ICMS Report: Analysis of Coles and Woolworths in the Retail Sector

This report provides a comprehensive analysis of Coles and Woolworths, the two dominant players in Australia's retail industry. It examines the market structure, competitive strategies, growth strategies, and pricing and non-pricing strategies employed by both companies. The report utilizes both primary and secondary research to evaluate the market share, barriers to entry, and competitive dynamics within the oligopolistic retail sector. Key findings include Woolworths' leading market share, the use of pricing and non-pricing strategies by both companies to maintain their dominance, and the potential threat posed by Aldi and IGA. The report also provides business advice, such as the need for Woolworths to expand its customer base and the importance of innovative promotional strategies for both firms. The study concludes by summarizing the key aspects of market structure, competitive strategies, growth strategies, and pricing and non-pricing approaches of Coles and Woolworths, highlighting the need for these companies to adapt to maintain their market dominance.

Running Head: REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 1
Report for Economics and Finance for Business
Name
Affiliation
Date

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 2
Abstract
The report was making an analysis of Coles and Woolworths as rival public companies within
Australia. The study was done through making use of primary and secondary research to identify
and evaluate the various strategies that have been employed by Coles and Woolworths in
maintaining their dominance in the Australian retailing industry. Some of the key findings from
the report include; Woolworths still holds the largest market share of 34% in Australia's retail
market while Coles holds a market share of 27.6%. Both Coles and Woolworths employ different
pricing and non-pricing strategies which have enabled them to maintain their oligopoly in the
retail market. However, there is a need for Coles and Woolworths to revise their competitive
strategy to shield off the threat posed by Aldi and IGA if at all, they are to maintain their
dominance. The purpose of the report was to analyze the market structure and competition of
Australia's retail industry with a significant focus on Coles and Woolworths as the dominant
rival companies.
Introduction
This investigation concerns an analysis of Coles and Woolworths as rival businesses in
Australia's retailing industry. The following are the four main goals of this report;
i) To analyze competition in the sector, decide whether to enter it and how to compete
(ii) To determine whether there is scope for growth and how to create growth
(iii) To evaluate pricing and non-pricing strategies used in the industry

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 3
(iv) To craft creative and realistic strategies for competing, growing, and pricing, which can be
used by any firm in the grocery industry.
Coles is the second biggest public company in Australia that was founded in 1914 with its
headquarters in Hawthorn East, Victoria, Australia. Coles firm mainly deals in consumer and
retail services in Australia diversified in the form of Coles express, supermarket, and liquor. On
the contrary, Woolworth is the largest retail public company in Australia founded in 1924 with
its headquarters in Bella Vista, New South Wales, Australia. The firm is the largest dealer in
liquor, supermarkets, petrol, merchandize gambling and hotels within Australia and New
Zealand.
The research was carried out by making use of primary and secondary sources. Primary research
involved observing and collecting information about the pricing and non-pricing strategies for
Woolworth's products and services. The above analysis was facilitated by well-framed interview
questions that were directed to the various managers at various retail outlets of Woolworths
within Australia. Secondary research involved making use of internet resources to find
supplementary information about Woolworths and Coles pricing and non-pricing strategies for
their services (Paul and Carol-Ann, 2013). Section 2 provides an overview of the market
structure, and competitive strategies in Australia's retailing industry and section 3 provides an
insight into the growth strategies employed by Coles and Woolworth's firms. Also, section 4
gives a detailed description of the pricing and non-pricing strategies employed by Coles and
Woolworth and conclusion section gives a recap of information depicted in parts 2, 3, and 4.
Section 2: Market structure and competitive strategies

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 4
The market structure for the retailing industry in Australia is Oligopolistic. The nature of
oligopoly of the retailing sector is attributed to the fact that there are only two dominant firms in
the market that rule over the rest of other business in the market (Pindyck and Rubinfeld, 2010).
In other words, Coles and Woolworths are price setters due to the limited competition in the
market, which has helped them to operate effectively. Currently, Australia's retail industry has
been faced with moderate competition because some of the retailers are engaged in the ongoing
transformation to handle challenges associated with the entry of new firms (Abigail, 2018).
Moreover, competition has been both from domestic and foreign-based retail firms through
online or physical stores that have been started by both local and foreign companies.
Interesting information in the news about Australia’s retailing industry
SBS News revealed that the slow rates of economic growth in Australia are significantly
affecting the retail industry in the form of reduced sales. This is attributed to the fact that interest
rates and inflation rates continue to remain higher in Australia, which is significantly reducing
customers' purchasing power. Statistics indicate that Australia's economic growth grew at a rate
relatively lower than 3% in 2018. It is anticipated that economic growth will be about 3% in
2019 and 2.75% in 2020 (sbs.com.au, 2019). The above statistics are indicating that the retail
businesses are greatly being affected by the slowly expanding economic growth. Aldi, IGA,
other supermarkets, and other non-supermarkets are the most notable competitors to Coles and
Woolworth.
Barriers to entry in the retailing industry of Australia
The main barriers to entry in Australia's retail industry are "limit pricing" exercised by Coles and
Woolworths as well as control of the scarce vital resources by these two firms. Given the above

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 5
factors, Coles and Woolworths can deliberately set lower levels for prices to deter any potential
entrants from joining the industry. In such a case, the potential entrants will find it unprofitable
to enter the market since they do not have enough resources to sustain their operations in the
market with significantly lower prices for output and yet enormous costs of production are
incurred (Spann and Tellis, 2015). Therefore, control of scarce critical resources and using limit
pricing by Coles and Woolworths has acted a barrier to potential entrants in the retail industry.
Market share of the rival businesses in Australia retail industry
Woolworth's firm still dominates the market share in the retail industry which a portion is
amounting to 34%, Coles firm, 27.6%, Aldi 11.4%, IGA 7.1%, Other Supermarkets 9.1% and
other non-supermarkets 10.8% (Morgan, 2019). The above statistics are indicated in the graph
below.

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 6
Herfindahl-Hirschman Index, HHI is used to determine the degree of concentration of a given
market place in the industry. It is established on the following indices
If the value of HHI is less than 1500, then the market place is said to be competitive
If the value of HHI is between 1500 and 2500, then the market place is said to be moderately
concentrated
If the value of HHI is above 25000, then the market place is highly competitive (Hayes, 2019).

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 7
HHI is calculated from the formula below;
Where, Sn is the percentage of the market share of a given firm
HH1 = 342 + 27.62 + 11.42 + 7.12 + 9.12 + 10.82
HHI = 1156 + 761.76 + 129.96 + 50.41 + 82.81 + 116.64
HHI = 2297.58
The above figure indicates that the market place for Australia’s retail industry is moderately
concentrated.
Competitive strategies employed by Woolworths and Coles
Woolworths is currently making use of seasonal offer approaches for enhancing their customer
experience. The annual offer has been in the form of discounted coupons and flash sales for its
customers as far as purchasing particular goods are concerned. Also, Woolworths employs brand
strategy aimed at enhancing its brand in a moderately competitive market place by offering fresh
products (Budisantoso and Teoh, 2013). The above strategies have helped Woolworths to
maintain customer loyalty and experience when they utilize its services and products.
On the other hand, Coles has been focusing on lowering the price of its products as a way of
widening its customer base. In such a case, the customers can incur fewer costs while utilizing its
products at the expense of its rivals like Woolworth (Businessinsider.com, 2017). Moreover, its

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 8
products and services are direct substitutes to those offered by the competitive business, and thus
lower prices have widened its customer base for years, as shown in the figure below.
Source: businessinsider.com
Business advice component
Because Woolworths operates both in Australia and New Zealand, promotional strategies should
be incorporated by the firm to maintain its competitive edge over rivals in both countries.
Promotion strategies should be innovatively and creatively framed by its marketers so that
potential, existing, and new clients can be attracted and maintained (Constantinides, 2011). As
such, the marketers should make use of social media platforms to promote brand new products so
that customers are entirely updates about any new products to increase their competitiveness.
Section 3: Growth strategies

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 9
Core competencies are distinctive traits that differentiate a given firm from another. They
are mainly aimed at establishing and maintaining the firm's competitiveness in the given market
place. Both Coles and Woolworths are branching out to provide other products and services as a
way of sustaining their competitiveness. More so, the above approach is aimed at addressing the
threats posed by new entrants who are making use of technological means of production to
threaten their market shares. Branching out to provide other goods and services has also been
attributed to the desire to meet the ever-changing customer demand due to the entry of new firms
like other supermarkets, other non-supermarkets, IGA and Aldi (Margaret, 2014).
To address the above, both companies have employed diverse mechanisms of production
through the use of the latest technologies to produce and market their products and services.
Different tools are being exhibited in the form of conducting research and online surveys about
customer experience and demand. In this regard, findings from research and studies have helped
the above two companies to diversify their means of production through offering a wide range of
old and new goods and services to their clients (Brian, 2012). For example, Woolworths has
diversified its undertaking by also dealing in petrol as well as merchandise. On the contrary,
Coles is also selling in Vintage Cellars as a way of maintaining customer loyalty and enhancing
its competitiveness. The above-diversified approaches have been aimed at establishing and
maintaining the competitiveness of Coles and Woolworths in the moderately competitive market
place. Besides, the diversification strategies have greatly enhanced the growth of these two firms
in the form of increased quality output, sales, customer base, and profits from their undertakings
(Morgan, 2019). The benefits above act as indicators of growth from its operations for any given
business in any competitive environment.
Business advice component

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 10
I think Woolworths should expand, given that it is still the largest retail company in Australia.
The primary reason for expansion is to widen its customer base by creating new markets outside
Australia. In such a case, the business will be in a position to fully make use of the available
resources to enhance its output so that the demand for its widened customer base can be
adequately met. In this regard, Woolworths should employ an organic growth strategy by
increasing production, developing new products, as well as expanding its customer base as a way
of sustaining its market share (Morgan, 2019). Output increases can be realized by making use of
technologically inbuilt machinery like robots to produce vast volumes of output from available
resources. Development of new products can be facilitated through conducting market research
to identify the current customer demands so that new products can be produced to meet such
demand. Also, increases in customer base will be realized through the use of advertisement as a
promotion strategy to attract new clients to utilize the enormous available volumes of outputs
(Frank, 2013). Therefore, the expansion will be necessary for widening Woolworths' customer
base, competitive advantage as well as market share at the expense of its rivals.
Section 4: Pricing and non-pricing strategies
Company Pricing Strategies by Coles
and Woolworths
Non Pricing Strategies by
Coles and Woolworths
Coles Offers significantly lower
prices for its products as
compared to market prices
Mass media advertising
Woolworths Maintains same or relatively Online media advertising

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 11
higher prices for its products
as compared to market prices
In regards to pricing strategies, Coles offers significantly lower prices for its products as
compared to market prices as a way of maintaining customer loyalty. The above procedure is
being used by Coles to capture the clients who have significantly lower amounts of incomes due
to high costs of living in Australia. Coles has also maintained a high quality of its products while
charging lower prices as compared to its rivals. Moreover, clients are attracted to a company that
offers variety but affordable kind of goods and services. As a result, the process of maintaining
lower prices for its products has been attributed to the fact that the company has always devoted
significant amounts of resources for stores networks (Thomas and Reed, 2010). The above
injection of resources is basically for facilitating training, reducing employee turnover as well as
refurbishing the retail stores as a way of maintaining the lower prices for its products and
services.
Another element that is met under this component is the enhanced customer experience,
which has boosted its customer loyalty. For example, Coles' liquor has been committed to
offering significantly lower prices in wide varieties and a sound store network. On the contrary,
Woolworths always charges the same or relatively higher prices for its products as compared to
general rates charged on the market for given products or services. The above approach is
attributed to the fact that Woolworths is the only retail company that offers multiple premium
brands in Australia's market. As such, Woolworth is employing the above strategy to maintain
competitiveness in the market so that potential entrants can be blocked from joining the market

REPORT FOR ECONOMICS AND FINANCE FOR BUSINESS 12
(Leslie, 2013). In other words, Woolworths Company is using the above pricing strategy to
maintain its large market share.
In regards to non-pricing strategies, Coles is mainly making use of advertisements on
mass media platforms like Televisions within Australia to promote the market for its goods. It is
utilizing a slogan titled "Extra Value for You — and Me" and "why pay more" as a way of
delivering information to potential clients that they charge lower prices for their quality products.
They also use television to provide information about the values that customers get once they
make use of their goods (Frank, 2013). For example, customers are entitled to loyalty discounts
as part of the values that they get when they consume its products. On the other hand,
Woolworths is making use of online media like social media platforms and websites to market its
products, given that it operates in Australia and New Zealand. The aforementioned online
platforms are easily accessible and can deliver huge volumes of information to the intended
audience (Kotler and Armstrong, 2011). The above non-pricing approach has enhanced customer
loyalty backed by great offers that are availed by Woolworths to its clients.
Both Coles and Woolworths are using the above non-pricing strategies at the expense of
other strategies employed by their rivals because they are easily accessible and deliver vast
volumes of information to the intended audience. For example, other supermarkets are making
use of brochures, business cards, and magazines as a way of promoting their products and
services (Kotler and Armstrong, 2011). The strategies mentioned above are relatively ineffective
as compared to mass media and online media advertising.
Business advice component