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Australian Supermarket Sector Analysis

   

Added on  2020-03-04

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COLES AND WOOLWORTHS PRICE WARS 1COLES AND WOOLWORTHS PRICE WARSBy (Name)Name of the class (course)The Course instructor (Professor)The InstitutionThe City and State locationThe Date
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COLES AND WOOLWORTHS PRICE WARS 2IntroductionThe article “Price war odds rise as Woolworths outpaces Coles” on 3rd May 2017 by Sue Mitchell talks about the price war in Australian supermarket industry. The efforts by Australia’s leading supermarkets, that is, Woolworths and Coles to boost their market share have culminatedin a price war. Coles is responding to the price cuts by Woolworths to avoid losing its market share. For example, Coles has reduced the price of 34 San Remo pasta goods by between 20 and 25% and also slashed that of chocolate chip cookies by 25%[ CITATION Sue17 \l 1033 ]. According to the managing director of Coles, John Durkan, the company is prepared to cut prices to retain its market share. His company was going to invest in low price plans to make sure that the price cuts are accomplished. The battle between Coles and Woolworths is of interest to the clients, suppliers and the analyst groups. The customers are keen to benefit from this competition by getting the products at lower prices than before. On their part, the suppliers are receiving pressure from supermarkets such as Coles to refrain from seeking price rises. Moreover, the analysts from different companies such as Citigroup and MacquarieEquities are providing their predictions about the current situation in Australia’s supermarket sector. Economic AnalysisNumber of Firms in the MarketAustralia’s supermarket industry is made up of a few businesses such as Coles, Woolworths, IGA and Aldi. Although there are a few companies in the market, the industry is dominated by two major supermarkets, that is, Coles and Woolworths. Woolworths occupies approximately 35.7% of the market share while that of Coles is nearly 33.2%. Other firms hold a
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COLES AND WOOLWORTHS PRICE WARS 3small portion of the market share. This scenario depicts that the Australia’s supermarket industryfalls under the type of imperfect competition referred to as oligopoly market structure. 35.733.213.29.38.6Market share 2016 (%) WoolworthsColesAldiIGAOther supermarketsChart 1: Source: Business InsiderPrice WarsAnother important feature of oligopoly market structure evident in Australia’s supermarket sector is competition and price wars. This type of oligopoly is commonly referred toas competitive oligopoly. In oligopoly market, the behaviors of one company instantly impact the rival companies. As a result, every business is often cautious and maintains a close watch over the actions of competitors to have a counter-action when needed. In Australia’s supermarketsector, there is constant rivalry especially between Coles and Woolworths in retaining their customer base. When Woolworths slashes the prices of its products, it draws the clients of Coles.In response, Coles also reduces the prices and in some instances by larger margin compared to Woolworths to have its customers back[ CITATION Sue17 \l 1033 ]. In fact, the competition is
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