Woolworths and Coles

Woolworths and Coles are Australia’s leading supermarkets with a market share of more than 70%. This report analyzes the market structure of Australia’s retail industry and gives a detailed analysis of the pricing and non-pricing strategies used by Woolworths and Coles.

WOOLWORTHS AND COLES
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Woolworths and Coles
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Executive summary
Woolworths and Coles are Australia’s leading supermarkets and have a market share of
more than 70%. However, despite challenges, Woolworths has managed to take back its
position in the grocery industry. The report analyzes the market structure of Australia’s retail
industry and then gives a detailed analysis of the pricing and non-pricing strategies used by
Woolworths and Coles. Then the next part entails analyzing the competitive strategy to be used
by Coles to enable it to have a competitive edge over its rival Woolworths.
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Introduction
The report will be about two Australian supermarkets, particularly Coles and
Woolworths. Coles has been ranked as the leading retailer with regards to the number of stores
as it has more than 1800 stores (Coles, 2019). Coles has a variety of store that it operates
spanning from department stores, clothing stores that deal with the women products, liquor
stores, toy kids among other stores. Coles Australia is also one of the largest employers in
Australia and possesses exclusive patent rights over Kmart and Target brands in Australia. Coles
got established in 1914, and the pioneer of the company was GJ Coles. On the other hand,
Woolworths has been termed as the largest supermarket in Australia (Woolworths Group,
2019). Woolworths was established in 1924 with the first store being located in Imperial Arcade
in Australia.
The research was conducted by both visiting their premises and, in this case, primary
research where primary data was collected. There was also secondary research that entailed
using companies’ websites and analyzing the corporate social reports of the companies to
assess their engagements with the community.
The first part of the report entails a literature review of the industry with regards to the
operation of the two supermarkets. The second part talks about the market structure and
competitive strategies employed by both supermarkets. The next section analyzed the pricing
and non-pricing strategies employed by Coles and Woolworths. The fifth section is about
growth strategies adopted by one of the companies and the proposal for further plans to
enhance the growth of one of the supermarkets. The last part of the report entails the
recommendation and conclusion for the report.
One of the non-pricing strategies that can be used by Coles is investing in research and
development, which will lead to the development of newer, functioning, and high-quality
products. Such efforts will be linked to increments in demand as it will thwart its competitor’s
low-quality commodities while simultaneously attract the customers of high-quality products.
However, the success of research and development, and in most instances, is exorbitant.
However, it may be unsuccessful, as evidenced in small start-up firms. The use of research and
development may thwart Coles’ plans which may translate to significant cost increments, and
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this may compel Coles to raise its prices in a bid to compensate for the substantial cost
increments, and this would make Coles less competitive in the industry with regards to the
prices.
There has been an ongoing price war in Australia’s leading supermarkets, particularly in
the grocery sector. Even though the grocery retailers remain being dominated by supermarkets
such as Woolworths and Coles,2016 saw discounter chain stores such as Aldi challenging the
position of both Woolworths and Coles (Euromonitor International, 2016). It is through the low-
price model adopted by Aldi with the inclusion of its full private label range, the rankings of
Woolworth and Coles have been challenged with many consumers now shopping at Aldi. Due
to such outcomes, these supermarkets have indulged in a price war in the review phase and has
affected the performance of grocery retailers across Australia and in particular Manly.
Literature review
Despite Woolworths experiencing challenging years, the supermarket remains a
dominant player among grocery retailers as of 2016 until now. However, Woolworths’ share
with regards to the firm’s value experienced declines particularly in 2016 whereas its rival Coles
had its shares rise (Low, 2016). However, over the years, Woolworths adopted several
strategies in all its grocery retail brands in attempting to address the decreasing percentage
with the inclusion of its private label range, its loyalty initiative and renovating its stores.
The level of competition in the grocery sector continues being intense, and this is
forecasted to continue being the practice over the future (Euromonitor International, 2016).
However, it is anticipated that supermarkets will remain a force to reckon with among other
grocery retailers’ mediums with regards to the value of sales over the forecasted time.
However, the performance of the leading giants in the grocery industry is possibly being
challenged by the massive expansion of the Aldi chain of stores. However, it is imperative to
note that competition will not be scaled down to the two primary competitors that are Coles
and Woolworths as they continue to grow and expand by exploring new platforms within
among the grocery retailers with the inclusion of convenience stores (Davcik & Sharma, 2015).
The Little Coles brand is anticipated to challenge the active players in the convenience stores as
it can provide an extensive variety of products at low prices (Faith & Agwu, 2018).
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Market structure and competitive strategies
The oligopoly market structure also commonly referred to as an imperfect type of
competition is characterized by several firms dominating the industry where the large firms
command a significant share of the market. Also, the other feature of this market is that the
products sold by the companies are identical and only have slight differentiation (Davcik &
Sharma, 2015). This market structure has significant barriers to entry for new firms trying to
enter the market due to the dominant players that regulate the industry. The dominant players
in an oligopoly are always monitoring the behavior and activities of other competitors resulting
in intense competition in the industry. A good illustration of such competition is the price-
cutting by dominant players aimed at driving out the small players; however, this always results
in price-cutting war with other competitors (Stephan & Andreas, 2015). For instance,
Woolworths and Coles are perfect examples of oligopoly due to the intense rivalry between
these two firms in the supermarket industry of Australia. Thus, regarding the Australian retail
market for food it is an oligopoly that has the features of a duopoly. With this duopoly, it is
characterized by the presence of two dominant players that is Woolworths and Coles engaging
in price competition in commodities such as meat and dairy products.
Market share
Woolworths dominated the industry with a 37.2% and was closely followed by Coles with
30.3%, ALDI came trailing third with 9.2% and lastly Metcash with 7.4%.
44%
36%
11%
9%
Market Share
Woolworths
Coles
ALDI
MetCash
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Barriers to entry
Entering the oligopoly market structure is troublesome particularly with the presence of
dominant players such as Woolworths and Coles. The dominant players are already
commanding more than 70% of the market share. The middle-sized firms such as Aldi and Iga
only have a market share of less than 20%. Small scaled enterprises only have a combined
market share of about 8%. Thus, in such a market, small firms have limited market power as
large firms already dominate the competition. Therefore, it becomes complicated to survive in
such a market as the dominant players have more capital and resources for competition with
any new entrants. For instance, in a place such as Manly, Woolworths is a dominant distributor
of grocery making the other small players exit the market. A small player offering the same
products such as Woolworth will be limited by the power to set its process as it has limited
capital. However, Woolworths has the potential to control the prices, and this affects the small
firms due to price decreases by Woolworths.
Business advice
Though Coles’ online shopping is its fastest growing sector, it is imperative for the firm
to transcend the reach and capacity of its online shopping. However, this can be achieved by
adopting modern technology to improve productivity in such a platform. Coles should also
provide free deliveries for its loyal customers who use the company’s Mastercard and those
shopping in particular days such as Wednesday.
Improve the liquor department
Coles liquor business has been reported to be underperforming. Some of the challenges
experienced by this sector are weak store network, poor layout, presence of a supply chain that
is inefficient and a feeble online product proposition. To improve this sector which has many
promising opportunities, Coles will be compelled to reorganize its liquor network, concentrate
on convenience product offerings and also invest in renovating and developing new space for
its liquor stores. It will also be imperative if Coles customize its variety of liquor and group its
stores based on consumer demographics.
Pricing strategies by Coles and Woolworths
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Price can be defined as the money paid by customers in trading a commodity or service
extended or the advantages of owning a commodity or utilizing a particular service (Kimmons,
2019). Price assumes many forms with the inclusion but not limited to rent, interest,
commission and even tax. Price is the sole parameter in the marketing mix that yields revenue
and is attributed as the most flexible parameter.
Several elements impact the pricing decision of a firm. The internal components entail
the marketing objectives, the strategy employed in the marketing mix, costs and institutional
considerations. On the other hand, the external factors include the nature of the market and its
demand, level of competition and other environmental elements such as the health of the
economy, distributors and the government policies. However, one of the hardest tasks of an
operator of a business is establishing a pricing strategy since there is no set of principles to
guide such rules. The price in this context should include the cost of the commodity and the
profit. With regards to retailers and wholesalers, the prices of their products rely on their
manufacturers. Thus, their prices reflect the pay they give their suppliers, the desired profit and
the expenses associated with operations.
With regards to the largest supermarket in Australia that is Woolworths, it employs a
low pricing strategy particularly the Everyday Low Price. However, due to the issue of declining
sales with regards to Woolworths, the supermarket initiated a new campaign known as “Always
at Woolworths that reflects low prices always. It is such a campaign accompanied by the pricing
strategy that attracts consumers by offering a variety of goods and services that can be
purchased at low prices. However, Coles which is a close competitor of Woolworths initially
employed the Everyday Low Price in their campaign known as the Everyday Value that had
been introduced in 2014 (Valibhoy, 2015). Coles also uses the Everyday Low Prices technique to
improve its sales.
The other pricing strategy employed by these two supermarkets is multiple-unit pricing.
With this strategy, the customers are offered attractive prices for purchasing a particular
quantity of goods and services for instance 2 for $5.00 instead of $ 2.99 each. This lures the
customer to purchase more than their proposed budget to take advantage of such offers. This
has the effect of increasing sales and reduces the inventory simultaneously. However, it is
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imperative to note that such a strategy when employed regularly, it motivates the consumers
to anticipate for such deals to surface so that they can complete the transactions entailing
commodities under such deals.
Rival companies widely employ the two pricing strategies discussed above as they can easily be
copied. Thus, no wonder price wars are rampant in the Australian retail industry specifically
among the supermarkets. The Australian market has been characterized by price wars between
the two giants Woolworths and Coles, and now there is a new player Aldi.
Pricing strategy in a table
Product Price strategy by Coles Price strategy Woolworths
Coca-Cola classic 24 pack $ 31.80 17.90
Multi-unit pricing
Flora margarine $3.00 $2.99
Psychological pricing
Business advice for pricing strategy
In preventing clients from switching to Aldi, Woolworths and Coles have to reduce their
price for roast chicken. The two supermarkets also have to reduce the prices for standard
products such as rice, toothpaste and toilet papers. However, this will lead to suppliers
suffering from such price wars. The two leading supermarkets will also compel their suppliers to
reduce their prices so that they can also reduce their prices consequently.
Moreover, switching to house brands will be associated with hurting the small suppliers
with the inclusion of large suppliers such as Coca-Cola. The suppliers will not be the only ones
affected but also the customers in a positive manner. For instance, in 2013, Woolworths’ prices
were 11% lower while Coles was 6% lower. Thus, despite the pricing strategy adopted by a
supermarket, the consumers still emerge as the victors.
The non-price strategy
Coles
The service quality by Coles spanning from store staff, store presentations, fresh food
that is of good quality (Homewood, 2016). Coles also has a corporate social policy that supports
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social programs such as the support groups, fundraising and gathering charity partners across
Australia via the monetary contributions, food donations, and disaster relief. Connecting
through the community has enabled Coles to partner with uncle Toby’s particularly regarding
their sports conducted through school campaigns (Euromonitor International, 2016). The
advertisements by Coles entail featuring a variety of young, healthy and appealing prosperous
athletes connecting their athletic success with the buying of Coles products. The new approach
adopted by Coles is subtler, enabling the company market itself via inspirational journeys and
using classic advertising mechanisms.
Woolworths
Woolworths, on the other hand, engages in non-price strategy such as having quality
self-checkout service, improved customer satisfaction and also the loyalty program. Woolworth
also has a social program embedded in a corporate social program such as free fruits for
children, the White Ribbon and Earn and Learn and other programs with its rescue partners, for
instance, the OzHarvest and foodbank all aimed at positioning Woolworths well among its
potential consumers. Woolworths has also made efforts of connecting with the community
through campaign initiatives that feature athletes and their linkage to fresh food which has the
impact of positioning the company in Australia as providing fresh food for its people.
Growth strategies by Coles and Woolworths
While Coles is endeavoring to place its customers at the heart of its enterprises the
company is trying several strategies to expand its growth (Homewood, 2016). Through its
strategic pipelines, Coles aims at highlighting its dedication to the customers in both the in-
store and shopping online. Coles is dedicated to ensuring that the customer is at the core of
everything they engage and this facilitates the sustainable long-term growth which is also the
plan for the company’s long-term strategy.
Coles also focuses on its dedication to providing its new brand positioning with the
supermarket outlining that such a move will be crucial in providing growth of the sales.
According to company analysis, it was reported that the consumers were already responding to
Coles brands particularly with the fresh food focus where the volume of growth is always
growing at the rate of 10% (Homewood, 2016).Coles also tries to improve its online offerings
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asserting the need to bolster such a platform as it has online sales rising by more than 25%
annually. The company’s executives still hold the view that online platforms are always a
priority for the company as Coles is keen to provide customer experience ranked as world class
where it the company sees the Coles Online as the critical avenue for propelling the company in
future.
Woolworths also in its general meetings a competitor of Coles also made
announcements that it was also focusing on customer centricity where the executives asserted
that it was imperative to bring back the tradition of customer centricity which has been the
company’s hallmark for decades.
In 2015, Woolworths provided a highlight of its three-year growth strategy which was to
be based on the lean retail operating framework. According to the Lean Retail model, it was
estimated that it would deliver more than $500 million particularly in cost reduction and this
would enable Woolworths to improve all components of its customer experience with the
inclusion but not limited to reducing prices, better convenience and improving services and
accessibility and a dedication to innovation (Inside Retail, 2015). According to the program, it
will cover three main areas. One is the cost with a focus on boosting efficiency and cost position
by taking the actual costs of dollar out in an environment that is characterized by low inflation.
The other area that Woolworths will be investing in is through its customer particularly by
investing in a multi-faceted and several offers and lastly in growth where the company will be
aiming to increase and growing its customer base and its share in the market.
Business advice for growth strategies
It would be imperative if both companies invested in online platforms as many
customers due to the advancements in technology have turned to purchase their products
online. Woolworths should have a delivery system where they can provide door to door
deliveries for customers who order their products online, and due to many commitments, they
are unable to shop physically. With such options, the Woolworths will be better positioned to
attract both the physical shoppers and online shoppers, and this will be a long-term growth
strategy that will propel the companies in future amidst the emergence of technological
disruptions such as the Amazon and Alibaba.
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Conclusion
It is evident that the Australian retail industry is an oligopoly market structure with
Coles and Woolworths dominating the market though new players such as Aldi is trying to
break the trend. Both Woolworths have been engaging in price wars to win customers and
increase their customer base in commodities such as meat and dairy products. It is the price
cuts that have forced some of the small players out of the market. However, for Coles, which is
ranked as the second largest retailer based on the sales to remain competitive, it should invest
in its online platforms by offering its customers free deliveries. However, the Australian retail
industry is highly competitive, and only innovations in product offerings would make it possible
for new entrants to venture in such a highly dominated market.
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References
Coles. (2019). Our History. Retrieved from Coles:
https://www.coles.com.au/about-coles/centenary
Davcik, N. S., & Sharma, P. (2015). Impact of product differentiation, marketing investments
and brand equity on pricing strategies: A brand level investigation. European Journal of
Marketing, 5(6), 760-781.
Euromonitor International. (2016, December). Grocery Retailers in Australia. Retrieved from
Euromonitor International:
https://www.euromonitor.com/grocery-retailers-in-australia/report
Faith, D. O., & Agwu, E. (2018). A review of the effect of pricing strategies on the purchase of
consumer goods. International Journal of Research in Management, Science &
Technology, 2(1), 43-54.
Homewood, S. (2016, June 22). Coles eyes off the customer and 'fresh' positioning. Retrieved
from AdNews: http://www.adnews.com.au/news/coles-eyes-off-the-customer-and-fresh-
positioning
Inside Retail. (2015, May 6). Woolworths reveals growth strategy. Retrieved from Inside Retail:
https://www.insideretail.com.au/news/woolworths-reveals-growth-strategy-201505
Kimmons, R. (2019, May 19). Pricing Vs. Nonpricing Strategies. Retrieved from Chron:
https://smallbusiness.chron.com/pricing-vs-nonpricing-strategies-14166.html
Low, C. (2016, March 4). Coles, Woolworths, Aldi price war gets personal with cut-price tissues
and toothpaste. Retrieved from The Sydney Morning Herald:
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https://www.smh.com.au/business/companies/coles-woolworths-aldi-price-war-gets-
personal-with-cutprice-tissues-and-toothpaste-20160303-gn9m2e.html
Lumen. (n.d.). Competitive Dynamics and Pricing. Retrieved April 20, 2019, from
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Stephan, M. L., & Andreas, H. (2015). Measuring the profit impact of pricing & revenue
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Valibhoy, I. (2015, April 29). Coles ‘Every Day Low Prices’ Strategy Boosts Sales. Retrieved
from The Newswire: https://www.wise-owl.com/news/coles-every-day-low-prices-
strategy-boosts-sales
Woolworths Group. (2019). Woolworths Supermarkets. Retrieved from Woolworths Group:
https://www.woolworthsgroup.com.au/page/about-us/our-brands/supermarkets/
Woolworths
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