Analysis of Supermarket Industry and Economic Data

The provided document is an assignment that delves into the Australian supermarket industry. It includes a list of references to academic papers on topics such as price elasticity of demand for non-cigarette tobacco products, supermarkets' position and power in the food system, human capital and export diversification affecting energy demand, supply chain collaboration, and technology perspectives. The document also features online sources like IBISWorld's industry insights, Westfarmers' annual report, Australia's GDP, and articles from Beef Central, Cat Woods, Matthew Elmas, Stuart Marsh, and Tom Osegowitsch. It is likely intended for a student in a business or economics course looking to understand the dynamics of the supermarket industry in Australia.

ECONOMICS FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Description of company and industry.................................................................................1
Overview of Westfarmers Limited.........................................................................................1
Overview of industry..............................................................................................................1
2. Analysis of market structure the industry...........................................................................2
Type of market structures (Supermarkets: Grocery products)...............................................2
Market leader in industry........................................................................................................3
3. Determinants of demand and supply which are highly influential.....................................4
Determinants of demand.........................................................................................................4
Determinants of supply...........................................................................................................5
4. Demand elasticity of product .............................................................................................5
Product or service is elastic or inelastic.................................................................................5
Factors which impact elasticity of demand of production......................................................6
5. Analysis of recent event with substantial impact on industry............................................6
Description about event..........................................................................................................6
Impact of event on market demand and supply......................................................................7
Likely impact of event on quantity and market price.............................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Economics is referred as social science which is directly concerned with distribution,
production and consumption of services and goods. It helps in gaining information related to that
how individuals, nations, government and businesses makes choices for resource allocation for
satisfying needs and wants and it also identifies that how groups coordinate and organize efforts
for attaining huge output. The present report will discuss about Westfarmers Limited's strategy in
next 5 years along with overview of company and industry. This will analyse the market
structure and its market leader in this industry. In the same series, it will discuss about
determinants of supply and demand for service and products which are highly influential.
Simultaneously, there will be discussion related to demand elasticity of product and services and
all considered factors. The most important concern is related to analysis of recent event along
with its substantial impact on industry.
1. Description of company and industry
Overview of Westfarmers Limited
Westfarmers Limited is headquartered in Perth, Australia and founded in year 1914. It is
involved in retail, production, coal mining, distribution, gas processing, manufacturing chemicals
and fertilisers, investment business along with industrial and safety product distribution in
Australia, New Zealand, United Kingdom and at global level. The business unit operates 809
Coles supermarkets, 899 liquor stores with context of First Choice Liquor brands. It also has 88
hotels and approx 711 convenience outlets and online supermarket (Pulker and et.al., 2018).
Further, it offers car, home and landlord insurance products along with credit cards, outdoor
living products via warehouse stores, trade centres, smaller format stores along frame and trust
sites and online under bunnings name; home wares, general merchandise and apparel via 303
target stores. Aggregately, business unit supplies building materials, manufactures and supplies
ammonia, retails office and technology products, ammonium nitrates, wood plastic composite
decking and screening products and distributes LNG and LPG. Generally, it supplies industrial
supplies along with safety products, by managing risk and compliance services and offering
corporate and industrial workwear (Annual report of Westfarmers, 2019).
Overview of industry
The food and grocery sector of Australia is in intense pressure through various range of
forces such as competitive nature of supermarket retail sector. This industry had maintained
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momentum driven through social and economic developments. There are key factors with
context of growth in retailing industry such as increasing purchasing power and population along
with robust economic growth. Over year 2013 to 2018, retail industry in Australia region would
expand at 2% CAGR whereas growth of retail industry in Australia within Asia pacific is second
lowest (Grimmer, 2018). Retailing has faced modest growth as it has experienced positive
performance and here Westfarmers is the largest retailer in Australia in year 2017, leading in
various retail channels. The sales growth of organization is highly driven through strong
performance in channel like home and garden expertise, mass merchandisers and office supply
stores. The total revenue of retailing industry is $565.1 BN and its present growth over 2012 to
2017 is about 1% where its growth forecast from 2017 to 2022 is till 1.4%.
With context of employment is about 1921027 with -0.5% growth. In year 2007, there
was acquisition of Cole group in a $22 billion on market takeover when private equity firms
were directly mulling with purchase of organization. In the same series, retail sales in Australia
has raised with 3.60% in similar month of its previous year. It has averaged 5.75% from year
1983 to 2018 and reaching at high with 12.70% in 1985 October and traced low of 13.90% in
2017 October. The overall GDP of Australia is 1.315 trillion with growth of 0.6% with 1228400
employees and contributing 10.1% of GDP (Australia GDP, 2019).
2. Analysis of market structure the industry
Type of market structures (Supermarkets: Grocery products)
The Australian retail sector is contributing as strength of economy of Australia along
with giving the best quality services, consumers safeguard and goods to Australians. The present
structure of retail industry could be elaborated as fragmented where no enterprise has huge
market share with capability for influencing direction of industry. With perspective of active
traders, it consists of department stores, micro sellers, SMEs, high street stores, e-tailers and
sellers at local markets (Indounas, 2018). This sector is fragmented and could be more worsen
with innovative technologies and use of internet which will allows new retailers in market with
too much ease.
By considering the above fragmented structure, Australian grocery retailing industry is
oligopolistic with its nature. Further, market structure is featured through small number of
business unit as they possess with context of significant degree of economic influence along with
market power. Westfarmers Limited is wholly owned but might comprises number of store
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brands or retail shopfronts names. Customers also observe franchise chains along with banner
groups like Foodland or IGA as big chain. It has high urban concentration as it has huge usage
of internet, dynamic and social marketplace. The highest revenue has been gathered by
supermarkets in Westfarmers as it owns significant market share and products sold through its
supermarkets are very similar along with numerous differences along with significant barriers for
entering in this industry because of powerful business are controlling whole industry with each
characteristics of oligopoly (Iyer and Church, 2018). As there is lack of uniformity with size of
firms as they differ in size and existence of rigidity in price which says that it has to stick to its
price because of presence of rational consumers. There are various other features of this
organization such as huge urban concentration, social market place and dynamic marketplace as
well.
Market leader in industry
Australia's grocery and supermarket industry has attained growth in financial year 2017
and 2018. In this industry, Woolworth has gained 37.2% market share and Westfarmers is at
second position with 30.3%, ALDI with 9.2% and Metcash at 7.4%. This industry could be
elaborated as highly concentrated and fiercely competitive. The profit margin has reduced over
past 5 years because its major players have cut prices along with margin and for staying
competitive. It has been articulated that industry had attained growth in year 2016-17 of 4.2%.
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(Source: Supermarkets and grocery industry, 2019)
The rapid expansion with context of ALDI with past 5 years has significantly changed in
operating landscape of industry with reference to popularity of private label products at low cost
and underpinning strong growth. Growth in ALDI has pressurised Woolsworth and Westfarmers
for expanding private label products ranges and to reduce prices. The revenue of retailing
industry is about $103 billion with annual growth of 2014-19 is about 2.1% and 348766
employments. The key success factors with reference to Australian supermarkets and grocery
stores are stated below:
 Experiences and skilled work force
 Presenting product in attractive forma
 Ability for controlling stock in hand
3. Determinants of demand and supply which are highly influential
Determinants of demand
The demand of grocery products is highly influenced through number of factors where
organization must have appropriate understanding among demand and determinant for estimating
and analysing the market and individual's demand for product.
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Income: It is constituted as very significant determinant of demand as income of
consumer directly impact the purchasing power and it will directly influence demand for grocery
product (Asmare and Worku, 2018). If there is increment in income of consumer then there will
be similar movement in demand of qualitative grocery products through keeping other factors at
constant aspect. There are some basic consumer goods as its quantity of consumer goods has
positive relationship with its income but at fix limit.
Taste and preferences of consumers: It has crucial role for influencing the individual
and market demand of product. The preferences and taste of consumers are impacted because of
multiple factors like common habits, life styles, change in fashion, religious values, standard of
living (Shahbaz, Gozgor and Hammoudeh, 2019). The demand is highly influenced through
consumer's habits like fish oil is highly preferred through non vegetarian which is higher in
Australia as compared to other country.
Determinants of supply
Technology: Technology is very important determinant of supply as if there is
implementation of advanced and better technology then product's production will be improved
whose outcome in increment in product's supply (Wu and Chiu, 2018). If billing of every
customer is done on quick aspect with upgraded technology then it will lead to save time of both
consumer and retailer as well. It will indirectly lead to gain competitive advantage from its other
competitors.
Transport conditions: It is referred as fact with better facility of transport will raise
supply of grocery product. Transport is always considered as constraint for supply of products as
there is no availability because of poor facility of transport. Hence, if price of product raises but
there will be no increment in supply such as there is demand of products in supermarket but not
available in store because of inappropriate stock at right time.
4. Demand elasticity of product
Product or service is elastic or inelastic
The grocery products comprises both necessities and luxury goods where necessity goods
have inelastic price elasticity of demand. With reference to basic consumer goods are comprised
in grocery products such as foods grains, oil, cooking fuel, soaps, fuel and clothes. In this there
will be measuring of elasticity of sugar as it does not have any substitute so its demand is price
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inelastic then alteration in price will create small percentage change with context of demand
according to necessities .
Factors which impact elasticity of demand of production
There are various factors which will provide direct impact on elasticity of demand such
as:
 Availability of substitutes: Demand for goods with multiple substitutes are highly elastic
because of small increase of change in price will directly induce its buyers to opt for its
substitutes. For instance, rise in price of coffee will directly encourages buyers for
purchasing tea and vice versa. Henceforth, if there is huge availability of close substitutes
will create demand very sensitive for alterations in prices. On the contrary, fruits does not
have huge substitutes then there will be presence of less price elasticity of demand.
 Habits: Fruits are considered as habitual necessities with perspective of consumers have
very less elastic demand. Usually, it happens due to any commodity becomes necessity of
any consumer and whether price raises or decrease its purchase will be similar (Jawad
and et.al., 2018). In the similar aspect, necessities are directly tend for having inelastic
demand whereas luxuries are tended for having elastic demand.
With this context, elasticity of demand for suge are impacted through numerous factors
but on contrary, it is very difficult to consider that combination of factors helps in identifying
elasticity. Thus, it is dependent on circumstances of every case such as entire product line are
inelastic because change in price will give change of small percentage in its price.
5. Analysis of recent event with substantial impact on industry
Description about event
The German supermarket chain ALDI had expanded itself across country with Western
and Southern Australia which has set firm insights along with increment in market share. Over
last 10 years, the market share of Australia has tripled by 3.1% to 11.6% and in turn its market
leaders had faced decrement in their market share. Aldi has cut cost of shopping with context to
its competitors as it has attained success not only by discount prices but with reputation for
accomplishing and reliability about consumer's requirements (Stuart Marsh, 2019). It has
capability for excel its core competencies has formed trust in Australian market with absence
attracting degree of distrust observed through its rivals. Its key for attaining future growth is tied
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to partnership striking with people who are suppliers of its products as they develop win-win
with scenario which is best for supplier and provides ultimate benefit to customer as well.
Impact of event on market demand and supply
The retail industry is facing huge competition because of entry of ALDI in retailing
industry. The supermarket retail sector changed with expansion of ALDI and it has growth in
market share and store numbers along with emergence of new players. The whole industry has
expected growth through 2.2pc in year 2017-18 in huge manner with the increment in demand
with context of premium food products like organic vegetables and fruits. From closure and sales
with context of underperforming masters hardware businesses in year 2016, ALDI had laid
special focus on Australian food division where both Westfarmers and Woolsworth had reduced
price for attaining better competition. Further, this trend has continued in 2017-18 with decline
of average price by 2.4pc within first quarter (Matthew Elmas, 2018).
Westfarmers had offered their own product line such as Coles organic as they expanded
their healthier food category with reference to 250 products in prior year. In the similar aspect,
there is increase in demand for organic and gluten free product in coming 12 months. It has
raised competition and expansion for organic range with each type of huge supermarket is highly
health conscious suppliers and consumers (Cat Woods, 2019). There is increment in demand for
organic products inevitably with mode of investment in manufacturing, supply chains and
processing which attains stringent industry standards with purpose of organic food. Every
existing standards for all food labelled organic are not policed in thoroughly in Europe and
America as next step.
With extent of price war will represent two retail giants which are directly coimpeting
against each other, but disruption caused through new entrant ALDI. Here chain of supermarket
had gained 11% of market with application of streamlined, low cost supply chain for cutting
woolsworth and westfarmers on price. Companies are expecting with high competitive market
conditions and consumers are price sensitive will lay special emphasis on improving productivity
of supply chain..However, its supply will be also decreased because of entrance of ALDI..
Likely impact of event on quantity and market price
In Australia, Aldi is operating through 500 outlets and claimed roughly 13% of entire
Australian supermarket industry. Aldi had gained market share with overwhelming come at
expense of independent and smaller supermarkets. In this aspect, market leader as Westfarmers
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and Woolworth have responded for cutting price of ALDI through boosting share of each private
brands (Tom Osegowitsch, 2019). With this context, competition in Australian supermarket
sector has raised and it remains very lucrative oasis with comparison of global markets. Both
market leaders of retail industry are riped with attack provided with world leading margin along
with dominant market share. In past decade, these two organization had attained benefit with
lack of competition in grocery market with discount end.
Their margin had attained growth with 3 to 8 percent over 15 years with diminished
competition and direct lean on suppliers for reducing cost (Beef Central, 2019). Aldi has gained
market share in new markets along with market attention as in Australia, it had taken almost 10%
of market share over 10 years. As per consequences, Westfarmers should be be fully updated
with this market strategy of new entrants especially German retailer and imply more advanced
products with best quality..
CONCLUSION
From the above study it had been concluded that economics plays very crucial role for
business perspective. It has shown that Westfarmers Limited has contributed efficiently in GDP
and employment as well. In the similar aspect, it had been articulated that it had gained huge
margin with context to supermarkets and especially for grocery products. Simultaneously, it has
shown that it is comprised in oligopolistic structure and it is second leading organization in
retailing industry. Furthermore, there are various important determinants which impact demand
and supply such as income, taste and preferences, technology and transport facilities. In the same
series, it has represented price elasticity of grocery products where it is inelastic because it
consists of various necessities goods which are highly essential so change in price will not
impact demand but with certain limit. Henceforth, it has shown that Aldi entrance in Australian
retail market had impacted whole retail industry as it has taken 10% of market share and highly
impacted to market leaders Westfarmers and Woolworth.
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REFERENCES
Books and Journals
Asmare, A. and Worku, A., 2018. Determinants of Micro-Insurance Demand in Jimma
Zone. INTERNATIONAL RESEARCH JOURNAL OF BUSINESS STUDIES. 11(3).
pp.145-157.
Grimmer, L., 2018. Tasmanian School of Business and Economics, University of Tasmania,
Hobart, Australia. Case Studies in Food Retailing and Distribution. p.13.
Indounas, K., 2018. Market structure and pricing objectives in the services sector. Journal of
Services Marketing. 32(7). pp.792-804.
Iyer, V. and Church, N., 2018. The Linking Process: Product Life Cycle, Diffusion Process,
Competitive Market structures and Nature of the Market. Red Internacional de
Investigadores en Competitividad. 8(1).
Jawad, M. and et.al., 2018. Price elasticity of demand of non-cigarette tobacco products: a
systematic review and meta-analysis. Tobacco control. 27(6). pp.689-695.
Pulker, C. E. and et.al., 2018. What are the position and power of supermarkets in the Australian
food system, and the implications for public health? A systematic scoping review. Obesity
Reviews. 19(2). pp.198-218.
Shahbaz, M., Gozgor, G. and Hammoudeh, S., 2019. Human capital and export diversification as
new determinants of energy demand in the United States. Energy Economics. 78. pp.335-
349.
Wu, L. and Chiu, M. L., 2018. Examining supply chain collaboration with determinants and
performance impact: Social capital, justice, and technology use perspectives. International
Journal of Information Management. 39. pp.5-19.
Online
Supermarkets and grocery industry. 2019. [Online].Available through
<https://www.ibisworld.com/industry-insider/press-releases/checkout-update-q1-2018-
ibisworld-reveals-the-state-of-play-in-the-supermarkets-and-grocery-stores-industry/>.
Annual report of Westfarmers. 2019. [Online].Available through
<http://www.wesfarmers.com.au/>.
Australia GDP. 2019.[Online]. Available through <https://tradingeconomics.com/australia/gdp>.
Beef Central. 2019. Changing face of supermarket retail sector, as ALDI continues to expand.
[Online]. Available through <https://www.beefcentral.com/trade/changing-face-of-
supermarket-retail-sector-as-aldi-continues-to-expand/>.
Cat Woods. 2019. Organic trend: ALDI joins Coles and Woolworths expanding category.
[Online]. Available through <http://www.ausfoodnews.com.au/2018/09/30/organic-trend-
aldi-joins-coles-and-woolworths-expanding-category.html>.
Matthew Elmas. 2018. Aldi’s ‘fresh’ focus on local market. [Online]. Available through
<https://www.insideretail.com.au/news/aldis-fresh-focus-on-local-market-201802>.
Stuart Marsh. 2019. Aldi unpacked: The business model making a huge dent in Australia's $100
billion grocery market. [Online]. Available through
<https://finance.nine.com.au/2018/08/17/15/12/the-secret-to-aldi-australias-success>.
Tom Osegowitsch. 2019. Aldi’s Australian growth will soon reach its limit. [Online]. Available
through <https://www.smartcompany.com.au/industries/retail/aldis-australian-growth-
soon-reach-limits/>.
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