 segments under its management (Keith 2012). These segments include liquor & petrol
segment, Australian food segment, New Zealand supermarket, general merchandise, and, hotels
and home improvements (Richardson 2012). The company has strong fundamentals enabling a
balanced mix of growth, profitability, debts and visibility criteria. Woolworths operates more
than 873 Woolworths Supermarkets, 527 liquor outlets, 327 other licensed outlets, 600 Caltex
Woolworths co-branded petrol outlets and Big W stores (Manton, Room and Thorn2014). It
prides in working closely with Australian farmers and growers to manage fresh products to its
customers sourcing over 90% of all fresh vegetables and fruits and close to 100% of fresh meat
from the farmers of Australia. This makes their slogan Fresh Food People a reality in Australia
(Chung and Griffith 2009). This strategy is a big threat to the Coles Supermarket because to get
fresh produce from already Woolworths loyal suppliers it will need to double its efforts in
meeting suppliers including in their offices, offer higher prices to the supplier which is also
dangerous for the company survival. In addition, it will require Coles to entice suppliers with
high contracts in an effort to buy their loyalty.

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Aldi entrance in the retail industry is causing sleeplessness in the retail environment by offering
the lowest prices of products 25% less compared to Coles and Woolworths and other players in
the retail industry(Ho, R. et al. 2009). This new entrant is eating in the pockets of the two
incumbent firms posing a need to change their operationalization.
Strategy analysis:
The main strategy used by Coles Supermarket is a price reduction. This strategy has worked and
helped the company to provide mutual purchasing advantage to its customers which in turn helps
it to compete effectively with the new entrants (Dos Santos, Svensson and Padin 2013). This
strategy can be improved by lowering prices of all their offerings on goods with varied consumer
preferences and the new entrant will be disadvantaged in having few people notice their
existence.
The company should also embrace a non-pricing strategy of grabbing new attention from the
consumers such as differentiating consumer service. The online retailing strategy should also be
embraced and this will increase cost advantage to the company over major competitors(Ho, et al.
2009).In addition , the use of online retailing will increase gains and benefits enjoyed by retail
companies such as increased access to the market and reduction of their expenditure(Price 2009).
The other strategy that can work for Coles Company is improving products and service strategy
depending on changes with consumer demands and collaborating with the suppliers for better
products distribution.Supplier relationship maintenance strategy can work to help the retailer to
gain more advantage from suppliers over the competitor and new entrants though it should be
done carefully so as not to disclose confidential information to suppliers(Dos Santos, Svensson
and Padin, 2013).

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The future of any retail company will depend on how it will embrace the new technology. This
effort will help in expanding its markets, understand consumer preferences as well as create
brand loyalty.
Conclusion
The retail industry is one of the most established industries in Australia with two dominant
supermarkets Coles and Woolworths Supermarket. The two companies have competed against
each other over many decades without facing a major competition from any other company apart
from each other. The two industries are very competitive and are currently facing a big challenge
which they did not face before from a low-cost German Aldi. One of the biggest challenges from
the Aldi to Coles and other players is the lowest price tags surveyed by Australian consumer
advocate Choice Magazine in 2009 and found that a basket of groceries from Aldi was sold 25
percent cheaper than the nearest competitor.They seem to live to their mission ‘Clear’. They
want all people living wherever they live should be able to buy groceries of every day at the
lowest price and of the highest quality. Retail industry faces a number of challenges including
insufficient data to enable knowing of the customer, understanding how to make purchases,
improving customer experience as many companies still depend on in-person transactions and
have not embraced the web as quickly as advisable. Modern retail companies must be aware of
the potential underpinned by digital and web and quickly adjust to their utilization to increase
their customer base. The fashion retail industry has a bright future because the demand of its
products is expected to keep rising.If the retail industry embraces new technologies there will be
good customer experience in future and this is going to attract more customers.

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