Management 2 Table of Contents 1.Introduction.........................................................................................................................2 2.Overview of the Company..................................................................................................2 3.Major Threats and its impact on Woolworths....................................................................3 3.1 Threats from Macro External Factors...............................................................................3 3.1.1 Political Factors.........................................................................................................3 3.1.2 Economic threats........................................................................................................3 3.1.3 Technological Advancement.....................................................................................4 3.1.4 Legal Factors..............................................................................................................4 3.2 Micro External Factors.....................................................................................................4 3.2.1 Strong Competition....................................................................................................4 3.2.2 Price War...................................................................................................................5 3.3 Threats from Internal Factors...........................................................................................5 4.Major Risks and its impact on Woolworths........................................................................5 4.1 Strategic Risk....................................................................................................................6 4.2 Operational Risk...............................................................................................................6 4.3 Financial Risk...................................................................................................................6 4.4 Compliance Risk..............................................................................................................6 5.Overcome strategy of Woolworths to face the Threats......................................................7 5.1 Positioning Strategy..........................................................................................................7 5.2 Pricing Strategy................................................................................................................7 5.3 Focus on Innovative Ideas and Growth............................................................................7 5.4 Reduce the cost of operation............................................................................................8 6.Strategy to Mitigate Risks...................................................................................................8 6.1 Mitigation of Strategic Risks............................................................................................8 6.2 Mitigation of Financial Risks...........................................................................................8 6.3 Mitigation of Operational Risks.......................................................................................8 6.4 Mitigation of Compliance Risk........................................................................................8 7.Conclusion..........................................................................................................................9 References................................................................................................................................10
Management 3 1.Introduction The Woolworths is one of the giant retail organisations in Australia and dealing in a variety of retail products in all over the country through more than 3000 retail stores. The Australian Retail industry consists of almost 14000 retail businesses with very few major players in the market that involves strong competition in the Australian retail industry (Inside Retail Australia, 2018). This report is based on various threats and risks that affect the profitability, growth, viability, and operation of the Woolworths in Australia. The first two section of the report talks about the major threats and risks that affect the Woolworths business operation. The major threats for the company come from the competitors and their pricing strategy. Although these threats can be broadly divided into two categories; Threats from internal factors and threats from external factors. Further, the various types of risk have been discussed. These risks can be categorised as strategic risk, operational risk, financial risk, and compliance risk. For successful operation of the business, it is essential for any business organisation to mitigate these type of risks and it is well explained in the last part of the report that how Woolworths overcome these threats and mitigate these risks followed by a small conclusion that provides a brief summary of this report. 2.Overview of the Company Woolworth is one of the popular giants in retail supermarkets of the Australian retail market. Woolworths is a leading retail store in Australia and it was founded in 1924. Woolworths is operating its business in the Australian market with Coles. They both form a duopoly in the Australian retail market. Woolworths runs more than 3000 stores in Australia and New Zealand,andmorethan19000workersareworkingintheWoolworths.Thisretail organisation mainly deals in grocery stores, where people can easily buy vegetables, fruits, packaged foods, etc. Apart from this, the company also deals with some other products such as home appliances, beauty products, and electronic gadgets as well. In home appliances, company sales TV sets, refrigerator, furniture, stationery items, beauty products, and some other household products. Although, Woolworths have secured number two place in 2015 out of 2000 companies (Biddle, 2016). The company is also known for selling products on its own brand name and labelling. Woolworths sale these products on the cheap rate in the market and also manipulate the prices of products, because they set the price because of its own packaging and labelling on
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Management 4 the product. Woolworths was sometimes blamed in the past for their unethical behaviour and misleading the consumers by false information on the products related to product quality and standards. The company was blamed for misleading their consumers about the defective products that were sold to the consumers by giving them false and inappropriate information about the product quality. This unethical behaviour of the organisation and several other competitors in the market such as ALDI and Coles poses threat and challenges for this supermarket giant in the Australian retail market (Verma, 2018). Thus, the current situation is that Woolworths Company is facing strong competition, threats, and risk from both internal and external factors where competitors provide quality products and services to the retail customers on a very cheap rate and attract customers from attractive schemes and pricing strategy. Woolworths is also facing strong threats from its internal factors and company is also blamed in the past for its unethical practices and manipulating prices of the products. 3.Major Threats and its impact on Woolworths There are some external and internal factors that pose risk for Woolworths and affect their profitabilityandoperationsintheAustralianretailmarket.However,facingstrong competition and price war in the Australian retail market is the major challenge for the company. Apart from these challenges, some other threats are posed by political, legal, and economic factors, and these threats can be classified in external and internal risk factors, are described below: 3.1 Threats from Macro External Factors 3.1.1 Political Factors Political instability and the importance of political policies do matter in every country and in every business organisation. Woolworths operates its business in many countries and they should aware about the political change and its effect on the business and its profitability because it operates more than a dozen countries and exposes itself to different types of politicalenvironment(Price,2016).Thus,diversifysuchsystematicrisksofpolitical environment is a major challenge for the Woolworths. 3.1.2 Economic threats Slow growth and uncertainty in the Australian economy is the major threat for the company because the Australian economy poses threats for retail players as the economic growth in the country is not stable rather it is stagnant and might be possible that it will remain stagnant in
Management 5 future as well. The unemployment rate and hike in fuel prices and wages rate are also posing threats for Woolworths. The other macro factor such as saving rates, foreign exchange rates and, and economic cycle also determine the profit and business operation of the Woolworths (Keeves,2017).TheAustralianeconomicpolicyalsointervenesintheretailmarket especially in food and staples retailing and it further results in effect the company's profitability. 3.1.3 Technological Advancement Thetechnologicaladvancementamongthecompetitorsposesastrongthreatforthe Woolworths. The technology has huge impacts on the product offering by these retail players in the Australian market. Thus, the company should care about the technological factors that pose a serious threat for the company (Grimmer, 2018). The rate of technological diffusion is also a concern for the Woolworths. It is necessary for any firm to do the technological analysis of the industry but Woolworths also consider the speed at which technology disrupts that industry. 3.1.4 Legal Factors In a number of countries, the law related to the protection of intellectual property rights is not so robust. Thus, entering a new retail market is a risky approach for the company, if the rules and regulations of such country are not favourable. Change in law related to product manufacturing, patent rights, copyrights, and employment law poses a high level of threats for the Woolworths. The change in law affects the profitability and its product sales process in the country. 3.2 Micro External Factors 3.2.1 Strong Competition This is the major threat for the Woolworths because there are few other giants in the retail market such as ALDI, Coles, AUR, and SPAR Australia gives a strong competition. Coles and ALDI both almost copy the same services and products of Woolworths and their pricing strategy affect the market of Woolworths. Apart from this, threats of new entrants is also a major problem for Woolworths, because Australian retail market is full from the large number of small and medium size organisation that deals in the retail business. The big players like ALDI and Coles pose threats for the company from their effective pricing schemes and strategies (Brook, 2018).
Management 6 3.2.2 Price War ALDI and Coles share a major portion of customer groups in the Australian retail market and they more focus on "low-cost model" strategy that attracts customers. This is the major way through which they compete in the market, and ultimately they do not have any choice apart from this to face competition with Woolworths (McCarthy, 2018). Thus, the low pricing strategy poses strong threats for the Woolworths. Consumers who find cheap products in any retail organisation among these three, they will definitely invest their money to avail the service on a cheap rate rather than investing in costly products or services. 3.3 Threats from Internal Factors The major threat for Woolworths in Australia from internal factors is itsunethical practices because many times the reputation of this retailer giant in Australia was questionable. Thus, product quality and standardsare the major issues in Australian retail markets (Jie, and Gengatharen, 2018). Product quality and unethical practices of Woolworth is the major issue that poses strong threats for the company for a long time. In recent times, customers are more aware of the market and they mainly focus on avariety of products with standard quality at low prices (Haskelberg, et. al., 2016). Apart from this, the Woolworth is also struggling with the domination power of suppliers because they have a large number of alternatives in the Australian retail market and they utilise these market as a large opportunity market (Knox, 2014). This problem increases the cost of raw material for Woolworths that further leads to high-cost services and an increase in the overall cost of operations. Therefore, the high prices of products and services in comparison to other players are causing a major problem for the Woolworths (Scott, 2012). This all results in high operating costs for the company and it further leads to the increment in the overall cost. The effect of these problems causes an increment in the debt and decline in the sales of the product in the company. 4.Major Risks and its impact on Woolworths Woolworths consists of a various type of business operations that are further exposed to various types of risks such as strategic, financial, operational, and compliance-related risks that are integral to the retail business operation and online markets. Although, the company manage these risks with risk management approach. There are several types of risks that impact the business operation of Woolworths is as follow:
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Management 7 4.1 Strategic Risk The retail-trading environment in Australia is more competitive and it seems to be continuing in future because of high competition among the retail players, price war, technology disruption, and because of changing needs and expectations of customers. Apart from other external and internal risk-drivers are also responsible for creating risk for the organisation. Failure of Woolworths to encounter these risks may adversely affect the market share and business performance of the company that further leads to the negative effect on the profitability of the company (Bailey, 2017). If the retail organisation fails to focus on these transformationinitiatives,thenitmightbecausedtheheavylossforthebusiness organisation. 4.2 Operational Risk The Woolworth retail supermarket was blamed several times in the past for their inferior and defective products and services. Woolworth is a subject to operational risk but it could be exposed several times when it was failed to meet the people expectations. Failure to meet the product safety and standards, data breaches, providing wrong information about the products, mislead customers, and some business disruption is also caused serious risks for the company because it destroys its reputation and brand image in the mind of customers. The above weakness can result in technology failures, supply chain interruptions, industrial disputes, and also harm its market reputations (Alm, Takeno, and Engelseth, 2016). 4.3 Financial Risk The availability of funding and management of capital and liquidity are the key financial factors to promote the business operations and growth in the retail sector, especially in Woolworths. The financial risks are somehow related to these financial factors. Thus, a little fluctuation in the foreign exchange rate could affect the business’ profitability. Even a failure to turnaround or materially adverse interest rates can create financial risk for the business operation and it further affects the overall business operation of the company. 4.4 Compliance Risk The Woolworths also faces the risks from the applicable laws, rules and regulations related to merchandise, and adverse regulatory or legislative changes in the provision related to the businessprocessalsoaffectthebusinessoperationofWoolworths.Anychangesor alternation in these laws or rules and regulations directly or indirectly affects the profitability and reputation of the company (Caner and Banu, 2014). These changes might be caused by
Management 8 some financial penalties on the company or results in some other adverse consequences for the business operation. Lack of internal protocols or failure in adapting these regulatory changes causes a number of compliance risks for the business operation. 5.Overcome strategy of Woolworths to face the Threats Woolworths is one of the leading retail organisations in Australia and facing lots of challenges and threats from both external and internal factors. Due to strong competition and price war in the retail industry in Australia, Woolworths is facing many challenges in attracting and retaining customers (Gellert and Schalk, 2012). From the above analysis of threats and risk that affect the profitability, viability, and growth of the company, there are several strategies that can be recommended to the Woolworths to overcome these challenges (Culley, et. al., 2017). 5.1 Positioning Strategy To face strong competition and encounter the risk poses by competitors, Woolworths should focus on its brand positioning strategy and lowering the price of their products because it helps in attracting customers. The Woolworths should provide various reward points and offers to retain and attract new customers. 5.2 Pricing Strategy Actually, other players in the market are playing the game of low pricing strategy. Thus, Woolworth should understand the price strategy of other competitors and should encounter the threat by putting an affordable price in such a way that gives profit and attract customers as well. Execution of a fair pricing strategy of Woolworths creates customer value. The Woolworths can also execute "Lean Retail" model to improve their growth and efficiency in the Australian retail market. The pricing of the product should be set in such a way that gives strong competition to other competitors like ALDI and Coles. 5.3 Focus on Innovative Ideas and Growth To encounter the technological challenges, it is essential for the company to focus on the modern technology in the stores, and should focuses on some innovative ideas that lead to the future growth and also enable the organisation to meet the customer needs and their requirements (Kurnia and Schubert, 2018). The company should also focus on bringing the modern trend of business patterns such as online communication and buying-selling process.
Management 9 5.4 Reduce the cost of operation Woolworths is a large retail organisation so their operating cost is high and that results in further a huge over cost as well. The heavy competition in the industry causes an increase in debt of the company and a decrease in the sales volume (Xu, Gao, and Hammond, 2017). To face this threat of declining sales in future, the company can prefer more goods with a huge varietybecausethedemandforproductswilldefinitelyincreasewiththeincreasing population. 6.Strategy to Mitigate Risks 6.1 Mitigation of Strategic Risks To mitigate the strategic risks Woolworths should focus on their store networks, technology, supply chain improvements, and their digital channels. The organisation should also focus on delivery offices to establish high standard transformation initiatives that help the company to connect with the organisation and retain them for a long time (Phillipov, 2016). They should alsofocusonsustainablegrowthopportunitiesinthemarketthatleadstoprofit maximization. 6.2 Mitigation of Financial Risks The Woolworth should create a committee that governs the fund management of the company, measure and mitigates financial risk including foreign currency risks, liquidity risks, and inflation rate risks. The company should have a financial plan that helps the company to meet its financial risks (Carrigan, Marinova, and Szmigin, 2015). 6.3 Mitigation of Operational Risks To mitigate the operational risks company should focus on providing regular training to the employees and company should also create policies regarding business operations, including people safety, food and product standards and safety, health and wellbeing of consumers. The company should focus on continuous improvement in consumer safety, cyber security, and technological advancement (Nakandala, Dilupa, and Lau, 2018). 6.4 Mitigation of Compliance Risk The Woolworths should focus on compliance framework that works upon various regulatory and legal compliances. The compliance committee should make policies that are accepted everywhere and should work along with the government to proposed legal and regulatory
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Management 10 changes (Thomsen, 2016). The code of conduct and training programs of Woolworths should be design in such a way that promotes awareness of legal, internal, and regulatory policy requirements. 7.Conclusion In the conclusion, it can be said that Woolworth is one of the leading retail market players in Australia, but facing a number of threats and risks that have an adverse impact on the business operation of Woolworths. These threats and risks adversely affect the profitability, growth, viability, and business operation of the organisation. The major threat that is currently facing by the Woolworths is strong competition from the competitors. Another threat is the pricing strategy that leads to the price war in the retail industry in the country. Overcome these threats is essential for Woolworths as it is continuously losing its customers. Apart from this, the company was also blamed in the past for its unethical practices when the company mislead their customers and give them inappropriate information about some defective products. To encounter these threats it is essential for the company to make a suitable strategy that enhances their brand image and the company should also focus on a fair pricing strategy that gives strong competition to its competitors. Apart from this, to mitigate the risks they should work on creating on both technological and legal aspects because they cannot provide a quality service or quality products to their customers if they will not update their technology.The company should also focus on bringing the modern trend of business patterns such as online communication and buying-selling process to remain competitive in the Australian retail industry.
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Management 13 Scott, P. (2012) When the shopping was good: Woolworths and the Irish Main Street–By Barbara Walsh.The Economic History Review,65(2), pp. 805-807. Thomsen, S. (2016)A really bad week for Woolworths just ended with a $3 million fine for unsafe products[online]. Available from: https://www.businessinsider.com.au/a-really-bad- week-for-woolworths-just-ended-with-a-3-million-fine-for-unsafe-products-2016-2 [Accessed: 24/02/2019]. Verma, A. (2018).The competitive dynamics of MNE market entry on host country incumbents: word/action responses to Amazon’s retail entry into the Australian retail sector, Doctoral dissertation, Auckland University of Technology, 16,pp. 28-56. Xu, J., Gao, X., and Hammond, J. (2017) E-tailing in Australia: A preliminary analysis of David Jones.International Technology Management Review,6(4), pp. 149.