Economics for Business: Analysis of Woolworths' Market Dynamics

This report, prepared for the HI5003 Economics for Business course, analyzes the economic factors affecting Woolworths Limited within the Australian retail market. It begins with an executive summary and an introduction to the company, outlining its industry background and market structure, which is identified as an oligopoly dominated by Woolworths and Coles. The report then delves into a market analysis of Woolworths, exploring the determinants of demand and supply, including factors like consumer income, competition, technology, and climate. Demand elasticity is discussed, along with an examination of events impacting the industry. The analysis covers how economic principles such as supply and demand, market structure, and competition affect the company's performance and strategic decision-making. The report concludes with a summary of the key findings and their implications for the business.

Running head: Economics for Business 1
Economics for Business
Student’s Name
University
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Date

Economics for Business 2
Executive Summary
In this report, has identified and explained how the economic factors like demand and
supply affect the business operation in the market. All this is carried out considering Woolworth
Company limited as the selected organization in the Australian market. This organization falls
under the retailing industry which it's market structure has identified, the influence of demand
and supply factors, demand elasticity and another event which is currently affecting the demand
and supply in the industry.

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Table of Contents
Introduction..........................................................................................................................................3
Introduction to the company................................................................................................................4
Industry Background............................................................................................................................4
Market structure...................................................................................................................................5
Market Analysis of the Woolworths Limited.......................................................................................6
Determinants of demand.......................................................................................................................7
Determinants of Supply........................................................................................................................9
Demand elasticity................................................................................................................................10
Factors affecting elasticity of a demand.............................................................................................11
The event which has a substantial impact on the industry.................................................................11
Conclusion...........................................................................................................................................13

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Introduction
The economy of a business into a country is significant to be considered as the main
factor for the company growth in the selected industry. Knowing the economics helps the
organization to study the market structure with the industry, the demand, and supply factor which
affects the organization product and enabling the organization to set up viable strategies which
will help to grow in future. Government has control over the country's economy since it is the
only the body which controls the monetary system and without money no economy and no
business for survival (Manninen, Koskela and Aminoff, 2018). If all the factors of the economy
are favorable to the company as required, always it results in the growth of the company to the
extent of reaching a level of international trade. If the economy is unfavorable the business will
not grow rather it decease existing in the economy of a country. In studying the economics of a
business is useful to evaluate and analyze the micro-economic and macro-economic environment
of a business. This study will help the company to survive in the market (Larsson, 2018).
Introduction to the company
Every company in the economy belongs to the specific industry. In this report,
Woolworth’s Pvt Ltd will become the company under the study. This is a business group which
is mainly located in Australia operating under Woolworth's trademark. This group of business
has several segments of operation under the retailing industry like supermarkets and hospitality
services which offered through hotel and restaurants. The Company started its process 95 years
ago since it raised the initial capital in the year of 1924. In the Year of 1924, the company was
under the control of the following founders, Percy Christmas, Cecil Waine, Creed George, and
Williams Ernest. The headquarters of the company is located in Australia, New South Wales at
Bella Vista. The company is recognized as a public limited company under the retailing industry.

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In the year 2018, the company had 205,000 employees in the workplace means it plays a
significant role in maintaining the economy of the country (Kahn, Inman and Verhoef, 2018).
The company is growing at a higher rate in the economy of Australia under Mr. Brad Leon who
is acting as a Chief Executive Officer and Managing Director of the company.
Industry Background
Woolworths Limited is a company which is under the retailing industry. This industry
helps to fill the gap between the producer and consumer in the country thus providing products at
a reliable time and convenient time in the market. This industry is amongst the growing sector in
Australia thus improving the economy of the country. This is a very competitive industry in
Australia because Woolworth limited is willing to close thirty stores and two big distribution
channels in the region of South Australia (Perey, Benn, Agarwal and Edwards, 2018). This is
targeted to be accomplished in the next three years after waiting to analyze 2019 supermarket
profit output which is roughly $371 million. The reason for this stiff competition in the industry
is because of new technology and innovation which is emerging and resulting in online retailing.
This industry has almost 140,000 business which is under the category of retail
companies in Australia. This accounts for 4.1% of the country's Gross Domestic Product (GDP)
of employment. The population of 1.2 million which presents 10.8% of the Australians is
working this industry thus holding large sector the economy. The online trading in this industry
is resulting to 6% of the total sales in the Australian outlets building up 4% of the domestic sales
which is equivalent to $8.5 billion and from foreign is $4.3 billion. Compared to other countries
this shows that the industry is growing at a higher rate in the coming years of the economy
(Chenxi, Mitra and Fang, 2018).

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Market structure
For the industry to exist stable in the market is required to have a particular arrangement
which is known as a market structure. This means the building elements and the features of the
market in the industry. Some characteristics like the nature of the market and its competition,
price of the products, share of the market, number of the corporations, costs and buyers’ life and
other factors will be considered in defining the market structure (Hänninen, Smedlund and
Mitronen, 2018).
Woolworth as the supermarket in Australia it operates as an oligopoly in the market since
it consists of two retail supermarkets which dominate the market, these are Woolworth limited
and Coles. The other reasons include: one, the business have powers to set and control the price
of the product in the market because their product is differentiated compared with other
supermarkets. Two, Woolworth and Coles are giants thus having a strong stand in the market,
therefore, creating some barriers in penetrating the market (Geissdoerfer, Morioka, de Carvalho
and Evans, 2018). Finally, the product which is available in the supermarket is dissimilar from
others in the retail shop in the market.
The leader in the market is Woolworth in the industry since it covers a significant share
in the market by 38% in the sector of Food and Liquor. Woolworth is followed by Coles and
Metcash which possessed 27% and 20% respectively using the statistics of 2015 to 2017.
Market Analysis of the Woolworths Limited
Woolworths Company is amongst the retail business in the industry of Retail in Australia.
The industry has almost a thousands of companies which are operating in the economy.
Woolworth being amongst the biggest companies in this industry is operating as an oligopoly

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therefore, controlling 36.3% of the market shares compared to the rest. Having a biggest share in
the market it means that the Woolworth Company is contributing a lot to the economy of
Australia. In the economy Woolworth Company produces $54 billion which is equivalent to the
4.1% of GDP of the country’s economy. For analysis in the market, show that the company is
progressively growing thus inserting a lot of competition in the market (Parkinson, 2018.). The
following figure it shows a clear picture on the whole market is under control of Woolworth
Company in the industry.
Source: Woolworth’s Market Analysis (2019).
Determinants of demand
The price of the product in the market is determinant by the several factors which
influence the need and the supply of the product in the economy. The demand for the product is
determined mainly by the consumer who is willing and able to buy the product available in the
market at a particular price. These determinants are the one which influences the cost of the

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product and the ability of the consumer to acquire the product. Some of these factors are constant
while others are variable depending on whether they will influence negative or positive the
supply or the demand of the product in the market. Also, some internal and external economic
factors within and outside the organization affect the demand and supply of the product in the
market economy. These are primary factors to be considered while for a company like
Woolworth in making a market decision and planning for future strategies in the marketplace.
The following are some of the factors which make the curve to shift in the demand level rather
than price factor: income, consumer preferences, buyers’ population, and price of the goods
which are related, market competition, future price expectation among others (Hosken, Olson
and Smith, 2018). In this report two factors are selected to be discussed concerning the product
Woolworth supermarket limited; these are the income of the buyers and the competition in the
industry market. These factors are considered when the price factor is held constant.
Buyers’ income. The value of income in Australia always varies according to the change
of the country’s economy, therefore affecting the demand curve. If the consumer income
increases due to the high value of the money, also the demand for the food and grocery products
in the Woolworth supermarket it will increase. The reason is that the consumers can buy at any
set price, thus pushing the curve of demand to shift to the right side. This period the company
makes a lot of profit due to high sales made. On the other hand, if the value of the income
becomes low the income decreases in the pocket of consumers thus becoming unwilling to buy a
large amount. This affects the supermarket sales since the demand is at a low level, therefore
pushing the curve to shift on the left side (Paramati and Zakari, 2018).
Competition in the market. Woolworth product is being affected a lot by the
competition in the market, thus influencing the demand for the products. The entry of ALDI

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supermarket in the industry has changed a lot the demand of the retail products since of their
low-cost price of the product. This has decreased the demand for the product (grocery) from the
Woolworth supermarket thus lowering their sales output. To increase the demand of the product,
the Woolworth is required to consider on how to deal with competition level in the market like
getting cheaper producers of the grocery which they will supply in the market with reasonable
price which favorable to the consumers.
Determinants of Supply
Supply of the product in markets determines a lot in the circulation of the product in the
economy. Not only consumers who are affected by economic determinants of the product supply
but also the suppliers in the marketplace are in. These supply determinants are influencers of
how the supplier will produce the product in the market willingly and able concerning the price
and cost of production in the market economy (Fedoseeva and Zeidan, 2018). Other factors are
varying depending on the market situation thus acting as the determinant of supply also. In this
study, Woolworth limited will be considered as the leading supplier of the products in the
market. Woolworth group limited in real sense will be willing and able to produce and supply
large quantities when the price of the product is high compared to the low price season. These
factors which influence supply includes the amount of the resources, technology, subsidies and
taxes, cost of the related products, expectations, suppliers’ population in the market, and climate
element. These factors are considered when the price factor is held constant in all situation.
Technology and climate element will two chosen factors which will be discussed in this report.
Technology. This is a way of performing the business activities in the market using
current innovation and creativity skills of technology. In this industry have innovated a lot in
online retailing thus affecting the supply gear in the market. If Woolworth accepts and exploits

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the use of technology in the market, it will improve the supply in the economy since more sales
will be made in both online and local outlets. Failure to embrace the use of online retailing (new
technology in the market) Woolworth products will remain constant or in reducing gear in the
market thus being discouraged from producing more (Ding and Yan, 2019).
Climate element. This factor considers the weather condition in the country. Woolworth
and other supermarkets in the country depends a lot in the Agriculture product like grocery.
Adverse weather condition like sunny and dry periods will affect the production of grocery
negatively thus creating the shortage of the product in the market. This always affects the curve
of supply to shift negatively. On the other side, when the weather condition is favorable like
having enough rain and rest of situation in the farm are beneficial, they will encourage and
increase supply in the market thus increasing the sales volume. The main product of the
Woolworth depends more on weather condition.
Demand elasticity
Demand elasticity always affects the demand for the product in the market due to some
economic factors. Therefore, the elasticity of demand can be defined as the change in demand
towards the product due to the variation of another change in an economic factor. This can be
expressed as the effect which influences the price of the product because of another response
from another product price in the market, thus cautioning the business like Woolworth from
increasing the cost of products. Demand elasticity which occurs to be more than one can be
expressed as elastic while which is less than one is shown as inelastic (Cherbonnier and Gollier,
2018). All these effects influence the demand for the product in the economy.

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The product in Woolworth is inelastic demand since the main product is grocery which
has no alternative in the market. This means the customer will be demanding to buy the grocery
every time using the same quantity from the market regardless of the price change. Increase or
decrease of the price in the market will not affect the demand of grocery; thus being encouraged
to be consumed regularly.
Factors affecting elasticity of a demand
Demand elasticity is being affected by many factors which result in the change of the
product price. These factors may include the level of income, price, and availability of the
substitute among others. Demand elasticity of the Woolworth product is being affected mostly by
the price and the availability of replacement in the market (Gostkowski, 2018).
The price factor in the market has influenced this elasticity of demand because they are a
new existing supermarket arising in the market. This retail is ALDI supermarket which offers
their products (grocery) at a lower price due to their low production cost direct from the local
farmers. This competition pushes the change of price thus affecting the elasticity of the product
demand in the market.
Substitute product in the market. In the retail industry, the grocery outlet is limited to
the oligopoly market which is dominated by the Woolworth and Cole supermarkets. In the usage
of the grocery no other alternative in its primary usage thus forcing the consumer to buy them
regularly regardless of the price changes (James, Bowrey and Aston‐Jones, 2018).
The event which has a substantial impact on the industry
Activity are the factors which will affect whether negatively or positively the demand and
supply of the retail product in the market. The existence of new technology has always

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influenced many industries in the country including the retail sector. The presence of e-
commerce and online retailing shopping has changed a lot the demand and supply of the product
in the market, thus becoming more projecting. In Australia, this online marketing and sales have
been growing at a high rate since in the past three years it has grown with a scale of 5%. This has
been enhanced by the availability of internet access gadgets like phones and others which
increases the stimulation of online buying and selling. In this retail industry, they are no specific
product which carried online but the variety of products like DVDs, music which are digital,
computer hardware and software, electronic books, clothes and shoes, cosmetics and perfumes,
electronic equipment and not forgetting the agriculture products like grocery.
This event of e-commerce and online retailing has a significant impact on both the supply
and demand of the product. The market analysis has identified that the demand for online
shopping has increased at a higher rate compared to the domestic transactions as per 2015
statistics of about 12 months of operation (Sohaib, Kang and Nurunnabi, 2018). The figure
below describes more on how retail events have been performed when comparing domestic and
overseas retail businesses.

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Source: Economic Structure and Performance of the Australian Retail Industry. Online
retailing, 2015.
As the demand increase in the market through online purchase also the supply increases to
satisfy the market needs accordingly.
On the other hand, this event of online shopping has experienced challenges thus
discouraging the level of supply through online retailing. The following are the reasons which
have lowered the quantity in other areas in the market, this is due to willing to support local
industries, lack of trust, low and lack of product to sell online, it consumes a lot of time in
delivering the product after receiving the orders from the customer and in case of the good
complication is very hard to return it to the producer thus discouraging the supply.

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The price of the product and the quantity has also been affected in the market by this
event of e-commerce. With time the existence of e-commerce in the industry has improved at a
more excellent range thus increasing the variety of products in the market at a lower price
(Zhang, Ji and Fan, 2018). Due to mass competition in the sector and importing the products
which are unavailable locally, has resulted in low rates of products thus increasing the demand.
Conclusion
In summary, this report has outlined the economic factors which is influencing the
Woolworth supermarket as a company in the retailing Industry. The market analysis has outlined
how the Company has been utilizing the chances within the industry through demand and supply
determinants. Demand elasticity is another factor which is affecting the industry in all sectors of
retailing business. In the industry, to contribute more to the economy of the country, there is
upcoming events which are involving online retailing and has advantage of the company in
expanding locally and internationally. Woolworth Company is also embracing the online
retailing in the industry.

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