Strategic Analysis of Woolworths: Recommendations for Growth

This report provides a comprehensive strategic analysis of Woolworths Group, a major retail company in Australia and New Zealand. It begins with an executive summary and introduction, defining strategic management and outlining the report's objectives. The report evaluates Woolworths' external environment using Porter's Five Forces and PESTEL analysis, assessing factors like the threat of new entrants, supplier power, buyer power, substitute threats, and competitive rivalry, as well as technological, political, economic, social, and legal influences. Internal analysis includes a value chain analysis, identifying core competencies such as efficient supply chain management and product branding. The report then analyzes Woolworths' competitive advantages and formulates strategic choices, considering its mission, vision, and objectives. It recommends a differentiation strategy to enhance its competitive edge, particularly given the high threat of new entrants and the importance of innovation in the retail supermarket industry. The report concludes with recommendations and emphasizes the benefits of differentiation in attracting customers seeking new and advanced products and services. The report is a valuable resource for understanding Woolworths' strategic position and potential growth strategies.

EXECUTIVE SUMMARY
Strategy can be defined as formulation, application and evaluation of the cross functional
decisions related to a business for achieving its mission, vision and objectives. Strategic
management thus could be defined as a continuous procedure of planning, analyzing, monitoring
and evaluating all factors that are essential for a firm to attain its overall objectives. Woolworths
is one of the renowned chain of supermarkets that deals in liquor, petrol, home furnishing and
general merchandise. The purpose of this report is study the strategic options of Woolworths to
provide some other alternative strategic choices which they can adopt and lastly to recommend
strategies to enhance its competencies to gain edge over rivals. Besides, it is an attempt to
identify forces and processes that greatly impacts firms decision making while adopting any
business strategy. Moreover, report will give synopsis of key risks that are associated with
implementing organizational strategies.
INTRODUCTION
Strategic management could be explained as the course of actions that are taken by a firm
concerning its business environment and designing strategies to adapt the changes occurring in
market dynamics. Woolworths Group is the second largest retail company by revenue in
Australia and New Zealand. It was established in 1924 with its headquarters in Bella Vista, New
South Wales ("About Us - Woolworths Group", 2018). The report will discuss and evaluate
aims, objectives of strategic plan in reference to mission and vision of the firm. It will also
explain the significance of identifying growth opportunities. Further, a strategic plan will also be
discussed in the report. Woolworth group has operate different business such as liquor retailing
(as BWS and Dan Murphy's in Australia), pubs and hotels under the Hospitality Group and
Australian Leisure (ALH Group) umbrella, and discount division stores under the large W name
in Australia.
EVALUATING THE ORGANISATION’S ENVIRONMENT
While preparing and making strategic choices Woolworths take into consideration the
probable future environmental changes that is encountered both internally and externally. The
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forces that significantly affect the management decision making process of Woolworths Group
market environment is mentioned below:
External Analysis
Porter's Five Force Model: This model describes five basic competent forces that are structural
determinants for knowing the intensity of competition in market. This assists Woolworths to
attain position that is more profitable and less prone to risks and market adversities.
 Threat of New Entrants: Threat of the new entrants is low due to which chances of sustaining
business in competitive market are more (Clarke, 2012). New entrants in food and staples
retail industry brings innovate ways of things that exerts immense pressure on Woolworths to
adopt low pricing strategy, lower down its costs and to provide value addition to its
consumers. Moreover, relationship of present big firms with suppliers and need to establish
its own distribution centre by new entrants posses barrier for firm.
 Bargaining Power of Suppliers: In this suppliers bargaining power is high. The bargaining
power of the supplier in an retail industry impacts the competitive environment as well as
profit potential of the purchase (Cohen and Roussel, 2013). The buyers are the business and
the suppliers are those who supply the business.
 Bargaining Power of Buyers: Supermarkets in Australia generally offer almost same
products which give high bargaining power to buyers as cost of switching from one brand to
another is low. Therefore, it put Woolworths into immense pressure to provide its customers
with discounts and various offers to retain their loyalty (Cohen and Roussel, 2013). As the
bargaining power of buyers are high company can deal with this situation by building up
huge market share and customer base.
 Threats of Substitutes: With availability of number of options for customers like grocery,
stores, convenience stores, fresh food markets where in they are ready to pay high for their
comfort. Threat from substitute is moderate to high for Woolworths. To handle this company
can shift its focus from product to service orientation and can plan out strategies to increase
its switching cost for customers. Their competitor Coles also give the rewind price scheme
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for clients. To reason out, there is a high threat for Woolworths’ companies in form of
substitute products and services.
 Rivalry among competitors: The competition level in supermarket industry is quiet high and
intense. Therefore, it impacts profitability of Woolworths Group as they have to lower down
price of its products (Grant and et., al., 2014). To deal with this situation and to maintain its
profits Woolworths should work towards differentiating its products by adding on innovation
and new features in them. Besides, Woolworths could collaborate with other market leaders
to enhance its market share.
PESTEL Analysis
 Technological Factors: Woolworths Group being supporter of innovation and change was
among the first major retail supermarket brand to subscribe to GEMMnet (Global Electronic
Marketing & Merchandising Network) in 1994. Woolworths spends considerable amount on
its R&D and IT division for improving and enhancing its distribution and supply chain
systems. With emerging digitalization trends Woolworths has also introduced its online
shopping portals and developed its website to make it easy for its customers to purchase
easily and in cost effective manner.
 Political/Legal Environment: Woolworths Group is greatly impacted by the various
legislations that are imposed by government on supermarket industry. Firms operation is a
subject to be monitored and regulated by Australian Competition and Consumer Commission
and is mandatory to follow rules and regulation under Trade Practice Act, Foreign investment
Review Board and other laws (Barney, 2017 ).
Internal Analysis
Value Chain Analysis: Woolworths Group has various value creating activities within its
business:
 Inbound Logistics: Woolworths Group has its own distribution centre that benefits firm to
supply its products in bulk. It decreases its cost price and to provide discounts to suppliers.
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 Operations: Woolworths Group directly purchases fruits, vegetables from the farmers in
bulk. This benefits company to procure fresh items at lower cost (Cavallo, Ferrari, Bollani
and Coccia, 2014).
 Outbound logistics: Woolworths Group applies efficient quality management systems ensure
the freshness, safety and quality of its products.
 Marketing & Sales: Woolworths Group makes use of intensive marketing and sales
promotion mediums comprising print media, electronic media and online media to make its
customers aware about its new products, offers and discounts.
 Customer Service: Woolworths Group strives to work for providing customers satisfaction
and delight them with its services (Michael, Storey and Thomas, 2017). For which company
implies various latest technologies like trolley mounted scanner that helps in reducing the
waiting time of them as it provides detailed information about product price, location along
with specific special offers on it.
Core Competency: The core competencies of Woolworths Group lie in its:
 Efficient Supply Chain Management: Woolworths' core competitiveness is obtained from its
effect supply chain management that puts efficiency and cost reduction as its priority. This
assists firm in introduction innovation and to gain edge over rivals by chalk out the irrelevant
expenses (Michael, Storey and Thomas, 2017).
 Product branding and market: Woolworths Group positions its brands as high quality and
healthy range products at affordable prices.
 Innovation: Woolworths keeps on introducing new projects like re-fresh in its food products,
new idea program in its petrol retailing and many more to be figurehead in introducing
innovation in market (Guerras-Martín, Madhok and Montoro-Sánchez, 2014)
ANALYSIS OF COMPETITIVE ADVANTAGE
Woolworths key competencies lies in its wide range of qualitative products and services
that is available at competitive prices in relation to its rivals. In addition, firm maintains a world
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class supply chain management system that give the benefit of introducing innovative products
and advance technology to build reputation of company as healthy and qualitative brand. As in
retail supermarket rivalry among existing competitors is quiet high, it becomes critically
important for Woolworths Group to introduce new features in its existing products or launch new
products so that customer can easily distinguish its product from that of other substitutes
available in the market (Jenkins and Williamson, 2015 ).
STRATEGY FORMULATION AND CHOICE
Woolworths Group is one of the largest retail companies that deal in a wide variety of
products comprising groceries and non specialized food like vegetables, fresh fruits, canned
goods, toiletries, dairy goods, pastries (SMorden, 2016). It is one of the major contributors in the
Australian economy as it provides huge employment opportunities and acquires about 31%
market share. It has around 3200 stores that are managed by a team of around 205,000 proficient
professionals.
Vision: “To be one of the world’s most responsible retailers.” It reflects firms passionate
commitment to do good business for its consumers, people and planet (Hill, Jones and Schilling,
2014).
Goal: The objective of Woolworths is to gain competitive advantage over its business rivals by
enhancing its sales volume by 10% till December 2019.
Initiatives:
Cost leadership Strategy: This strategy is mainly related to the driving cost out of the value chain
that helps in lower down the cost. It involves gaining competitive edge over business rivals by
offering products at lower prices in comparison to substitutes available so that more customers
could be attracted. Adopting this strategy Woolworths is to lower down its operating costs in
context to its leading contenders like Coles and Aldi. This assist firm to gain large market share
by offering quality products at low price.
Differentiation Strategy: This approach leads to developing and introducing innovative and
unique products or service that has not yet been offered by its competitors. By adopting this
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strategies Woolworths Group can launch a distinctive product, service or make use of latest
technology that will enable firm to be figurehead in the retail supermarket industry and thus will
lead firm to be way ahead its competitors.
Both strategies are just contradictory to each other. Cost leadership involves getting
advantage by providing goods and services to target audience at lowest prices in comparison
while differentiation strategy involves providing innovative and exclusive product and service
that is most advances in its nature. Cost leadership is beneficial for company as it helps in
diversification of market share by attracting large number of customers. On the other hand, the
advantage of differentiation strategy helps in catering the needs of potential customers who seeks
innovation and expected certain new features, characteristics and usage every time they purchase
a product. In present scenario where company strives to achieve 10% increase in its sales volume
company can choose of differentiation strategy (Hill, Jones and Schilling, 2015).
RECOMMENDATIONS AND CONCLUSIONS
From the below statistics it can be seen that Coles is the next biggest competitor of
Woolworth who acquires considerable market share. Thus, there are certain recommendation that
could be adopted by Woolworth in order to enhance its lead and to capture market share that is
been acquired by its two leading rivals Coles and IGA.
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In reference to Woolworths Group objective that is to gain competitive edge over its
rivals by increasing its sales, the most suitable strategy as my recommendation which could be
implemented by company is differentiation strategy. There are certain prominent reasons behind
adopting this strategy over cost. Starting from industry point of view, as retail supermarket
industry is subject to high threat of new entrants; adopting differentiation strategy will be more
suitable as it involves heavy investment to adopt new technology which is not profitable for new
firms as already there is high cost incurred in starting up a business (Pearce and Robinson, 2013).
Moreover, to get a lead over competitors, I suggest lowering down price and profits which is
subject to minimum level beyond which company could not reduce its price. However, there are
still remains chances of customers to switch over to other brands as products are homogeneous in
nature. However, opting for differentiation strategy will lead a firm to produce or introduce new
technology, product or service that in any case will attract the customer’s attention who wants to
try something new, better and advance. Besides, with increasing trend of digitalization, where
customers are making use of their mobile phones for carrying out their routine tasks like
payment of bills, making purchase so it is more profitable for firm to opt of making use of new
technology in its operations that will make its products and services different from that of its
rivals. Lastly, by providing distinctive and exclusive products company could easily justify its
high price level for which customer will become ready to pay as they will have value added in
the products that they are using. It will also capture attention of high income group customers
who are status sensitive rather than price and like to use expensive goods and services to
maintain their status (Jenkins and Williamson, 2015).
On the other hand, there a certain critique side attached to this strategy. In my opinion, opting for
differentiation strategy will involve firm to incur high expenditure on its R&D department, IT
department who are required to do an intensive in-depth research for producing an innovative
product or adopting latest technology. In case company opt for launching new techniques of ICT
which involves use latest gadgets like trolley mounted scanner, lifestyle marketing, online
personalization CRM system; all of which requires high proficient individuals who can
understand and handle the new machines and systems. Therefore, it is important for firm to
provide training to its present staff or to recruit new professionals both of which increases
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company's expenditure and also high price products might not fit into the pocket of lower income
group people.
In conclusion, the report shows that strategic management plays critical role in assisting
business to attain its objectives and vision. In order to maintain the market position critically,
Woolworths Group evaluate its internal and external environment before choosing or designing a
strategy. Moreover, a firm attain its goals of enhancing its sales volume adopts differentiation
strategy by critically analyzing the negative positive aspects of both cost leadership and
differentiation strategies.
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