Australian Supermarket and Grocery Store Industry: A Detailed Report

This report provides a comprehensive analysis of the Australian supermarket and grocery store industry. It begins by outlining the major characteristics of the industry, including its concentrated market structure dominated by Woolworths, Coles, Metcash, and Aldi, and the significance of price and c...Read More

Running head: AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
Australian Supermarket and Grocery Store Industry
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1AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
Table of Contents
Major characteristics of Australian Supermarket and Grocery Store Industry..........................2
Market structure of supermarket and grocery industry..............................................................4
Economics and pricing policies in the industry.........................................................................5
Factors determining product pricing of Woolworths.................................................................7
Conclusion................................................................................................................................10
References................................................................................................................................12

2AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
Major characteristics of Australian Supermarket and Grocery Store Industry
Concentrated Market:
The Australian Supermarket and Grocery Store Retail Industry is highly concentrated.
The four largest operators Woolworths, Coles, Metcash and Aldi account for over 80% of
industry revenue of which Woolworths and Coles accounts more that 65% of the industry
revenue and the rest of 20% of the market is shared among the retailers, stores, cafes and
warehouses (insidefmcg.com.au 2018).
Figure 1: Market share of different firms in the supermarket and grocery
industry
(Source: uwj.com.au 2018)
Price and Cost:
The forces of demand and supply in the market, determines the market price of a
given product. In the grocery supermarket of Australia, price is used as an important tool to
compete with the new entrants. Whenever there is an entrant the existing firms reduce their
prices.

3AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
In Australian Supermarket, retailers compete for sales as they get high incentives so
they compete for the maximum amount of sales. If there is threat on volume in a combination
of dynamic market and price sensitivity of consumer then there is aggressive competition on
price (Devin and Richards, 2016).
Cost of production is defined from the cost of input factors like raw materials, labour,
capital, rent, electricity and transport. In the Australian grocery supermarket, input factors
like electricity, labour and rent is high. Due to soaring electricity price the total o production
is high. For Woolworths highest cost is electricity price after rent and wage of the labour.
This is the major reason of increases in the cost of production of the grocery industry.
Demand and Supply:
Demand is an economic principle which means a desire or need of a consumer for
which the consumer is willing to pay a price for a specific goods or service. There is an
increase in demand for gourmet or premium food products in the grocery market among the
consumers. So, there is an increase in price of that food products and the firms are focusing
on the production of that good.
Supply is nothing but the quantity of the product being produced by the seller or firm
to meet the demand of the market. In the specific trend of increasing demand of gourmet, the
firms of Australian grocery supermarket is focusing on the quality of the product to compete
the international brands.
Elasticity of Demand:
Elasticity of demand is defined by the change in quantity due to change in price. If
there is relatively high change in demand due to change in price of the product then the
product is price elastic. If there is relatively less change in demand then product is price
inelastic. The price elasticity of demand for milk is unit elastic and margarine is inelastic.

4AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
That means change in price of milk is ineffective for dairy products. The expenditure
elasticity of Milk, bread, fresh fruit and fresh vegetables is inelastic. That means there is no
change in expenditure for these products due to any change in price.
Market structure of supermarket and grocery industry
The four structures of the market in the economy are:
1. Perfect Competition Market
2. Monopolistic competition Market
3. Monopoly Market
4. Oligopoly Market
The basic difference between oligopoly and other three markets is oligopoly has a few
firms in the market but in perfect competition there is a large number of firms, in monopoly
market there is only one firm and in monopolistic completion market has also too many
firms(Yanagihara and Kunizaki, 2017).
Oligopoly market is market where the number of firms is less and they are in
competition. This competition gives the rise in wide range of product and diverse outcomes.
Firms often collude to reduce the market risk. There is no free entry in the market. There is
perfect information for the producers. One firm’s decision can change the other firm’s
strategy. These are the major features of oligopoly market.
In the Australian Supermarket, there are four firms named Woolworths, Coles,
Metcash and Aldi generating 80% of the market revenue. That means Australian supermarket
is mainly dominated by these four big firms. Woolworths and Coles introduced a huge
number of private label goods to divert the consumers from the discounter Aldi. Woolworths
launched the premium private products in the name of filling the space in its private label
offers and Coles launched Farmland to assist its own goods and groceries and imitated the

5AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
style of packaging and range of global retailer Aldi to give a tough competition (Devin and
Richards 2016). A huge number of diverse products were introduced to compete the firm.
This is nothing but creating barrier to restrict the entry of Aldi. Government always intervene
in the market to assist the domestic firms and helps to earn the profit (Armstrong et al. 2014).
Therefore, the government creates a market barrier by introducing policies. Example of such
policy is “Supermarket Competition Policy”. After a competition with each other in terms of
best offers to the consumers and more private products with quality, Aldi and Woolworth
collude to reduce the market risk and saved themselves from loses. They shared the
technologies and strategies to capture the market again. It is observed that Aldi has best offers
for the customers for which customer of other firms were moving towards Aldi. Aldi’s this
strategy forced other firms to introduce new products, new firms and strategies. Simply, the
less number of firms in the market has impact on each other’s strategies. The firms have
perfect knowledge of their own cost and demand functions. In spite of having the online
platforms the customers have information about prices but don’t have the knowledge of cost,
and product quality.
The above discussion reveals that there is a similarity in oligopoly market and the
Australian Supermarket and the Grocery Store Industry.
Economics and pricing policies in the industry
The competition is intensified for the proper pricing to the consumers in Australian
Supermarket. This is because of transparency of information to the consumers, consumers
demand for high quality of products, access, and services, and too many options for the
consumers. Moreover, Global retailers are trying to have an advantage to affect the
Australian market. Incumbents will always do investment in reaction to the new comers
(Devin and Richards 2016). They will also expand and do innovations to hold their
customers. There will be retailers working with the suppliers to serve the best prices to the

6AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
consumers for their branded products (Pecotich and Shultz, 2016). The Australian grocery
supermarket industry is characterized with some unique features. Consumers are the decision
maker of their own choices and they often switch to the other retailers. Consumers are more
responsive to a given change in price and demand the best value product. In the industry
technology is now playing an important role in increasing the transparency of the prices and
offers to the consumer. With the objective of attracting more and more customers the existing
firms provide new and attractive discount offers. In order to prevent entry and maintain their
market power the incumbent firms are keep on investing and expanding. Retailers always
work with the suppliers and work as an agent to bring the best prices and quality products to
the consumers (Geras’kin and Chkhartishvili 2017). Online retailing is banning the irrelevant
entries and bringing innovation and price pressure. Consumer demand is increasing the online
trading of business. High fixed cost drives the retailers to compete the last consumer wallet.
Australian supermarket is enhanced by technologies and innovations given by the
giant firms and the online retailers (Greenland 2015).
There is no fixed pricing policy on the Australian market rather it can be said that one
firm will not let go their customers to their competitor. For this, they provide the following
things:
Price Discrimination:
Retailers are aware of price discrimination and reacted by setting up a source
centres in the countries where cost is low. They find vendors to supply authentic products,
which are cheap. Retailers supported the suppliers in terms of entering in to the market and
competing the pre-existing firms. This has a huge effect on price.
Lucrative Offers:

7AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
It is easy to switch for consumers between a supermarket and a specialist. The
retailers are challenging the pre-existing firms to innovate so that consumers can expect
something new and something more. This always works for changing the taste of the
consumer and consumers are ready to pay for this.
Online Trading:
Firms provide an online platform from where they can purchase and get information
about latest prices and offers. But online trading increases the competition in lowering the
prices of the products. Customers always choose the cheapest options.
Information:
Online platforms give details of the prices of the products they are selling. This
increases the transparency of price information about a product. Now as there are too many
online retailers, the consumer will chose the cheaper offer from one of the online retailers.
Innovation:
There are technologies, which are improved day by day, which gives the consumers
an amazing ability to compare the prices of products and evaluate available options from the
variety of suppliers. In this special cases internet has also an important impact (Fuenfschilling
and Truffer 2014). The growth of internet allows them to use the online websites for
purchases and analysis of best product and so on.
Except this all, competition in retailers the same customers to increase their
profitability, Entrance of a company in a market brings the competition and their existing
features like bargaining power, technology, test, skills and many more will be the challenge
to the incumbents and this has major impact on price (Wesfarmers.com.au 2018).

8AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
Factors determining product pricing of Woolworths
In the last 5 decades, Australian retail market has been changed from specialization in
delivering groceries, fruits, and vegetables to modern, large-scale retailing with enormous
choices of consumer needs. This has been marked by: price competition which is driven by
retailers’ decisions to offer best price for the best value; rise of modern consumer who shops
at many places over the week, any time of a day even on holidays; and impact of technology
in making barriers to entrance of irrelevant and welcoming innovation(James, 2016).
Woolworths is an Australian company, which was founded in 1924.
Woolworths offers the best value and offer shoppers. This company works with suppliers to
produce the best quality products with the best prices. It has huge customer base. The stores
of this company serve food, liquor, petrol, general merchandise, home improvement, and
hotels. It has Australia’s biggest chain market (Woolworthsgroup.com.au 2018). It improves
its business and maintain the pricing policy by providing the customer services, product
varieties, product qualities with strategic decisions, technology, and innovations. Price has a
major role as competitive factor. It affects and also get affected by the following factors:
Customer Services
Customers go for company which provides better service at better prices. Woolworths
is providing the access from the cities to the remote areas of Australia with their strong
supermarket chain to give confidence to their customers by unbeaten service. It has a mobile
app service, which will give the customers a brief information about the products and prices
in their hands that works as a support of selling at the same price. This gives services like
Click & Collect in Big W, Masters and Dan Murphy’s stores and home delivery. This is
beneficial for the customers in terms of flexibility in transformation of shopping from store to
shopping from home (Larder, Lyons and Woolcock 2014).

9AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
Product Variety
Woolworths introduced a number of products in their list such as, Sweet Solanato
tomatoes, Sweet Crunch Lettuce, and coffee freshly made by a barista. New meat serveries,
bakeries, cheese counters, pizza bars are opened. This options attract customers and they are
charged accordingly.
Product Quality
Product quality has a positive relation with price. Quality Assurance Laboratory
accredited by NATA is the laboratory of Woolworths where foodstuffs are tested and ensured
that the quality food is delivered to the customers (Lesser 2018). This company is first
company who delivered a MSA certified lamb and charges accordingly.
Online Trading
Online businesses are in rapid increase to fulfil the consumer demand. This increases
the importance of online market places. Therefore, the retailers improve their online
offerings. There is a prediction that these online retailers may disrupt the functions of
supermarket. These retailers have no restriction in trading hours (Markarian and Santalo
2014). Mostly Australian customers shop online to get a lower price.
Retailer’s role:
Negotiations between retailers and suppliers give the benefits of falling price to the
consumers. Retailers compete for sales as they get high incentives. The pressure created by
the strong fixed cost leads the retailers to compete for the maximum amount of sales. Now
the volume becomes an important factor in profitability. A slight fall in the volume of sales
will directly affect and reduce the profitability of the retailer. These suppliers almost cover
the demand of the retailers range. In the some specific areas, customers majorly shop online
than shopping in nearest shopping centre or complex (Pecotich and Shultz 2016). Now if

10AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
there is threat on volume in a combination of dynamic market and price sensitivity of
consumer then there will be aggressive competition on price (Devin and Richards, 2016).
The needs of customers are fulfilled by constant changes in the formats, as the
industry of Australian retail is historically dynamic. In this way, the competition is going to
grow and reduce the prices. The business strategy is focused on better access and innovations.
Conclusion
The Woolworths and Coles are two main drivers of the Australian supermarket. These
are the giant firms, which has maximum share of the market revenue. Along this two firms
there are two more big firms called Metcash and Aldi, which gives competition in terms of
offers and technologies to the giant firms so called brands. These two brings the major
reasons of competition in terms of continuous innovation and introduction of various private
products in the market. Aldi’s introduction to the Australian supermarket has a great impact
on the consumers of the market. First, it introduces the global offerings to the market, which
forced Woolworths and Coles to introduce new private products under its brands. Consumers
of the market were benefited by this event as they got products at cheap prices and new
variety of products with quality. The Australian supermarket is an advanced market with
technologies and innovations, which brings the competition among retailers. The necessity of
online retailer is an example of the competition among retailers. Then the firms to provide
access of information regarding offers and prices introduced online retailing. Online retailers
are also a solution for the govt. policy regarding trading hours, which gives the ability to sell
and purchases goods at anytime and anywhere. History of Australian Supermarket also shows
that the competition, innovation, and technologies are important to grow and expand and as a
result, the consumers are directly benefited. Firms like Woolworths and Coles, provides a
huge number of diversified products like from food to liquor, petrol to general merchandise
and from home improvement to hotels. This is nothing but the result of growing structure of

11AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
supermarket, which has competition in product quality, competition in product variety,
competition in pricing policies, competition in reaching to the customers, and competition in
enhancing the service quality to reach the information to the customer.

12AUSTRALIAN SUPERMARKET AND GROCERY STORE INDUSTRY
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