Business Strategy Analysis Report: Australian Supermarket Industry

This report provides a comprehensive analysis of the Australian supermarket industry's business strategy. It begins with a PEST analysis, examining the political, social, economic, and technological factors influencing the market. The report then applies Porter's Five Forces to assess the industry's attractiveness to new entrants, evaluating the bargaining power of buyers and suppliers, the threat of substitutes, new entrants, and competitive rivalry. Further, the report discusses the industry lifecycle, identifying its maturity stage and the implications for competitiveness and innovation. Finally, the report analyzes the cost leadership and differentiation strategies employed by major players like Coles and Woolworths, including their pricing campaigns and store format innovations. The analysis highlights the dynamic nature of the industry and the strategic responses of key players.

Running head: BUSINESS STRATEGY
Business strategy
Name of the student
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Author note

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Question: 1
There are number of macro environmental factors that are influencing the Australian
supermarket industry. These influences are having more positive as well as negative impacts on
the Australian supermarkets. PEST analysis will be done in order to understand these factors.
Political factors
Australian political economy is relatively stable and having favorable impact on the
business organizations. In addition, the pro business approach of the government is also having
favorable impacts on the retail brands (Vandevelde 2017). It is reported that recently the foreign
ownership is permitted in the retail sectors of Australia. This is having both positive and negative
impacts on the Australian supermarkets due to the reason that permitting the foreign leadership is
attracting new global players in the market that is increasing the competition in the market. On
the other hand, having the more competition in the market is helping the consumers in having the
access to more options. Existing Australian brands such as Coles and Woolworths are facing
more competition due to the entrance of the foreign brands and this is affecting their profitability
(Davey and Richards 2013).
In addition, the political stability in Australia is also encouraging the foreign retail brands
to enter in the Australian market. However, one of the major negative factors in relation to the
political environment of Australia is different rules and regulations in different states. It is
identified that New South Wales and Victoria are having different sets of regulations regarding
the retail industry (Hughes et al. 2013). This may have negative impacts on the existing
supermarkets in the Australian market. It should also be noted that Australia is having free trade

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agreements with number of countries that is helping the supermarkets to have the opportunities
to sources products from different countries (Hattersley, Isaacs and Burch 2013).
Social factors
Social factors are also having influences on the business operation of Australian
supermarkets due to the reason that change in the taste and preference pattern of the customers
will affect the sales volume of the supermarkets. One of the major social factors is the age groups
of the target market. If the major portion of the population is from the younger age groups then
products for the younger generation will be in more demand (Ismail et al. 2015). This concept is
applicable for the older age groups also. Hence, it is important for the Australian supermarkets to
offer products according to the age demography in the target market. In addition, change in the
consumption pattern will also affect the business of the Australian supermarkets due to the
reason that supermarkets will offer the products in accordance to the level of the consumption of
the customers (Sarvari, Ustundag and Takci 2016). For instance, if the customers prefer fruit
juices over the carbonated soft drinks then it is important for the Australian supermarkets to offer
varieties of fruit juices over the soft drinks. In the case study, it is stated that Australian
customers are having preferences mode for the organic foods over the conventional products.
Thus, supermarket brands such as Woolworths, Coles and Aldi are stocking with more variants
of organic products (Rousseau and Vranken 2013). However, in this case it should be noted that
radical change in consumption pattern of the customers will lead to a challenge for the Australian
supermarkets in stocking accordingly.
Economical factors

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Economy of the target market will determine the market opportunity for the Australian
supermarkets due to the fact that the more will be the growth of the economy, the more will be
the purchasing power of the customers and business potentiality of the supermarkets. It is
reported that Australian economy is growing at the rate of 0.6 percent as of 2017. This denotes
that business potentiality for the Australian supermarkets is increasing (Manalo, Perera and Rees
2015). However, one of the major economic factors for the Australian supermarkets is attaining
the cost leadership. This is due to the reason that majority of the Australian supermarkets are
selling fast moving consumer goods. These products are highly influenced on the pricing factors
due to the reason that point of differences is less and customers will opt for the options with
lowest price available. Therefore, this factor is leading the Australian supermarkets to initiate
cost leadership strategy to attract more customers by offering lowest price (Teeratansirikool et al.
2013). However, this factor is also reducing the average profitability of the supermarkets.
Technological factors
Technology is also an important determining factor for the Australian supermarkets due
to the reason that technological advancements determine the level of customer convenience. In
the current time, online shopping is a major trends for retail markets ad it is becoming more
important for the Australian supermarkets to initiate their own online portal (Owolabi, Adelke
and Abubaker 2013). This will help them to target the customers through the virtual mediums
also. In addition, increase in the customer convenience will also help to increase the rate of
customer retention for the Australian supermarkets. In the case study, it is reported that
Australian supermarkets are initiating newer technologies such as self checkout systems and
online payment systems to increase the customer convenience (Orel and Kara 2014). Thus, the

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level of technological advancements will determine the competitiveness of the Australian
supermarkets in attracting new customers and retaining the existing customers.
Question: 2
In the case study, it is stated that even though there are number of regulations and
limitations are emerging in the business of scenario of the Australian supermarkets but still new
entrants are entering in the market thus proving the industry attractiveness to the new entrants.
Thus, porter five forces analysis will be done to identify the industry attractiveness of Australian
supermarkets industry to the new entrants.
Bargaining power of the buyers
End customers for the Australian supermarkets are having upper hand in bargaining due
to the reason that they constitute the major portion of the revenue for the Australian
supermarkets. In addition, with presence of number of supermarket brands in the market,
customers are having number of options to choose from with having same level of offerings.
However, on the other hand, growth of the Australian economy and population is also helping
the Australian supermarkets to enhance the business potentiality. Therefore, it can be concluded
that Australian supermarkets are having increasing opportunities in the Australian market and
more opportunities are building that is motivating the new entrants.
Bargaining power of the suppliers
Bargaining power of the suppliers is low in the Australian supermarket scenario due to
the reason that large number of suppliers is available in the market (Lee and Gereffi 2015). In
addition, in the recent time, majority of the Australian supermarkets are introducing private level

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brands that are further reducing the bargaining power of the suppliers. Thus, the new entrants are
having the opportunity of initiating private level brands and take control of the backward
integration as well (Schleper, Blome and Wuttke 2017). New entrants are having this opportunity
of targeting the customers by private level brands as well as having less impact of the influence
of the suppliers. This is also attracting new entrants in the Australian supermarket industry.
Threat of substitutes
Threat of substitutes is high in the Australian supermarket industry. This is mainly due to
the presence of number of supermarket brands in the market. In the case study, it is discussed
that existing brands in the market are competing against each other by means of offering
products in lowest cost possible and increasing the customer conveniences (Luttgens and Diener
2016). In addition, it is also identified existing brands are having number of limitations in terms
of product range or conveniences and still earning profits from the market. This denotes that
Australian market is having opportunities provided that newer and distinctive mode of
competitiveness will be initiated. New entrants can still get succeed in the Australian market by
the means of newer competitiveness. For instance, majority of the Australian supermarkets are
operating in the mass market. Hence, newer brands are having the opportunities of operating in
the premium category with less intensity of competition.
Threat of new entrants
In the case study, it is identified that some of the major threats for the new entrants are
the rules and regulations, investment requirement and gaining brand identity. However, in the
case of Australian supermarket industry, entry can be made in small scale also. New entrants can
have their operations limited in a particular region without expanding across the country

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(Schwenger,Straub and Borzillo 2014). This will help them to invest less and gain brand identity
gradually. This condition together with the market growth is attracting the new entrants. On the
other hand, large scale global organizations are not having these difficulties and they can have
countrywide operations and tap the growing market in Australia.
Competitive rivalry
If the new entrants can operate in the premium category, then the intensity of the
competition will be less for them. This is due to the reason that majority of the Australian
supermarket brands are competing with cost leadership. In addition, if new entrants can initiate
newer competitiveness over the existing players, then it will further enable them to compete in
the market effectively.
Question: 3
Currently, Australian supermarket industry is in the maturity stage as per the industry
lifecycle model. This is due to the reason that Australian supermarket industry is having huge
number of small and big brands. The market growth rate of the Australian retail industry is also
depicting the maturity stage of the industry. This is leading to the saturation of the industry with
having minimal potentiality of increasing revenue (Stark 2015). Industry competitiveness gets
reduced in this stage due to the fact that a few companies will be able to survive in the market
with the decreasing growth rate. In addition, the cost based competitiveness will also be reduced
by the existing players due to the fact that probability of attracting new customers is low in the
maturity stage. Thus, in this case, existing players in the market focus more on the product
quality in order to retain their existing customer base. Thus, it can be concluded that competitive
rivalry in the industry will get reduced in the maturity stage as per the industry lifecycle (Horvat

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and Dosen 2013). It is also to be noted that in the maturity stage of the industry lifecycle, product
innovation also get lowered due to the reason that probability of attracting market with newer
products is low.
Question: 4
Both Coles and Woolworths are practicing cost leadership strategies in their business
operation. This is due to the reason that both of these organizations are offering regular price
discounts to attract more customers (Tanwar 2013). In the case study, it is stated that Coles
initiated “Down Down” campaign through which, they have reduced the price of more than 6000
products by an average of 10 percent. This shows that the objective of Coles is to target the
customers over their competitors by means of offering lowest price in the market. On the other
hand, it is also stated in the case study that, Woolworths also initiated a campaign named “price
knockdown” through which, they have also reduced the average price of the products. It is also
reported that this strategy helped Woolworths to increase their sales by more than 4 percent. The
major objective of both the retailers is to increase the customer footfall and traffic and even
offering products below their cost price.
However, on the other hand, it is also identified that differentiation strategy is also being
followed by them. This is due to the reason that in the case study, it is stated that sales revenue of
Woolworths got increased not only for their cost leadership but also for their different store
format (D. Banker, Mashruwala and Tripathy 2014). This denotes that service differentiation
strategy is also being initiated by Woolworths in order to attract more customers. Furthermore, it
is also identified that both the Woolworths and Coles are initiating different technologies to offer

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differentiated services to the customers. Newer technologies are by them are helping them to
offer their products different service quality with having the same core product level.
Question: 5
Entry of Aldi and Costco will not be able to pose significant threat in the short term but in
the long term, they will surely pose threat to Woolworths and Coles. This is due to the reason
that increase in the competitors in the market will lead to reduction in the profitability of the
existing players. In addition, it is already identified that Australian supermarket industry is in the
maturity stage that denotes that probability of increase in new customer acquisitions is less.
Hence, the market share to be gained by Aldi and Costco will reduce the existing market share of
Coles and Woolworths. In the case study, it is reported that both Aldi and Costco have entered
the Australian market even with having a number of barriers of entry. This denotes the capability
of both these brands in competing with the existing players (Luxton, Reid and Mavondo 2015).
Both Aldi and Costco are well established in the global market and they are having the financial
and resources required to compete in the Australian retail market. Point of differences between
these brands is less due to the fact that all these retailers are selling same products of same
brands. Thus, in the short term, Aldi and Costco will not pose threat to Coles and Woolworths
due to their lower brand value and identity in the Australian market but in the long term, they
will be able to pose significant threat once they get the required brand identity. The distinctive
and unique business strategy including the service design will help both Aldi and Costco in
posing threat to Woolworths and Coles.

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