Competitive Strategy in the Context of Acquisition and Structure by Australian Supermarkets

The report discusses the proposed acquisition by Woolworths, involved parties, transactions, inquiries, analysis, future overview, competitive dynamics, status of the retail market, and more. It provides an insight into the competitive strategy in the context of acquisition and structure by Australian supermarkets.

Running head: COMPETITIVE STRATEGY
Competitive Strategy
Name of the Student:
Name of the University:
Author Note:

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COMPETITIVE STRATEGY
Executive Summary:
The report aims at providing an insight into competitive strategy in the context of acquisition and
structure by Australian supermarkets. The report commences with the overview of Australian
Competition and Consumer Commission (ACCC) on the proposed acquisition by Woolworths.
There is also discussion of the involved parties in the process of acquisition with a focus on the
acquirer and the targeted supermarket. There are also discussions about Australian supermarket
Aldi and other participants like the Metcash Limited. The report also discusses about the
transactions involved in the acquisition and the inquiries undertaken for proceeding with
acquisition. There is also an analysis based on the proposed acquisition along with a mention of
the future overview. There are also discussions about the competitive dynamics of the industry
where the firms are believed to compete. Through the report, it is possible to get an insight about
the status of the retail market as proposed by ACCC. The report also puts forward the statement
of issues, competitive behavior of the target market and the higher barriers to the entry.

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Table of Contents
Introduction:....................................................................................................................................4
Background: ACCC Overview of the Proposed Acquisition..........................................................5
The Involved Parties in Acquisition:...............................................................................................5
The Acquirer: Woolworths Supermarket...........................................................................................5
Targeted Supermarket: Renaissance Supa IGA of St Kilda.............................................................5
Other Supermarket Retailers of Australia........................................................................................6
Aldi Australia:.......................................................................................................................................6
Coles.......................................................................................................................................................6
Some Other Participants..................................................................................................................6
Metcash Limited...................................................................................................................................6
Transaction Involved in Acquisition...............................................................................................7
Inquiries Undertaken for Proceeding with the Acquisition:............................................................7
Analysis Based on Proposed Acquisition of Woolworths...............................................................7
Future Overview of the Proposed Acquisition of Woolworth.........................................................8
Competitive Dynamics of Industry Where the Firms Will Compete..............................................9
Status of the Retail Market..............................................................................................................9
Market for Local Retail Supermarket...............................................................................................10
Market for State-wide Retail Supermarket......................................................................................11

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Wholesale Procurement and Supply Markets..................................................................................11
Statement of Issues Put Forward by ACCC on Proposed Acquisition..........................................11
Competitive Behaviour of the Target Market................................................................................13
Reasons for Higher Barriers to Entry............................................................................................13
Conclusion:....................................................................................................................................14
References:....................................................................................................................................14

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Introduction:
The report aims at putting forward a discussion on competitive strategy in the context of
acquisition and structure of the supermarkets of Australia. The report revolves around a
discussion about the renowned Australian supermarkets, Woolworths, Coles and Aldi.
Woolworths Supermarkets represents an Australian grocery and supermarket chain found in the
year 1924(woolworths.com.au 2018). It is one of the largest retailers of Australia and owned by
the Woolworths Limited. Coles is also an Australian supermarket chain located in Melbourne
and owned by the Wesfarmers. Coles store was introduced in 1914 (coles.com.au 2018) and now
operates across eight hundred and one supermarkets across the Australian continent. The
supermarket chain presently boasts of having around 100,000 employees. Woolworths along
with Coles represents a duopoly structure that accounts for about 80 percent share in the
Australian market. On the other hand, Aldi, was a German brand that made its debut in the
Australian market and created newer challenges for the existing supermarkets with its strategy of
lower cost (aldi.com.au 2018). Here, the report will focus on a proposed acquisition of
Woolworths where it claims in acquiring Renaissance Super ICA of St. Kilda. The report also
portrays the analysis of this proposed acquisition by Australian Competition and Consumer
Commission (ACCC) in presence of Aldi and Coles. The ACCC plays the role of considering the
competitive prices of a proposed acquisition in context of the local retail supermarket, local retail
market and the state based retail supermarket. Woolworth’s supermarket however holds a second
position in Australia based on revenue and experienced a growth in the profit by 37.6 percent in
2017.

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Background: ACCC’s Overview of Proposed Acquisition
The Australian Competition and Consumer Commission (ACCC) put forward guidelines
based on which market enquiry took place for the proposed acquisition. This resulted in the
anticipation of ultimate decision (Leigh and Triggs 2016). In Australia, the initiation of a
proposed acquisition undergoes preliminary scrutiny by the ACCC before the execution of the
final decision. The commission presents a Statement of Issue (SOI) for each propositions made.
This enables the interested parties in identifying the issues put forward by the commission. The
interested parties might range from competitors, customers, stakeholders and shareholders.
Besides the commission also puts forward further provision for submission of SOI for merger
and other parties as and when necessary. This however acts as helpful platform.
The Involved Parties in Acquisition:
The Acquirer: Woolworths Supermarket
Woolworth’s is one of the largest Australian supermarkets owned by the Woolworths
Limited. The supermarket chain sell groceries including vegetables, meat, fruit, packaged food
along with magazines, beauty& health products, baby and pet supplies, stationary items and
household products. Presently, it operates across close to 1000 stores in Australia
(woolworths.com.au 2018).
Targeted Supermarket: Renaissance Supa IGA of St Kilda
This supermarket is an Integrated Grocers of Australia (IGA) whose offerings ranged
from groceries to fresh produce (iga.com.au 2018). The IGA store also had a liquor section that
offered chilled and non-chilled products.

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. The targeted supermarket is spread across 1259 square meters in area having facilities of
an extensive parking area for sixty-three cars. Besides the redemption scheme of Supa IGA
allowed customers with free parking facilities for over an hour. Nero Tadeo Nominees Pty Ltd.
owns Supa ICA’s liquor licenses. Mr George Altman controlled the licenses and held the
responsibility for owning as well as running two supermarkets under Renaissance Supa IGA.
Other Supermarket Retailers of Australia
Aldi Australia:
Aldi is a privately owned supermarket operator that entered the Australian market in the
year 2001. The supermarket boosted of owning 300 stores across Victoria, Queensland and New
South Wales. This retail supermarket possessed further expansion plans in Southern and Western
Australia in the year 2013. Aldi has limited assortment and was characterized by lower prices
(aldi.com.au 2018). These discounters put emphasis private levels instead of a huge assortment.
Aldi have smaller stores. It is one of the low price discounter operating across Australia and has
interstate network.
Coles
Coles is one of the foods, convenience and liquor retailer of Australia. Wesfarmers
limited later owned the company. Wesfarmers represented a public listed company that had
operations in varied sectors like energy, retail, chemical, resource, insurance, industrial sectors
and fertilizers.

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Some Other Participants
Metcash Limited
This is the largest grocery store in Australia that distributes products including liquor,
fresh produce and hardware to the independent supermarkets. The distribution business of
Metcash IGA provides distribution, marketing and warehousing of the grocery consumables to
the independent retailers that operates under IGA such as IGA express and Supa IGA and to non-
IGA brands like Supabarn, FoodWorks, Supabarn Express and Supa Express. Australia has close
to 1400 stores that operate under IGA brands (metcash.com 2018). Metcash is even a wholesaler
of the bottle shops under various banner groups that includes IGA liquor like Thirsty Camel,
Bottle O, Cellarbrations and to the hardware retailers under the banners of True Value and Mitre
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Transaction Involved in Acquisition
Woolworths Supermarket presented acquisition propositions about the business of Supa
IGA, its business assets and the liquor license from Nero Tadeo and bring the independent retail
small-scale supermarket under the branding of Woolworths (Vidal-Suárez and López-Duarte
2013). Woolworths undertook commercial negotiations with property owner of Supa IGA for
acquiring the property.
Inquiries Undertaken for Proceeding with the Acquisition:
The Australian Competition and the Consumer Commission (ACCC) took to market
enquiries depending on the proposition for acquisition. The commission also accepted further
information from the interested parties to ensure assistance in the process of investigation.

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Analysis Based on Proposed Acquisition of Woolworths
The Australian Competition and the Consumer Commission (ACCC) put forward
Statement of Issues (SOI) that outlined the concerns regarding the proposed acquisition of
Renaissance Supa IGA of St Kilda by Woolworths. Renaissance Supa IGA, the targeted
supermarket was located in 64 Fitzroy Street of St Kilda, Victoria.
The preliminary view of ACCC on proposed acquisition would result in reduced
competition since it would lead to the removal of a full line and independent supermarket from
the local market. Besides, Coles and Woolworths, Renaissance Supa IGA of St Kilda represented
the only option for the consumers to shop for the product range of a supermarket (Corones
2014).
ACCC has put forward the concerns of the market participants regarding the loss of
unique product offering of Renaissance Supa IGA. The targeted supermarket offers products that
not often stocked by large supermarket chains. These products includes bakery and delicatessen,
fresh vegetables and fruits, health food and specialty gourmet products and other imported
brands and products valued by the consumers(Singh-Peterson and Lawrence 2015). ACCC
however mentions that the product differentiation put forward competitor response towards
offers made by the rival supermarkets thereby providing additional choice for the consumers.
The commission has therefore expressed a concern that the acquisition might lead to the
significant reduction of choices for the consumers. As Supa IGA is the sole monopoly in the
area, so the acquisition would remove access to the promotions of Supa IGA for the shoppers.
Future Overview of the Proposed Acquisition of Woolworth

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In accessing proposed acquisition, ACCC considers the effect of acquisition by
comparing the competitive environment of the future provided the acquisition reaches a situation
when it substantially leads to reducing the competition in the concerned market (Collyer 2017).
In this situation however, the targeted market represented the profitable business and in absence
of an acquisition holds the power of operating as an independent identity for the next few years.
The ACCC presents a final assessment that portrays the possibility of Supa IGA in making an
exit by the year 2017. The commission also presents merger reviews that revolve around the
influence of acquisition in future. However, the shutdown of Renaissance Supa IGA in the
longer-term holds importance since it determines the influence on strategic direction, future
competitiveness in business and the incentive.
In other words, the futuristic view of ACCC portrayed that entry of independent
supermarkets like Woolworths for replacing the offers of Renaissance Supa IGA is quite unlikely
in a predictable future.
Competitive Dynamics of Industry Where the Firms Will Compete
As per the overview of ACCC on the proposed acquisition, the competitive dynamics can
be accessed based on following markets (Chen and Miller 2015):
 It includes the market around the local retail supermarket. It includes the suburb
and the neighbouring areas
 It includes the state based market of retail supermarket
 Lastly, it also includes the wholesale and supply procurement markets based on
the states.

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The commission also considered acquisition based on the retail market of liquor. The
liquor division of the targeted supermarket faced competition in the local market from the liquor
sales of Woolworths, Coles and the independent bottle shops and the supermarkets. Thus, the
impact of the proposed acquisition did not suffice to be sufficiently substantial.
Status of the Retail Market
According to the ACCC commission, the competition of the retail market that involved
the buying groups or the chains occurred at the state, national and the geographic level (Steward
and Gapp 2014). It is often seen that all retailers undertakes competition in attracting customers
from other similar retailer located within same area. Competition also exists amongst the larger
brands depending on retail offers of most of the stores in a broader spectrum.
Market for Local Retail Supermarket
While assessing local market for retail, the ACCC identified competitive constraints of
the retail offers made by the targeted stores against the ones put forward by acquiring firm. There
has been a clear visibility on the fact that the shopper often makes a switch between targeted
supermarket and the ones located in and around suburb areas of Middle Park, Windsor and the
West of St Kilda for a similar shopping experience (Sutton-Brady, Kamvounias and Taylor
2015). ACCC therefore puts forward that acquisition-taking place in context of local retail
supermarket also takes into account the suburbs. Besides, the commission also considered the
distance between the supermarket, dimensions of local market, analysis of the work time and the
routes of the public transport. Besides, the commission also undertook investigation regarding
distribution of catalogue areas of Renaissance Supa IGA of St Kilda. It however found catalogue
distribution were made to the households that were located at a distance area of 2km from

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supermarket. These considerations enabled the commission in putting forward a preliminary
overview that the supermarkets located in suburban areas of St. Kilda was capable of providing
closer substitutes.
Product Dimension of Local Retail Supermarket:
1. The dimension of products offered by the key supermarket chain ranged from
packaged groceries to fresh fruit to frozen vegetables to various bakery and deli products.
2. It included the convenient but smaller supermarkets that offered limited dimension of
products
3. Discounters like Aldi offered a product dimension with limited assortments
4. The special food retailers have a varied range of product dimension that ranged from
greener groceries to butchers to the bakers.
5. It also included the markets South Melbourne that put forward collection of the food
retailers and retailers of other products.
Market for State-wide Retail Supermarket
While considering the local market the ACCC should also consider the persistent
competition in the broader retail sector. This helps in putting up a competitive constraint on the
retail offers put forward by Woolworths across the various local markets (Pollard et al. 2014).
Presently, Woolworths standardizes elements on the retail offer via either pricing or state -wide
campaigns for marketing across every store, Thus standardization can undergo immense change
in response the competitive conditions.

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Wholesale Procurement and Supply Markets
The consideration of the proposed acquisition by the ACCC was done in reference to
state based market for wholesale supply and procurement of the products sold in the
supermarkets. This is performed on a consistent basis through considering past acquisition of
supermarket.
Statement of Issues Put Forward by ACCC on Proposed Acquisition
The statement of issues in this case are divided into the two categories are issues that
raises concern and the issues unlikely in raising concern (Mihailovic and Marjanovic 2014). The
report however focuses on the issues raising concern. These include:
Concentration of the Market:
The concentration of the market is determined by the presence of:
1. The market targeted
2. Presence of Aldi supermarket at the Inkerman Street, St Kilda
3. Presence of Coles Supermarket within area of St. Kilda and the Acland Street
Shopping
4. Presence of Woolworth supermarket within the St Kilda sector and the Acland Street
Shopping
5. Presence of smaller and independent supermarkets located in within nearby strips of
locality
Woolworths and Coles are the closest competitor and market inquiry portrays the target
supermarket to be a full line supermarket that had operations in local market (Knox 2015). This

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means Renaissance Supa IGA of St Kilda is the sole option for weekly shopping by the shoppers
in addition to the Woolworths and Coles. Aldi can lead to a price competition amongst the
supermarket by offering lower price for its limited assorted products. On the other hand,
convenient supermarkets located in the areas surrounding the Renaissance Supa IGA are smaller
and do not have an extensive product offering compared to full line supermarkets.
Therefore, it can be said convenient supermarkets having a local presence is unable to
produce closer substitutes. However, at a larger target site the constraint of supermarket depends
more on the product offerings of the other local supermarkets rather than the offerings made by
convenience and the limited assorted supermarkets.
Competitive Behaviour of the Target Market
It is found that Renaissance Supa IGA of St Kilda enters into competition with the
localized supermarkets through either a price or non-price offering based on the local market. .
Rather than ensuring a match for the competitor, the targeted supermarket puts forward a
differentiated and unique order. Renaissance Supa of St Kilda is an independent grocery store in
Australia with a wide range of product offering. This also allows the independent store in put
forward various offers in terms of products, price and promotions (Merrett and Smith 2013).
This however leads to the conclusion that supermarkets like Woolworth and Coles represents the
closest competitors of the Renaissance Supa IGA
Reasons for Higher Barriers to Entry
According to past reviews put forward by ACCC, the barriers to entry remain higher in
supermarket retailing. Establishment of new supermarket involves considerable lead times and

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sunk cost. This can however lead to creation of barrier when the market remains already served
by the multiple supermarkets especially when they take into account the scaled incumbent. St
Kilda is a developed area that puts forward a challenge in finding the accurate site for
establishment of whole range supermarket. Further, it does not even allow for the expansion of
the smaller format stores. Hence, entry of full like supermarkets thereby leading to the
replacement of offers made by Renaissance Supa IGA seems hardly possible in the near future.
Conclusion:
To conclude one say that Woolworths can replace the differentiated offers made by the
target supermarket, the acquirer, since the supermarket already has standardized offers that is a
part of local market. However, entry of another independent full line supermarket or the
expansion of the existing structures with the aim of replacement of the offers of the targeted
supermarket seems difficult. Market inquires indicated a generalized perception in relation to
personal service and higher quality of the targeted supermarket that holds value to the shoppers
not only due to the unique feature in comparison to the standard offerings made by the key
chains of the supermarket.

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