Economics for Business: Coles Supermarket Analysis and Industry Impact

This report provides an economic analysis of Coles supermarket, focusing on its market structure, which is identified as an oligopoly within the Australian retail sector. The analysis delves into the determinants of demand and supply, highlighting factors such as price, income, technological innovations, and the number of sellers. The report also examines the demand elasticity of Coles' products, considering factors like income and substitutes. Furthermore, it assesses the impact of the Amazon launch on the Australian retail industry, detailing how this event has influenced market dynamics, pricing, and consumer behavior, ultimately affecting the demand and supply within the sector. The report concludes by referencing academic sources to support its findings and analysis.

Economics for Business-
Retail company Coles

Table of Contents
2. Analysis of market structure of Coles supermarket.................................................................1
3. Determinants of demand and supply........................................................................................3
4. Demand elasticity of products of Coles supermarket..............................................................5
5. Impact of recent event on the retail industry...........................................................................6
REFERENCES................................................................................................................................7

2. Analysis of market structure of Coles supermarket
Market structure: It can be defined as characteristic of market that affect nature of
pricing and competition. Market structure is the degree of competition available in industry for
products and services that are sold by business entities. There are various types of market
structures such as oligopoly, monopoly, perfect competition and monopolistic competition. In
Australia business entities that are operating under retail sector are using aggressive price
discounting strategies in order capture larger market share. Organisations are collaborating for
the purpose of decreasing competition in supermarkets. In Australia retail sector has oligopoly
structure which means there are only a few firms in the market (Market structure of Coles,
2019). Coles is a part of supermarket industry of Australis hence its market structure is
oligopoly. Price for the products is set according to market influence in order to enhance
profitability under this structure (Ahsan and Rahman, 2016). It lies between pure monopoly and
monopolistic competition where a few number of sellers dominate the market and take control
over price of goods and services. Interdependency is the main characteristic of such type of
structure in which firm formulate decisions by taking potential reaction of closet rivals in to
consideration. Coles in oligopoly market structure because there are few players in retail sector
of Australia which results in intense competition. If one action is taking by its rival then it can
affect sales and profits of the organisation, so it keeps eye on all the activities of other companies
that are operating under same sector. This situation takes place due to lack of uniformity among
the firms in the form of size. Advertising is done on intense basis by Coles and its competitor
such as Woolworths in order to reach maximum number of clients which results in intense
competitive rivalry in the industry. A company with oligopoly market structure does not spend
funds on advertising or promotional activities then customers get attracted towards other players
in market. Thus, it is vital for all enterprises to take initiatives in such type of activities in order
to remain competitive in the market.
Major players in the industry are Coles and Woolworths that are mainly from Australia
and there are some other companies that are giving tough competition to them. These are Costco
of United States and Aldi from Germany. Both the foreign companies are expanding business in
in Australia aggressively. Homogeneous or differentiated products are sold by such type of
organisations which are operating business under oligopoly market (Havinga, 2015).
Statistics of major players:
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Illustration 1: Share of supermarkets in Australia, 2017
(Source: Share of supermarkets in Australia, 2017)
The above image shows market share of supermarket which is captured by different
companies. Coles is holding around 34%, Woolworths has captured higher share of Australian
market which is 42%, ALDI and Costco are holding 9% and 2% share of supermarket of
Australia respectively (Share of supermarkets in Australia. 2017).
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Illustration 2: Shoppers of supermarket, 2018
(Source: Shoppers of supermarket, 2018)
The above statistic shows that average grocery buyer have been increased by 3% in year
2018 as compare to previous year, now it has increased up to 31%. Number of Coles's shoppers
has been also increased in 2018 up to 34% from 31%. Shoppers of Woolworths has also
increased by 4% in 2018 as compare to 2017. Aldi's Shoppers are increased by 1% in 2018 and
reached up to 26%. Number of IGA shoppers is decreased by 1% in 2018 (Shoppers of
supermarket, 2018).
3. Determinants of demand and supply
Economic growth is driven by demand and supply of goods and services. There are
various types of determinants of both these elements that can influence Coles. In order to operate
business in appropriate manner it is very important for the organisation to focus on all of them so
that appropriate strategies can be formulated to deal with negative impact of them (Jary and
Wileman, 2016).
Determinants of demand: All the business entities are willing to increase demand of
products and services in order to enhance profitability. Coles focus of the drivers that can help it
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to raise requirements of its goods (Determinants of demand, 2019). All of them are described
below:
 Price of products: According to law of demand if organisations in creases price of the
products then their demand get reduced and in opposite situation when price falls demand
will grow. Purchasing decisions of clients depends upon price if they analyse that a
business entity is charging high amount for a products which is sold by other enterprise
on low price then they will switch to other. In order to resolve this issue it is very
important for Coles to focus on price of its products so that customer can be retained for
along period. Buyer use parameters which can depict rate of items that are bought by
them while they are planning to buy a particular item. It can influence products of
company because if managers are not able to set appropriate price according to market
conditions then it can result in decreased demand and sales (Kijakazi, 2014).
 Income of buyers: As the income of consumers increases it results in rise in the demand
of goods and services but it their income level get decreased then consumption level of
products and their demand get low. It can influence products of Coles because if
customers income is decreased then they will also utilise small number of products and
enhancement in income can result in increased demand of products. In order to reduce
negative impact of this situation the managers can analyse economic conditions and
gather information of inflation and deflation rates in advance. It can help to set
appropriate price for goods that can match the income level of consumers (Morikawa,
2016).
Determinants of supply: Some of the drivers that can affect supply of business entities
and it is vital for organisations to focus on all of them so that higher profits can be generated.
These are described below:
 Innovation of technology: Modification in technology and new innovations helps
organisations to deliver qualitative goods to the customers on time. State of new
technique can result in increased or decreased supply of products and services that are
sold by companies. It is vital for Coles to focus on this determinant of supply in order to
igonre risk of decreased supply of goods because new technology helps to reduce time
and increase productivity (Price, Bailey and Pyman, 2014).
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 Number of sellers in market: If there are end number of sellers in market then it can
result in decreased supply of products because when buyers have so many choices then
the compare price and then select one. It is very important for Coles to focus on this
determinant because it can influence its products negatively. If organisation is having
appropriate information of all the sellers then effective pricing strategies could be
adopted to attract customers and enhance supply (Smith, Hair Jr and Ferguson, 2014).
4. Demand elasticity of products of Coles supermarket
Demand elasticity: A slight change in the price of a products can affect quantity
demanded by customers. Elasticity of demand can be identified by comparing percentage of
changes in price and products required by customers. In other words it can be defined as the
responsiveness of quantity demanded of a product to changes on different variables on which
demand is dependent. In economics it is calculated by applying following formula:
Formula: Percentage changed in demand of products/ percentage changed in price
Demand depends upon various types of variables. These are price of products or services,
income of customers and price of related goods. Products and services that are offered by Coles
are elastic because economists of the company focuses upon all the elements that can affect its
demand. Decisions regarding pricing are formulated by focusing on price of other companies that
are operating business under retail sector. Economic factors such as inflation, deflation, taxation
rates etc. are taken in to consideration by managers while formulating strategies to set
appropriate price because all of them affect income level.
Price for goods that are sold by Coles are set according to market conditions as
organisation is willing to reduce risk of losses which can take place when price of Coles's
products is higher then other companies. There are different types of factors such as nature of
goods, substitutes, price, income of customers, number of uses, customer habits etc. that can
affect elasticity of products. Two of them which can affect elasticity of Coles's products are as
follows:
 Income of clients: Elasticity of demand of Coles's products can be affected due to
change in income of customers because quantity demanded by them depends upon
monetary resources that could be spent by them on purchase of goods. It can directly
influence demand of Coles if managers are not aware of such changes then they will set
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price according to previous situation which can result in decreased sales (Factors
affecting elasticity of demand, 2019).
 Substitutes: There are various organisations that are selling substitutes of Coles and it
can influence elasticity of demand of its products because if there are end number of
substitutes then customers will select that one which is available for low price. Such
items make demand sensitive and results in modification in prices.
5. Impact of recent event on the retail industry
Retailers in Australia are facing issues due to Amazon which was launched on 23
November 2017. The official announcement from the side of Amazon was made in April 2017.
This event is known as Amazon Lunch. When local retailer get to know about this situation they
started plan for introducing premium stores in order to reduce its negative impact on business.
There are various brands that have registered themselves on Amazon (Recent event that has
substantial impact upon retail sector, 2017).
This event has started to leave substantial impact upon retail sector of Australia because
customers are switching to it from the supermarkets as they think that they can get better deals at
such type of medium. Market demand and supply of retail sector get affected due to various
reasons. One of them is that free delivery over the order of 49 dollars is provided by the new
retailer and one day delivery service is also provided by the organisation in some of the selected
areas. It was the great opportunity for Australian citizens to access benefits such as prime
shipping. After this event in retail sector demand and supply is increased but for supermarkets
such as Coles, Woolworths, ALDI etc. demand is decreased because customers are getting
attracted towards Amazon where they get all types of items under one roof (Zarkada-Fraser and
Fraser, 2015).
Market price has also affected due to this event because Amazon is a new company so it
is offering discounts to customers so other organisation in retail sector started to change their
price accordingly in order to remain competitive in the market. Launch of a new retail online
store has resulted in massive increment in quantity demanded because the price of its products is
low as compare to other business entities that are already operating business under this sector.
Supermarkets can also get affected due to this in future because now it is executing its business
activities successfully in Australia and other companies are required to form such strategies that
can help them to deal with competition appropriately.
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REFERENCES
Books and Journals:
Ahsan, K. and Rahman, S., 2016. An investigation into critical service determinants of customer
to business (C2B) type product returns in retail firms. International Journal of Physical
Distribution & Logistics Management. 46(6/7). pp.606-633.
Havinga, T., 2015. Retail driven food safety regulation. In Food safety, market organization,
trade and development (pp. 59-76). Springer, Cham.
Jary, M. and Wileman, A., 2016. Retail Power Plays: From Trading to Brand Leadership.
Springer.
Kijakazi, K., 2014. African American Economic Development and Small Business Ownership.
Routledge.
Morikawa, M., 2016. What types of companies have female directors? Evidence from
Japan. Japan and the World Economy. 37. pp.1-7.
Price, R., Bailey, J. and Pyman, A., 2014. Varieties of collaboration: the case of an Australian
retail union. The International Journal of Human Resource Management. 25(6). pp.748-
761.
Smith, D., Hair Jr, J. F. and Ferguson, K., 2014. An investigation of the effect of family
influence on Commitment–Trust in retailer–vendor strategic partnerships. Journal of
Family Business Strategy. 5(3). pp.252-263.
Zarkada-Fraser, A. and Fraser, C., 2015. Integrating social and economic orientated marketing: A
study of retail management. In Proceedings of the 2000 Academy of Marketing Science
(AMS) Annual Conference (pp. 219-223). Springer, Cham.
Online
Market structure of Coles. 2019. [Online]. Available through:
<https://www.smh.com.au/national/nsw/coles-reviewing-law-of-supply-and-demands-
20140506-zr5k1.html>
Share of supermarkets in Australia. 2017. [Online]. Available through:
<https://www.theaustralian.com.au/subscribe/news/1/?
sourceCode=TAWEB_WRE170_a_GGL&dest=https%3A%2F
%2Fwww.theaustralian.com.au%2Fbusiness%2Fcompanies%2Fcostcos-16bn-year-
underscores-threat-to-woolies-and-coles%2Fnews-story
%2Fbc92967572532190dd8a7623961bcd3f&memtype=anonymous&mode=premium>
Shoppers of supermarket. 2018. [Online]. Available through:
<http://www.roymorgan.com/findings/7911-australian-online-grocery-shopping-march-
2019-201903220623>
Determinants of demand. 2019. [Online]. Available through:
<https://www.thebalance.com/five-determinants-of-demand-with-examples-and-
formula-3305706>
Factors affecting elasticity of demand. 2019. [Online]. Available through:
<https://www.intelligenteconomist.com/price-elasticity-of-demand/>
Recent event that has substantial impact upon retail sector. 2017. [Online]. Available through:
<https://mashable.com/2017/12/04/amazon-australia-launch/>
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