GSB013 Economics for Managers: Australian Supermarket Industry Report

This report provides an in-depth analysis of the Australian supermarket industry, examining its contribution to the national GDP, its relationship with the government through the Food and Grocery Code of Conduct, and the potential consequences of economic fluctuations such as depreciation of the Australian dollar, increasing inflation, rising global oil prices, and increased unemployment. It forecasts the combined impact of these factors and concludes with strategic recommendations for the CEO of a firm like Woolworths, focusing on adapting to price wars, managing supply chains, and navigating regulatory landscapes. The report uses economic concepts to support its arguments, providing practical, workplace-related examples.

Running head: AUSTRALIAN SUPERMARKET INDUSTRY
AUSTRALIAN SUPERMARKET INDUSTRY
Name of Student:
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1AUSTRALIAN SUPERMARKET INDUSTRY
TABLE OF CONTENT
Introduction;...............................................................................................................................2
A. Contribution to national GDP:........................................................................................2
B. Relationship between supermarket industry and government:.......................................4
C. Consequences of economic fluctuation:..........................................................................6
D. Situation based prediction:..............................................................................................8
E. Strategic Analysis & Recommendation: Woolworth..........................................................9
Reference:................................................................................................................................13

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Introduction;
The paper presents discussion on national economic condition of Australian supermarket
industry. The paper is reflection of important information regarding the performance of super
market industry and its contribution to the Gross Domestic Production of the nation. It sheds
light on the mutual relationship between government and the said industry along with
elaborating effects of economic fluctuation in terms of increased inflation and
unemployment, hike in global oil price and depreciation of national currency. Further strategy
analysis of Woolworth has been conducted in order to bring out crucial factor and provide
recommendation to the CEO of the firm.
A. Contribution to national GDP:
Australia falls under the category of developed economies in the global context. It has
one of the largest markets that is categorised as mixed economic market. This capture gross
domestic production of AUD$ 1.7 trillion as per the data revealed in 2017. As per the
nominal GDP the nation achieves 14th largest ranking among world economies and earns 20th
position in terms of Purchasing Power Parity. The country encounters huge volume of trade
earning 25th largest exporter and 20th largest importer of world. The nation experienced
uninterrupted growth in its GDP at a stretch of almost 26 years (industry.gov.au, 2016).
Economy of Australia is majorly dominated by service sector production evident in the fact
that almost 62% of the gross domestic production comes from this sector. The service sector
is greatest source of employment in the country providing 79% of the employment to the
national population (Dwivedi et al. 2012)
Out of various important industries within national economy, the supermarket
industry plays pivotal role in contributing substantially toward the national economic output.

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It is also one of the most competitive industry that not only has enormous competitors
existent in the market but also it has been capturing remarkable growth in the sector. The
popular supermarkets in Australia are Coles, Woolworth, ALDI that contribute most
significantly in the output of the nation. The former two are old names in the industry with
much established market share, brand image and customer loyalty. The uprising of ALDI
with its rapid growth in the past five years has made remarkable contribution in the industry
overall by changing its mode of growth trajectory (Burch, Lawrence and Hattersley 2013).
Through the provision of discounted private labelled products ALDI has been able to distract
the market share of other big firm and added it to its own popularity basket. This has given
toughest competition to biggies like Coles and Woolworth who have been forced to cut prices
and make an expansion of product base in line of private-label ones. The industry has varied
structural composition with co-existence of both big farms like Coles, growing competitor
like ALDI and also small struggling farms like Foodworks in the atmosphere of price
intensity or price-war. As per the data, this higher concentration of market and competition
has led to reduced profit margins over past 5 years.
The revenue of the industry is forecasted to grow at 2.9% annually in the coming
years as has been revealed by State of the industry report in 2016. It generates revenue of
US$101 billion (industry.gov.au, 2016). The supermarket industry makes greater contribution
to national GDP by providing employment to 362,102 people with the business units spread
over 6631 stores and units (Dwivedi et al. 2012).
The supermarket industry is linked in an integrated way with the manufacturing of
grocery sector, food and beverage as well as fresh produces.

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Figur
e 1: Industry Turnover
(Source: State of the Industry Report 2015)
The industry turnover recorded for the year 2009-2014 reveals even though sow an overall
growth, it is the food and beverage sector that is actually driving growth in the industry in
contrast to fresh produces and grocery sector that is experiencing decline in the turnover.
Relationship between supermarket industry and government:
The supermarket industry heavily dependent on retailers, wholesalers and wide range
of suppliers who ensure the finest outcome of the industry. The industry is exposed to higher
market competition mostly specified as oligopolistic competition. Even though this market
concentration has pushed, the firm produce efficiently and deliver good performance on
growth there are few small farms that has been facing internal challenges in terms of barriers
to entry, loss of market share or higher operational cost (Burch, Lawrence and Hattersley
2013). All of these factors preventing the firms from firm surviving the immense market
competition. There comes the introductory point of government in the scenario. Government
plays pivotal role in shaping the industrial outcome amid intense competition that crucially
signifies the business performance of the firms operating in this sector. In order to ensure
fairness and transparency in the commercial dealings of the industry, the government has
stepped in to regulate the market through adoption of Food and Grocery code of conduct
(Afgc.org.au, 2017). Australian Grocery Sector has been imposed upon with few laws under

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this code of conduct. The code for the Food and Grocery sector came into operation form
February 2015 in the form of The Competition and Consumer Regulation. This aimed at
improving commercial transaction and relationship within whole the supply chain of the
Australian supermarket industrial sector. The core of the law is to build as well as enhance
the faith between retailers and suppliers that greatly determines the vitality of the sector that
further takes care of the welfare of the consumer.
Important features of the law:
 It is applicable to all the nodes in the industry including retailers, suppliers thus
ensuring uniformity in the application.
 It is mandatorily imposed upon the entrants into the grocery market supply
arrangements and requires written documents.
 Minimum behavior standard to be maintained by the retailers with the suppliers. This
should include prohibition of threats, application of illegal means of conduction.
 There should be no disruption of business or termination without justified grounds.
 There should be a dispute settlement body or mechanism that would resolve the
disputes facing suppliers with agility.
 The comprehensiveness of the codes make inclusion of the contractual dealing in
form of promotions funded by suppliers, positioning and shelf spacing intellectual
property rights and payments regarding wastages.
 Even though the codes are applicable to retailers who opts for it and signs into it, all
of the suppliers are automatically covered under the code.
The Competition and Consumer Act 2010 provides the Australian Competition and
Consumer Commission right to take action if any of the retailers and suppliers breach the
codes of the law (Afgc.org.au, 2017). With implementing this law, government wants to
make strong commitment to the nation and world as well in favor of making Australia

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greatest destination for growing business. Studies reveal how this law has helped the sector
gain flexibility in operation than imposition of restrictive rules to comply commercial
negotiations. The importance of the law lies in government setting a specific dispute
settlement process that ensures fastest growth of the sector (Afgc.org.au, 2017).
B. Consequences of economic fluctuation:
Depreciation of Australian Dollar (AUD):
The value of Australian dollar decreases when the dollar faces depreciation.
Deprecation takes place when the supply of dollars in the Australian money market is greater
than its demand. 10% decrease in the value of dollar implies significant spike in the exchange
rate. This makes import costlier affecting the supermarket firms in the industry who import
the inputs or even final goods and services from other nations (Shill et al. 2012). The
supermarket giants like Coles, Woolworth not only import from other nation to maintain huge
variety of product base as maintained in their stores but also export to other nations of the
world or even expand their business operation in cross-border markets. As per study, the
industry enjoys balance of trade with higher sales. Depreciation of the AUD is actually
beneficial for the nation as it increases the export revenue.
Increasing inflation rate:
The general impact of inflation is increasing price of the products in the market. This
takes place in a chain effect stemming from increase in production cost. Retail pertains to
providing necessary goods and services of broader range to all the consumers all over the
world through multiple channel of distribution. 5% hike in rate of inflation leads to
substantial increase in the price of the products and also the cost of supply and distribution
rises making overall sector hurt at its core (Fernie 2014). The retail sector is highly
competitive and inflation hurt firms differently as they dwell in different strategies regarding

7AUSTRALIAN SUPERMARKET INDUSTRY
production and pricing. Australian retail sector has been found to be face the same while the
Global Financial Crisis when the nation faced steep inflation.
Increasing Global oil price:
Oil is one of the major components that drives the movement or even existence of an
economy. Any functioning or activities going on within economy are heavily dependent on
the availability oil. The Australian annual report of 2016 reveals the nation consumes 1036
barrel of oil per day. The consumption of oil has greater economic implication. Australia has
lesser indigenous source of oil and rely upon heavy imported from the Asian countries
specially middle East and USA. The increased global oil price reaching up to US$100 would
increase the cost of oil import for the nation hurting its national economic situation. Greater
cost of oil implies greater depletion of foreign reserve, which further influences the money
market. In need of more foreign exchange, the nation would be required to buy such with the
help of more AUD. This will contract domestic money supply raising rate of interest which
further affects the business and production
Increase in unemployment rate:
The unemployment rate refers to the fact that how much of the capable workforce are
lying idle and that further making the country lose its gross national product. Existence of
unemployment is negative for the growth of an economy. 10% increase in the unemployment
rate not only raises social concern but also reduces national economic output. This further
make the people suffer from lower income and falling consumption demand as well which
again affects the business and producing firms in the market (Fernie 2014).

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C. Situation based prediction:
The supermarket industry is one of the important components in the retail service of
Australia. Economic fluctuations in form of decreased currency value or depreciation, rising
inflation rate and rate of unemployment and even the increase in global oil price would exert
severe impact on the national economic health influencing the growth for the nation (Sacks
2015). If the entire above situation takes place at once then the effect would be dreadful as
the nation is heavily reliant on oil import as well as import of the food, grocery items that are
extensively sold in the supermarket stores. The cost of import would rise that would drain out
the national foreign exchange reserve as well as national savings will be depleted (Richards et
al. 2012). The supermarket industry as a whole experiences net sales over purchase, which
make the depreciation of Australian dollar go in favour of the industry. This helps in raising
the export revenue that leads to greater national income as well as savings. On the other hand,
the increase in this depreciation makes the price of imported oil even costlier along with the
already higher global price. This leads to inflationary pressure in the country pushing prices
of goods and services to go up (Richards et al. 2012). The income of the people are not
increasing keeping parity with it but the prices are going up implies there is significant fall in
the purchasing power of the people out of given amount of income.
On top of this if inflation rate rises even further by 5% then the nation face severe jolt
in effect of chain wise galloping kind of inflation. This can hamper the business and
production with falling supply and production as well as falling demand on the face of
lowering real income (Sacks 2015). This makes the nation approaching toward stagnation
which refers to increased inflation and falling national economic output due to fall in
consumption as well as production. Fall in output and production well explains rising
unemployment, which adds as further suffocation to the socio-economic condition of the
nation. Greater unemployment leads to lower opportunity to earn and further fall in income.

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This leads to fall in consumption which is function of income. This lowered demand hurt the
market as the suppliers and producers get affected being not able to sell the produces and
recover the cost of production. This demotivates them from producing also make them incur
loss.
D. Strategic Analysis & Recommendation: Woolworth
Woolworth is one of the big firm in the Australian super market industry which
implies the importance of proper strategies and planning to be made by the firm. In order to
come to any strong conclusion and make appropriate recommendation to the CEO of the
firm, conduction of strategy analysis is quite important factor. The strategy analysis not help
us identify the major factors operating within industry but also the factors lying outside the
industry that influences equally the operation of the firm through internal and external
analysis. While internal analysis identifies and analyses the strength, weakness, opportunity
and threat, the external analysis helps in detecting macro environmental factors.
External analysis:
Application of Porters Five Forces and PESTLE analysis is important tool to assess
the factors crucially influence the operation of the industry that are not within the jurisdiction
of the firm’s functioning. The five forces identifies five important factors pertaining to
bargaining power of the firm as well as consumers, existing market competition and rivalry
of the firms, challenges facing the new entrants in the market and threats imposed by
availability of substitutes. Presence of plethora of firms in the supermarket industry of
Australia provides higher power to the buyer’s community to bargain (Afgc.org.au, 2017).
The multiplicity of firms in operation also leads to huge range of options available to the
buyers that further increases their ability to bargain. An analysis of supermarket industry in
Australia reveals the level of concentration it operates into with presence of big farms like

10AUSTRALIAN SUPERMARKET INDUSTRY
Coles, Woolworth itself capturing major shares of market. This leads to moderate level of
bargaining power of the suppliers. The concentrated market and presence of enormous
suppliers pose challenges to the new firms from entering the market (Shill et al. 2012).
Another important aspect that has been identified in this case is the presence if extensive
rivalry among firms already co-existing in the industry. Rivalry has imposed bigger threat on
the retail supermarket industry in the Australia. Due to presence of competitive big firms like
Wesfarmers, Coles, ASDA and Woolworth the competition is tough as they are constantly
competing against each other in order to capture the market share (industry.gov.au, 2016) .
The competition becomes significant because all of them sell mostly same kind of products
and this make the pricing and other selling strategies very crucial for firms. This evokes the
threat of availability of substitutes in the market stemming from too many suppliers in the
market selling almost same kind of products. Even though the retail products sold in super
market has lower threat of substitute, the firms within industry face the challenge of
availability of substitutes that hamper their market share making their business decision very
sensitive (Juan Ding et al. 2014).
Internal Analysis:
The internal analysis conducted through SWOT helps us identify few features of the
firms in the supermarket industry through the analysis of strategies taken to operate within
industry. The strong point about Woolworth is that it is the leader firm in the Australian retail
industry. It allows the firm to explore the portent of market through application of its rich
human as well as technological resources that allow the firm hold a greater reputation in the
market. The weak aspect of the firm’s operation is identified in some of its external factors
like political stance. The firm has been prevented from charging higher price by government
in products that has collaboration with Coles. This has posed one of the major weaknesses of

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the firm affecting its profit motive (industry.gov.au, 2016). The growth of the industry has
made the firm materialize the untapped opportunities regarding more expansion and growth
of business operation. The change in the consumer choice pattern and lifestyle and
subsequent advancement in supply chain, application of computerized system allow the firm
upgrade its market operation moving more toward adopting multi-option strategies in order to
satisfy more customers. Major threat facing the firm comes from higher competition level.
The strategic moves of Coles pose much challenge to Woolworth.
Identification of factors:
The firm faces few federal government policies regarding competition in the
supermarket industry that makes them curb the competition for better health of the industry as
a whole. This is mainly incorporated in order to save the small firms in the industry from the
struggle of tough competition by big firms. The sector is greatly linked with the overall
economic scenario. Fluctuation in economic activities in the country reflects the same in the
supermarket industry. Besides decline in the economic output or market operation,
fluctuations of indicators in form of currency rate volatility and even inflation hampers the
firm’s international trade and local market retail operation (Juan Ding et al. 2014). Society
looks for sustainable and socially responsible firms. This make the firm adopt strategies
responsive and caring to the societal sentiments. The firm is exposed to minimalistic
technological application. This makes the firm less advantageous in recent time. Few line of
production and service by Woolworth create environmental concern for example its service in
petrol and alcohol production (Lawrence, Lyons and Wallington 2013). The firm is exposed
to few of the legal complications in form of carbon tax, food and grocery law and so on. The
adoption of fairness has affected the firm’s business operation.
Recommendations:

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Important recommendation that should be communicated to the chief executive
officer of the firm is regarding setting the strategies of the firm that would be consistent with
the prevalent political conditions and policies imposed upon the industry as a whole. The
food and grocery code of conducts that the government impose should be taken into account
while planning strategies (Afgc.org.au, 2017). Technological up gradation is another big
factor that the firm needs to adopt. The higher authority needs to implement green technology
that reduces the operational cost and help the firm capture higher profit. It also allows the
firm to store perishable products and goods and exert good management. With changing
consumer trends, tastes and preference the firm needs to come up with varied and developed
product bases with affordable pricing. Quality wrapped in affordability actually attracts more
market share enhancing the level of growth in the market. For internal operative efficiency
the firm needs to focus and invest in order to support employees skill set through training and
development programs (Ball et al. 2015).

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