The Challenges of Small Players in Australia's Retail Industry Dominated by Coles and Woolworths

\In this report we will discuss about retail industry and below are the summaries point:- Coles and Woolworths dominate the Australian retail industry and make it hard for small players to compete. Merger or acquisitions are strategies used to compete with big players in the industry. Both Coles and Woolworths have faced challenges and implemented strategies to improve their performance and remain competitive.

INTRODUCTION
Retail industry in Australia is dominated by Coles and Woolworths. They have been
competed each other since decades ago and nowadays they are facing new challenges given
from new competitors, which are Metcash and Aldi. This domination makes the small player
hard to compete them. In general, retail industry in Australia is dominated by big players.
Suppliers are also monopolized by big players too. So that small players in the retail industry
will find it difficult to grow their business. It’s proven by the statement fromIBIS World
report 2018, another aspect that they have to take a look was the problem about alternative
market share, when there is a big supermarket it would be difficult for a small players to
operate theirs.
Woolworths acquired the macro organics business to answer this threat. Both Coles
and Woolworths strive to establish store in areas of population growth. All the risks had
been calculated including gives an account of how this can happen even in anti- big business
enclaves.Basically, with two giant players in the market, neither can afford to let other get
other a head. The supply chains for these supermarkets are very well establish, tight
contract are signed for food and vegetables. There are also tight times specific delivery
contracts for the trucking companies who deliver the goods. Moreover, they can obtain a
good supply by buying the readily available supply.
Merger or acquisitions is an alternative solution to compete the domination of the
big player in supermarket industry. Woolworths found great way to make it successful.
Mullumbimby on the NSW North Coast is a centre for small business ad had a large
alternative community which proposed a brand new bigger supermarket, but they had
difficulty to get the permission from the council, (Keating, 2015)l. At first they refused to sell
their business but at last it sold out to Woolworths. Woolworths overcame the problem
with the anti-big business community that coming after that case and win the case.
This report has purpose to show the problems, and the strategies to compete the
domination of big player in Australian supermarket industry. Merger, acquisitions, and
structure are one of the strategies that will be discussed in detail.

BONUS CONTENT
A decade ago Coles performance was left behind the Woolworths. However, since
Coles is owned by Wesfarmers, a successful cooperative which has strong fundamental
fund, this condition started to change. Wesfarmers hired a professional leader for the team
who came from the UK and gave the injections of fund to rejuvenate the stores and
improved the services. This innovation based on the ‘Tesco playbook’ (low prices, well-
stocked shelves, good staff, clean store, nice displays) and it started immediately. The same
level competitor of Coles is Woolworths. Woolworths is not just ordinary supermarket
chain, t has hundreds branches and run many other units of businesses also. In early 2016
was the worse time for Woolworths because the project that has been done in 6 years was
close down. The losses achieve $ 1 billion and 7000 jobs were put at risk. This failure was
because it had tried to expand too quickly, the wage rises and costs of the new store
development. Moreover, the store just left unoccupied.
Coles and Woolworths had a tight competition. They created strategies to win the
market in terms of moves and prices. When one of them had a successful move then the
other copied and improve, and soon. Basically, with two giant players in the market, neither
can afford to let other get other a head. The supply chains for these supermarkets are very
well establish, tight contract are signed for food and vegetables. There are also tight times
specific delivery contracts for the trucking companies who deliver the goods. Moreover,
they can obtain a good supply by buying the readily available supply.
Woolworths found great way to make it successful. Mullumbimby on the NSW
North Coast is a centre for small business ad had a large alternative community which
proposed a brand new bigger supermarket, but they had difficulty to get the permission
from the council. At first they refused to sell their business but at last it sold out to
Woolworths. Woolworths overcame the problem with the anti-big business community that
coming after that case and win the case. Metcash run in wholesale and distributor and a
marketing business. It supplies in 2400 stores n Australia including IGA stores. IGA Stores
stock similar lines to Coles and Woolworths and strive for similar prices. Metcash system is
struggling, it lost nearly a third of its market and 70 % of its value since 2007. It is because:
Aldi and its low price offerings, big supermarket are staying open late and killing the

traditional advantage of smaller player, the range in Coles and Woolworths and its
marketing budget are greater. The Metcash operation may shrink further if it cannot
develop answer to the problem it faces.
Aldi start in Australia in 2001 and develop rapidly by 2016 it has 350 stores with
another 120 planned. Aldi is come from German that has system of self service store and
has long since fine-turned low cost retailing. The mission of the company is giving the
opportunities to the buyers to buy the high quality products in lowest possible price. this
mission can be possible by tie the suppliers into firm contract and sell most product as home
brand. They also design the system of cutting all non-essential costs, good places on display
quickly and customer packing their own bag. It stocks a limited range of goods-quality
products, with limited choice. Aldi also had weekly special offer that heavily marketed
through catalogue and apps at that time. Aldi Also committed to reducing its carbon
footprint, maximizing its energy efficiently and recycling. This situation challenge
Woolworths which is behind Coles and challenged by Aldi is to focus in its food division.
Woolworths committed to provide convenience for superior freshness and a more
appealing range and a focus on innovation.
Woolworths also realize the costumers’ ability to buy everything effortlessly
through the technology, Consequently, Woolworths adding additional 58.000 work hours to
the system to get better services.
The Australian supermarket industry is a highly competitive and concentrated market that is
dominated by both Woolworths and Coles (Wesfarmers). In 2015, Woolworths had up to 933 stores
in operation and Coles were operating up to 762 stores. The two market leaders controlled up to
80% of the market and were perceived to possess a duopoly in the market (Hickey, 2015). The other
two major players include Metcash and Aldi, a growing presence in the industry. With the evolving
market landscape and increasing competition from new players such as amazon, these main players
need to ensure that they position themselves in a way to negate these new competitors and
maintain a competitive advantage in the market (Pash, 2017).
Both acquisitions and structure are imperative for these supermarket giants. They need to ensure
that they are structured in a way to effectively compete against their competitors. Woolworths and
Coles have diversified their retail coverage over the years as they seek to maximise profitability and
have entered markets such as petrol, liquor and pharmaceuticals (Round, 2006). Acquisitions would
be important for companies such as Woolworths as they strive to gain an advantage in multiple
market segments. However, a larger number of acquisitions does not always equate to greater

profits and success. This was evident from failure of the Woolworths’ run Masters chain, where
stores were aggressively rolled out. Their rushed expansion, coupled together with a failure to
differentiate the business, resulted in the business losing up to $200 million a year (Pash, 2016).
Mergers and acquisitions from market leaders such as Coles and Woolworths are also closely
monitored by government bodies. This is to protect the interests of consumers, who may be
disadvantaged should Coles and Woolworths unfairly control the market through their growing
acquisitions (Round, 2006).
The Australian supermarket industry is a highly competitive and concentrated market that is
dominated by both Woolworths and Coles (Wesfarmers). In 2015, Woolworths had up to 933 stores
in operation and Coles were operating up to 762 stores. The two market leaders controlled up to
80% of the market and were perceived to possess a duopoly in the market (Hickey, 2015). The other
two major players include Metcash and Aldi, a growing presence in the industry. With the evolving
market landscape and increasing competition from new players such as amazon, these main players
need to ensure that they position themselves in a way to negate these new competitors and
maintain a competitive advantage in the market (Pash, 2017).
Both acquisitions and structure are imperative for these supermarket giants. They need to ensure
that they are structured in a way to effectively compete against their competitors. Woolworths and
Coles have diversified their retail coverage over the years as they seek to maximize profitability and
have entered markets such as petrol, liquor and pharmaceuticals (Round, 2006). Acquisitions would
be important for companies such as Woolworths as they strive to gain an advantage in multiple
market segments. However, a larger number of acquisitions does not always equate to greater
profits and success. This was evident from failure of the Woolworths’ run Masters chain, where
stores were aggressively rolled out. Their rushed expansion, coupled together with a failure to
differentiate the business, resulted in the business losing up to $200 million a year (Pash, 2016).
Mergers and acquisitions from market leaders such as Coles and Woolworths are also closely
monitored by government bodies. This is to protect the interests of consumers, who may be
disadvantaged should Coles and Woolworths unfairly control the market through their growing
acquisitions (Round, 2006).

Australian supermarket-Mergers and Acquisitions
Evaluation of the case
We will analyses and discuss in four different areas from the horizontal to the vertical use of
market power. The horizontal is focusing on the advantage and disadvantage of companies in
a supermarket retailing industry and their buyer power, the vertical will combine the effect
from the growth of large chains to the consumers, squeezing power to manufacturers or
suppliers and the barrier to entry the market of the smaller firms.
Companies:
It is claimed that prices and profits are momentous accompanied to industry and/or market
share, the relationship being attribute to the effect of market power rather than to the superior
efficiency and mergers have been demonstrated in the rapid price grow and the firm itself
would be recognized by consumers because of their larger market scale (Round 2006). As a
consequence, the result from their acquiring and merging power has made the big players in
Australian supermarket industry like Woolworths and Coles leading a range in the top two
highest market share in Australia, especially Coles, it is turning a highly successful after long
years behind Woolworths when it was acquired by Wesfarmers in 2007.
However, a lot bigger, a much higher in taking market risks. As the even occurred in early
2016 that made Woolworths lost over A$1 because of their Master hardware chain was
closed down influent by the increasing of wages, cost of new stores development and too
quickly in retail store expansions.
Supermarket consumers:
Consumer has the right to choose their variety of food and products, but the growth and the
dominant position of the leading market chains such as Coles and Woolworth will
disadvantage the shopper consuming diversification (Round 2006). The leading chains offer
different products in different branding from basics need to the fuel and liquor. However,
there are not much ways to ensure that the customer will serve with the lowest price as the
supermarket was offer by their supplier or they were offered the real choice by the leading
chain.
Manufacturers or Suppliers:
In spite of the fact that leading supermarkets, Coles, Woolworths, Aldi, IGA, for instance,
carry bundle of thousands of different products in their variety of stores which mean there
will be hundreds of suppliers supply same type of goods, from this perspective of store
positioning of each items may have been shown in a shortage of shelf space (Smith 2006).

The power of supermarket as a buyer is consider to have more market power relative to its
supplier if a massive decreasing in number of purchase, considering that significant supplier’s
profit would substantially reduce. To entry or exist into the downstream retail industry are
seem to be highly barrier for the supplier. Otherwise, supplier has to decide to refuse all term
those agreed with the buyer than creating their own retail scheme (smith 2006).
New entrant and Competitors:
According to Smith (2006) for the indication of characteristics of the grocery industry, it is
appeared that the more larger scale company with widely range of products and store located
are believed to be the more efficient than smaller company with restricted product range.
While Coles and Woolworth offer cheap product and fresh food where cover high number of
consuming goods in retail market, to play in the market, Aldi has to propose differentiation in
the industry to make a gaining potential in the market share.
Merger and acquisition can be occur at any time when the firms seek the potential growth or
if they foresee their business may not perform well or influent by other factors as see in the
example of local supermarket by the Mallam family in Mullumbimby. Either Aldi or Metcash
or even other smaller firm are possibly to climb up to the top level of the market share if they
were acquired by other international big firm or maybe become one part of Wesfarmers or
Woolworths, the doom cannot forecast.
Competitive Strategy “Australian Supermarket case”
Issues and situations detected in the case study. (these topics needs be analyzed and summarized in
the analysis case part)
 Aldi is a German low – cost retailing company which had a quick growth in Australia since
2001; being a serious threat to the main consolidated Australian Supermarket brands
(Woolworths and Coles), pushing Metcash (IGA) to a new situation without answers and
killing the traditional advantage of the small retailer business in the Industry.
 The external factors (political and community decisions) can affect negatively the
Supermarket industry, impeding the growth of small business, like the Mallams
supermarket`s case and impeding the expansion of the big supermarket companies also.
 Metcash (IGA), the third party of the Australian brand supermarkets. Is losing presence each
year in the Industry and does not have answer to continue competing with the latest and
new challenges in the Supermarket Industry.
PROPOSED SOLUTIONS Aldi is a German low – cost retailing company which had a quick growth in Australia since
2001; being a serious threat to the main consolidated Australian Supermarket brands
(Woolworths and Coles), pushing Metcash (IGA) to a new situation without answers and
killing the traditional advantage of the small retailer business in the Industry.

An immediate response by the Australian brands could avoid this situation. Apparently they sub
estimated the Aldi`s strategies and capability to make their own place in the Australian supermarket
Industry.
They should add the Aldi`s strategy to their plans. For example provide the option to buy daily
groceries, 30 cents cheaper than their regular prices, keeping fresh products in their shelves,
continuing offering service till late hours, and offering one day each week variety of sales on new
products which are not frequent in a supermarket and sales of the regular supermarket products
also.
This strategy should be supported by a new policy of suppliers. Improving their business relations
and creating relations based commitment, trust and fidelity between them. The home brands will
have a relevant role in this strategy also (reducing the prices).
The small retailers from the Industry can negotiate to buy cheaper the products to compete against
Aldi; and keep with them the traditional advantage in this industry, selling less amount in cheap
prices.
About Metcash (IGA) situation we will discuss it case below.
 The external factors (political and community decisions) can affect negatively the
Supermarket industry, impeding the growth of small business, like the Mallams
supermarket case and impeding the expansion of the big supermarket companies also.
This situation could be avoided in the planning project stage. If the Companies involved in
this issue, Mallamas and Woolworths’, would have performed a correct PESTLE analysis to
assess the external factors which will affect their company plans. May be they could find the
way to make viable their growth and expansion plans in the local area.
Other important aspect is the cooperation between companies. If the Mallams and
Woolworths would have work together, the synergy of the efforts of these companies could
change the local panorama for these. The Mallams could continue their new supermarket
project, and Woolworths could avoid to continue wasting resources and time, trying to solve
this situation. Finally the bigger had the resources to change this situation in their own
benefit.
I have to mention, that may be this was a Woolworth’s competitive strategy to eliminate
their main rival in that town. Anyway a good planning and analysis process could save the
Mallams Supermarket. Metcash (IGA), the third party of the Australian brand supermarkets. Is losing each
year presence in the Industry and doesn`t have answer to continue competing with the
last and new challenges in the Supermarket Industry.
The Industry is changing quickly and is facing new challenges and the Metcash group is not
responding properly to this challenges.
Firstly they need to work in a brand identity, while Woolworths represents the fresh food
people, Coles is improving their performance and offers prices lower than Woolworths and

Aldi has come with an innovative concepts in supermarkets; the Metcash has not a proper
marketing strategy. While the Supermarkets big brands invest in marketing with famous
people as Jaimie Oliver, the lack investment in marketing of Metcash reduces his presence in
the Industry.
Finally their prices are higher in popular groceries and does not offer home brand products
or alternative products than their competitors. Making all these company very unpopular
and is losing their presence in the market.
I have to mention that the PROFIT analysis could help to solve all these internal problems.
Reducing their prices, the strategy will turn this place in an attractive option to customers.
Innovation in their service, innovation in their products and increasing the options will
improve the supermarket performance and profits. We can mention that the GHemawat`s
AAA strategies could be a very useful method to improve the company aspects also.
Recommendation
 Everyone needs a variety of choices for the comparison of products, and they can buy
according to their needs. The supermarkets should provide it to their customers.
 A collaboration with foreign companies is a good idea, as it not only let us view marketing
strategies from a different angle, but also increases the chances of future partnership if
required. This could be a good thing for the companies.
 Investment in marketing is very important, as it can help the company during difficult times.
 The company may build a marketing strategy, with maximum profit. Thus it could follow the
strategy planning, to maximize profits.
 The profit per product may be lowered as to attract more customers, which will in turn tend
to sell more products compared to before. It is a powerful tool, companies can use.
 Being a home brand is certainly an advantage, but one should never underestimate other
rival companies, even if they are foreign. A company with a good strategy and a backup plan,
will not take too long to make its way to the top.
 A company can build its own website, which may help the customers to order from home,
thus saving their time. It may be a user friendly way to increase their sales.
Conclusion
The supermarket business is a complex and risky business, but it can evolve and make its way to the
top with a good strategy. Competition has increased in this business, thus it is required to think of
new ideas and a good backup plan. Underestimating the rival companies is a bad decision. Instead
they should see the advantages of their strategy, and use it for their profits. A survey may be
conducted to now the needs of the people and their budget, through which we can adjust our
strategy for selling products.