Competing with Aldi: Woolworth's Differentiated Pricing Strategy

Woolworth is facing fierce competition from Aldi in the Australian supermarket industry and has implemented a differentiated pricing strategy to compete. The report analyzes the market using PESTLE, Porter's Five Forces, and VRIO frameworks.

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[COMPANY NAME] [Company address]
STRATEGIC MANAGEMENT

Executive summary
With the increasing competition in the supermarket industry, Woolworth has been suffering
fierce rivalry and competition to Aldi. To analyse the market of Australia and how entry of
Aldi has affected the operations of the Woolworth. It is important for the management to
maximise the opportunities and reduce the power of rivalry by attaining a competitive
advantage. Now a days, supermarket industry has been facing a fiercely competition in
Australia with the entry of German supported company Aldi. Aldi has become a threat to
Woolworth existence and market share and the company has decided to overcome it by
making differentiated pricing strategy. The strategy offers high quality products at low price.
To analyse the environment around, this report brings out a range of concepts and models to
identify the problems. For identification, PESTLE Analysis, five porter forces model,
business level strategies, and VRIO framework has been carried out of Woolworth. In 2015,
Aldi has stolen the market share of Woolworth. The company had to think more and finally it
decided to invest in hiring high-qualified staff and technology.

Contents
Executive summary...............................................................................................................................1
Introduction...........................................................................................................................................3
Macro environmental analysis..............................................................................................................3
Porter’s five forces analysis...................................................................................................................5
Company analysis (VRIO).......................................................................................................................6
Competitor Analysis..............................................................................................................................7
Business-level strategies........................................................................................................................8
Recommendation and suggestion.........................................................................................................8
Conclusion.............................................................................................................................................8
References...........................................................................................................................................10

Introduction
Woolworths operates its retail stores in grocery businesses and have its establishment in
Australia and New Zealand. The company has a considerable market share of nearly 40
percent. Moreover, Coles and Woolworth almost have acquired 80 percent of the supermarket
industry (Woolsworth Group, 2018). In addition to this, the company has invested in
diversifying its portfolio by providing the customers with wide range of products. As the
company is expanding, it has increased and created employment for many people. As more
employees get employment, the employment rate keep increasing which has further improved
the Gross Domestic Product (GDP). The entry of Aldi in 2015 has affected the business
operation of Woolworth. Wesfarmers also stands equal when it comes to compete with
Woolworth and Coles. The case study highlights the potential of alternative market share of
different retail stores. The probability of winning state of Woolworth is more as due to
partnering hands of Coles with it.
Macro environmental analysis
Legal- political factors- For the supermarket, government has direct effect on the industry in
relation to legislating trading hours through proper monitoring of Australian competition,
trade practises act, and consumer commissions. New Zealand and Australia enjoys a good
time of political stability where it is imperative for Woolworth by abiding legal provisions.
Instituted policies that guides the staff to align with imperative constitution of both the
countries. Understanding the situation of contravening legal requirements that can employ
law experts to consult and advice the management faces uncertainty. Several government
campaigns aimed and asked the Woolworth not to eliminate the new and existing small
companies by unfair competition rather the policy and campaign should promote small
enterprises by less influences of Woolworth. Moreover, consumer commission and
competition has affected the performance of Woolworth (Kim, Lee, and Shin, 2015).

Technological factors - Woolworths adopted new technology as it is among the 1st major
retailer that have subscribed global electronic marketing and merchandising network
(GEMMnet) in 1994. Technology has helped the company to improve the distribution and
supply chain that has significant role in saving costs. It has also lead to increase in the
number of shopping facilities that gave first mover advantage. Technological trends has
changed the business conduct of operations because harnessing technology and
modernization has become a common trend among the organisations to sharpen the
competitive edge. Woolworth employed most technology in its operation. Moreover,
Woolworth has employed green refrigerator technology that can store perishable product.
Self-checkout machines are utilised by company to weigh, scan, and pay while assisting the
process of reducing costs (Indartono, and Wibowo, 2017). According to the case study, Coles
and Woolworth shall simplify the supply chain and build strong relationships with them.
Coles and Woolworth strive to improve online sales process that are based on data collection
in the flyout system. Moreover, the company will main individual shoppers with a special
mail.
Economic factors- this factor considers the performance of country`s economy which is
related to purchasing power, GDP, inflation and exchange rates. If purchasing power of the
customer is weak, the company will have to suffer. The time of recession in Australia led to
downfall of business operations of Woolworth. While looking into the statistical data, it is
seen that the GDP has been consistently improving as it have shown an improvement in
second quarter in 2018 that is an increase by 0.3 percent that is less the figure of first quarter
in 2018 (Countryeconomy, 2018). The value of Australian GDP is among the top ten
countries. The rate of increase in GDP will increase by 2, 3, or 4 percent (Countryeconomy,
2018). Purchasing power depends on the amount of personal disposable income that is at
growth in Australia as it depends on GDP. The currency and exchange rate of Australian

dollar has increased and become powerful by increasing value of 1.42 percent as an annual
change (Countryeconomy, 2018). According to the case study, Woolworth will win as it
strives to offer cheap prices as compared to its rivals. Coles takes into consideration a
different range of products with high- quality of home brands.
Social factors- this factor includes the demographic pattern, norms, beliefs, and social
requirement drive a person to create his necessity according to their lifestyles. It also depends
on the gender, norms, age, sex, and population or according to demographic segmentation.
The population in Australia population was seen as 24 million in 2011 and it has a mix of
troops of religion and ethnic because of immigration policy. Moreover, it is a matter of
concern that age group of 85+ group primarily dominates the Australian population and it is
growing at fast rate. Changed societal norms and lifestyles can have a drastic change in the
supermarket industry. For example- the demand for low-fat foods that is easy to cook and it is
organic (An, Gao, Guan, Li, and Liu, 2016).
Industry Analysis
Porter’s five forces analysis
The focus is to eliminate the rivalry because they create risk strategy to sustain. In addition to
this, a windfall in removing existing competitors can attract new competitors.
Bargaining power of Buyers-, the Australian market offers heterogeneous products that have
low switching cost among the stores. Therefore, due to availability of wide range of products
with the stores that customise the offering in target market (Dobbs, 2014).
Bargaining power of Suppliers-, bargaining power of suppliers depends on the brand name of
suppliers in the retailing industry for example British American Tobacco and PepsiCo are
those suppliers that enjoy strong power in the market. The tendency of power of suppliers in

the supermarket lie between high to moderate. Supplying the food is largely affected by
seasonal changes.
Threat of new Entrants- New entrant “Aldi” have affected the profitability. New
organisations enter in the market and find it difficult because several large organisations
operate the market. New entrants may bring efficient mobile technology that hampers the
competitiveness of other firms such as Woolworth and Wes farmers. Although, these
organisations have realised the concepts to shift and rely more on virtual store than physical
stores.
Rivalry among the competitors- there is huge range of substitutes available to the consumers
such as pharmacies, fresh food markets, grocery stores, convenience stores, and delicateness.
Consumers are willing to buy from those stores that avails them with high prices and
convenience for example- no queries, easy parking. It should be close to home. Main
competitors such as Coles and Aldi, the company keep fighting and establishing for the
market share. Moreover, the profitability of Woolworths has reduced as customers started
relying on Aldi to purchase products for its basic need. Among all the competitors,
Wesfarmers financial results are in very much favour. As its return on equity is considerable.
Moreover, Coles, Aldi and IGA know what actually wants to execute. According to case
study, Among the service staff and price reduction, Coles also uses met mash that involves
marketing to stay among the competitors and claim localness to continue the market share. .
Threat of substitutes- many products act as an alternative purpose to as there already exist the
main product. Woolworths has a portfolio and wide of products offered by the company that
gives an opportunity to the customers to access from the larger variety. Currently, the
company has adopted pricing strategies in domestic and international market where
Woolworths has applied differentiation strategy to grab consumers. Last, the company should

understand that formulating the strategies to enhance quality and customer needs. Viable
strategies engage sophisticated marketing strategy that control the cost to become a cost
leader First (Leimbach, and Prigge, 2017). Strategies of Coles and Woolworths challenges
IGA system on many basis such as prices, supplier control, market covering, and digital
reach.
Company analysis (VRIO)
Valuable- A generic strategy, which an organisation use to ensure a cost leadership strategy.
It is based on the strategy where an organisation should manage the relation in the entire
value chain. Another valuable trait is focusing the market segment and concentrate on the
strategies. Combining various forms of advantages, such has competitive cost and
differentiation. This competitive advantage can outperform the business used only for single
form and as a high performer. An integrated competitive strategy is valuable for a company
because Porter suggest that overcoming and outperforming rivalry with a difference in
strategies adopted (Mitchell, 2016).
Rare- Another rare viability with Woolworth is that it has an innovative and competitive
advantage that have developed with a sustained supply chain. The effective distribution is
both a capability and a rare resource too that focuses on cost cutting strategies while
managing unnecessary expenditure. It is focused to attain efficiency through cost cutting by
managing irrelevant expenses. Technological capabilities and supplier relationship are
attributes to both tangible and intangible assets. Therefore, it contributes to cost reduction in
the entire network of logistics (Jurevicius, 2013).
Cost to imitate- innovative projects such as refresh and new idea are brought to actions that
imitate costs. The company has introduced credit cards in the partnership with HSBC bank
and MasterCard (Lopes, Farinha, Ferreira, and Silveira, 2018). The company has also

introduced various consumer rewards to reduce the cost in such a way that rewards for
everyday and money shopping cards (Jurevicius, 2013).
Organise to capture market- the market can be captured only through larger market share with
satisfied target customers who can do marketing through word of mouth. Vertical integration
of suppliers have moved to produce the input by increasing the market share sand responding
to the private label. To strengthen marketing and sales, one key strength that have helped the
company to differentiate the product and secure its place among the Australia’s largest
supermarket retailer (Mitchell, 2016). The company spends appropriate money on marketing
expenses by newspaper and distributed leaflets. All the marketing activities contributes to
brand awareness such as providing the fresh food that can carried out by the company
(Woolsworth Group, 2018).
Competitor Analysis
While considering the suffering of Woolworth due to market captured by Aldi. The stage of
company in the life cycle is declining. As per the Mitchell, (2016), the chief executive kicked
off best restructuring when Aldi entered the market. Poor execution of implemented
marketing strategies has hindered the retailer attempt to reverse sales and profits too (The
Guardian, 2016). The company has also terminated the employees. Moreover, during the
declining stage, the company have strived hard to establish a balance between the investment
in services and cost cutting prices to attract the customers by improving its return and satisfy
its shareholders by delivering the growing first interim profit in three years (Mitchell, 2016).
With the increasing fame of Wes farmer in the industry, both Woolworth and Coles aims to
establish new stores in all the populated area. Coles being a giant player in the market, no one
among its competitors can afford to get over others. Here supply chain are well established
and tight contracts are agreed and signed to minimise the loss occurred due to perishable
nature. This transfer will lead to revenue generation for Qantas.

Business-level strategies
Strategizing at this stage has become extremely important as Aldi is capturing the whole
market at a very fast pace. The company has started to build a retail team who gets feedback
from the customers, suppliers, and team members. Customer program among the brands,
support office and retail store teams can receive feedback from the customers (Chatzoglou,
Chatzoudes, Sarigiannidis, and Theriou, 2018). The team focuses on short teams by
continuing the improvement of shopping experiences for the customers. As a business
strategy, the company has divided the key priority work among the teams. Company should
start focusing on CSR activities and diversify its portfolio for inviting IPO or sale. Australian
food market continued to improve the customer scores especially for fruits and vegetables.
Investment in supermarket in New Zealand, it drives the improvement of customers
(Woolsworth Group, 2018).
Recommendation and suggestion
According to the case study, the success relies in the hands of Wesfarmers because it already
serves 9.8 percent return to the equity shareholders. Whereas, Woolworth and Coles
strategizes to understand the potential customers and expand the convenient style stores. As a
recommendation and a potential to retain its previous market share, Woolworth can adopt
social media promotion strategy and get the advantages of low-cost. Moreover, the company
should start accepting new business level strategies.
Company should start offering GM free-food and should participate in more CSR activities
that would attract more customers.
Woolworth can protect its market share and competency by increasing the investment in
R&D and finance department to research for alcohol-related problems. Although undoubtedly
Woolworth have, wide product offerings but it should start diversifying in expansion and
project its estimated sales for every new year to raise and capture the market for long term.

Conclusion
Strategic planning is necessary when company is suffering and reduced its market share. It is
important to improve the situation by identifying the reasons. The case study signifies and
win/win situation clear success to Wes farmers while concerning the market share too.
Moreover, Coles and Woolworth are very far behind in terms of grabbing the market.
Strategic planning includes various analysis methods such as VRIO framework, PESTLE,
and competition analysis and company analysis. The report gives an in-depth analysis and
knowledgeable concern towards what actions can be taken to undertake the formation of a
strategy that can make decisions to overcome the problems. Strategic planning helps to make
decision to order to overcome the issues related to remain less competitive with more price.
The rivalry of Aldi has to be understood properly to make such business level strategies that
can benefit the Woolworth.

References
Countryeconomy, (2018) Australian GDP. Available on:
https://countryeconomy.com/gdp/australia [Accessed on 11/12/18]
Mitchell, S. (2016) Woolworth’s kicks off review as food sales continue to decline. Available
on: https://www.afr.com/business/retail/woolworths-kicks-off-review-as-food-sales-continue-
to-decline-20160502-gokeib [Accessed on 11/12/18]
Woolsworth Group, (2018) Strategy and objectives. Available on:
https://www.woolworthsgroup.com.au/page/about-us/our-approach/strategy-and-objectives
[Accessed on 11/12/18]
Jurevicius, O. (2013) VRIO Framework. Available on:
https://www.strategicmanagementinsight.com/tools/vrio.html [Accessed on 11/12/18]
Mitchell, S. (2016) Woolworth’s credit rating, profit forecasts cut as sales continue to slide.
Available on: https://www.smh.com.au/business/companies/woolworths-credit-rating-profit-
forecasts-cut-as-sales-continue-to-slide-20160504-golpuc.html [Accessed on 11/12/18]
The Guardian, (2016) Woolworths to cut 500 jobs and close stores across Australia.
Available on: https://www.theguardian.com/business/2016/jul/25/woolworths-to-cut-500-
jobs-and-close-stores-across-australia [Accessed on 11/12/18]
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