Importance of Business Environment in Woolworths Supermarkets

The given report will be discussing the importance of business environment in the organization. When any enterprise exists in a chosen business environment then it is highly influenced by the different factors which exist in the environment. The company which has been chosen for the assignment is the Woolworths Supermarkets based in Australia. For the external environment analysis, tools like PESTLE Analysis and Michael Porters Five Forces tools have been used. A conclusion wraps the analysis and summarizes the findings.

Running head: BUSINESS ENVIRONMENT
BUSINESS ENVIRONMENT
Name of the Student
Name of the University
Author Note

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Executive Summary
The given report will be discussing the importance of business environment in the organization.
When any enterprise exists in a chosen business environment then it is highly influenced by the
different factors which exist in the environment. Hence, it is suggested that the business assess
its environment regularly before taking any related decision making. The company which has
been chosen for the assignment is the Woolworths Supermarkets based in Australia. For the
external environment analysis, tools like PESTLE Analysis and Michael Porters Five Forces
tools have been used. A conclusion wraps the analysis and summarizes the findings.

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Table of Contents
Introduction......................................................................................................................................3
About the Company.........................................................................................................................3
Analysis...........................................................................................................................................3
The Australian Supermarket Industry..........................................................................................3
Pestle Analysis.............................................................................................................................4
Michael Porter`s Five Forces Analysis - Industry.......................................................................6
Conclusion.......................................................................................................................................8
References......................................................................................................................................10

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Introduction
The external environment of a business plays a key role in the determination of the
different factors which tend to have an impact on the operations of the company. For this reason,
it becomes increasingly important for any business to ensure that it is aware of the different
factors which may influence it in any manner (Ontario, 2014). The external environment factors
may provide important information about the business like the customer needs, governmental
policies and general society reactions. The company named Woolworths Supermarkets which is
based in Australia will be taken an example for the report. Tools like the PESTLE Analysis and
The Michael Porters Five Framework tool will be used for the external environmental scan.
About the Company
Woolworths Supermarkets is an Australian Supermarket and grocery chain which is
primarily owned by the Woolworths Limited. The company along with the rival company Coles
Group has formed a duopoly in the Australian market since the year 1924. The company largely
specializes in the grocery business like fruits, meat, vegetables, packaged food and also sells
magazines, DVDs, heath products, household products and baby supplies (Woolworths Limited,
2018). The company currently has more than 1000 stores in the country and has also started its
online business with delivery service.
Analysis
The Australian Supermarket Industry
The Australian Supermarket industry is a mature industry. The different companies which
operate in the given industry tend to employ quite aggressive cost reduction methods and thus
the different companies are cost based rather than being based on differentiation (Wheelen et al.,

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2017). The popularity for private labeled merchandise has increased considerably and is a major
demand from these supermarkets. The slowing industry growth is a common characteristic of the
industry and is growing at an average rate of 2.5% between the years 2013-2018. The different
companies engage in excessive price wars in the daily household products. Hence, the macro
environmental analysis play a crucial role.
Pestle Analysis
The given section will be discussing the six different factors which mostly lie in the
external environment of the business lying under the headings, Political, Economic, Social,
Technological, Environmental and Legal.
Political Factors
The political performance and environment of any country is quite closely linked with the
long term performance of any company and the different retail companies tend to get affected by
the political climate of a country. The political conditions shape the business environment by
providing it with sufficient growth opportunities. If there exists any disturbances then, the
political environment gets deeply affected. The political environment of Australia is quite stable
and there exists various policies which tends to support local industries more than the foreign
ones. Hence, Woolworths ensures that their loss in such a scenario us not significant. With due
respect to the competition policies.
Economic Factors
The economic factors of the external environment of a business relate to the market
conditions and deals with the different economic indicators which are a representation of the
economic health of the external environment of a country (Hitt & Duane Ireland, 2017). The

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reduced consumer spending and the disposal household income tend to have an effect on the
spending on supermarket. There have been global financial crises which has altered the
purchasing behavior. Hence, as the living standards are quite high, Australians have cut their
spending considerably. The Australian supermarket have been partly insulated against the
disposable income which has been reduced.
Furthermore, factors like recession and higher unemployment also have an impact on the
performance of the company. As the Australian market has been quite stable despite these
impacts, the company has suffered controlled losses.
Social Factors
As the customers form an essential source of revenue for any business enterprise, it is
important that their needs and dynamics are examined and the plans are based on their needs.
According to Robson (2015), there have been major changes in the social context where the
customers have been looking out for an enlightened retail shopping experience and inclusion of a
wide variety of prices which they can afford. The changing age and the population of the
demographics also has a huge influence on the decisions which are made for the establishment of
newer stores (Business Tech, 2015). The societal values towards the healthy living has altered
the purchase behavior and organic produce has attracted demand. The companies have stocked
up private label organizations which then satisfy the needs of the customers and to be able to
gain the favor of government as well to support the local companies.
Technological Factors
As newer forms of technologies have been coming up the shopping experience of the
different customers have changed and hence, the use of RFID in the retail stores have increased

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considerably. The use of the service oriented architecture in its operations has also increased
which is being used by different companies in the Australian supermarket industry. It is the need
of the hour for the different companies to update their technology and give in to innovation as
well. It needs to be suitable as per customer preference (Rothaermel, 2015). Considering this
Woolworths has made two virtual supermarkets and makes customers convenience crucial which
help customers to order online easily and go cashless as well.
Legal Factors
The taxation policies as developed by the government along with the recruitment and
employee regulations form a crucial part of the legal framework which has been formed by the
government for the retail industry in Australia (Team, 2013). The food licensing aspects also
form a crucial law to be adopted by the companies. The opening of the different stores also
require government approval and other legal aspects.
Environmental Factors
The environmental factors refer to the factors which rise from the use of environmental
friendly business practices and deal with participation in the different activities which are aimed
at reducing harm caused to the environment (E. Dobbs, 2014). The different companies in
Australia are required to ensure that they are able to maintain their carbon footprint and reduce
the use of the resources like water. Furthermore, in the given industry large firms like Coles and
Woolworths also participate in the recycling activities to reduce waste. Sustainability and
ethicality in food items is also expected out of all business functioning the business environment.

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Michael Porter`s Five Forces Analysis - Industry
Another method of scanning the external environment of a business is by measuring and
analyzing the industry attractiveness. The Michael Porters five forces industrial framework states
that the industry attractiveness can be measured through five dimensions which have been stated
as follows:
(1) Threat of entry
(2) Power of buyers
(3) Power of suppliers
(4) Threat of substitutes
(5) Rivalry between established competitors.
Threat of entry
The given industry is quite attractive and has suitable investment returns with low entry
barriers which serve to be an attractive targets for the different potential entrants. As the growth
rate of the industry has been decreasing, the existing companies have created a very challenging
climate and thus new companies entering the industry will face significant problems. The
different barriers include barriers like limited land size, zoning issues, foreign investment rules
and major competitors like Coles, Aldi and Woolworths.
Power of buyers
The power of the users can be described as the power which is exercised by the different
supermarkets on the suppliers or the general purchasing public who receives the end products.
The different buyers have a high power when the size of purchase is high (Epstein, 2018). From

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the supplier perspective they are left by little option as a majority of supermarket are large and
cannot be negotiated with. However different consumers have a high power to as they have
various alternatives to choose from.
Power of suppliers
There has been a huge shit in the food supply chain of Australia and although they held
huge powers back in the 1970s, at present they do not. The giant multinational corporations have
turned to manufacturing firms and hence, the private labelling formula has led to a decline in the
power of the suppliers (Hill, Jones & Schilling, 2014). The supermarkets have increased their
dominance considerably which has led to a low power position.
Threat of substitutes
As the supermarkets offer goods which comprise of basic essentials which are important
to the customers and thus they serve as a one stop solution to those sets of consumers who want
to purchase fresh fruits and vegetables. The convenience stores serve as a competition to these
markets like the 7-eleven, but thy have limited options. Hence, with its private label facility,
discounts and delivery options the threat of substitutes is quite low.
Rivalry between established competitors
Although the smaller players have been emerging in the industry, the major players in the
market are Woolworths and Coles. There exists different price wars between them and want to
provide the customers their value for money (Walker, 2014). As the products being offered by
the companies cannot be differentiated to a great extent, the company has to ensure that the fight
on the basis pf the price being offered.

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Conclusion
Therefore, from the above analysis, it can be concluded that the external environmental
scanning helps in attaining useful information about a firm which can then be used for the
welfare of the performance. The report throw a light on the background of the company,
followed by the external environment factors using the PESTLE Analysis and the industry
dimensions using the Michael Porters Five Forces.

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References
Business Tech (2015). Woolworths takes sweets and chocolates off checkout shelves. Retrieved
from http://businesstech.co.za/news/general/97057/woolworths-takes-sweets-and-
chocolates-o-checkoutshelves
E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), 32-45.
Epstein, M. J. (2018). Making sustainability work: Best practices in managing and measuring
corporate social, environmental and economic impacts. Routledge.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated
approach. Cengage Learning.
Hitt, M., & Duane Ireland, R. (2017). The intersection of entrepreneurship and strategic
management research. The Blackwell handbook of entrepreneurship, 45-63.
Ontario, C. (2014). Environmental scan. Student and Graduate Profiles.
Robson, W. (2015). Strategic management and information systems. Pearson Higher Ed.
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.
Team, F. M. E. (2013). PESTLE Analysis. Strategy Skills. Free management ebooks, 15.
Walker, R. M. (2014). Internal and External Antecedents of Process Innovation: A review and
extension. Public Management Review, 16(1), 21-44.
Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2017). Strategic management
and business policy. Pearson.

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Woolworths Limited. (2018). Annual Report. Retrieved from
http://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2016.pdf