Strategic Analysis of Woolworths: Profitability and Industry Factors

This report offers a comprehensive analysis of Woolworths, a major player in the Australian retail industry, focusing on its profitability and strategic positioning. It begins with an executive summary and introduction, outlining the report's objectives. The core of the report involves a macro-environmental analysis using the PESTEL framework, examining political, economic, social, technological, environmental, and legal factors impacting Woolworths' current and future performance. Furthermore, the report applies Porter's Five Forces to assess the competitive landscape and determine the industry's profitability, identifying factors that drive profitability. The report also considers how these factors might evolve in the future and the potential impact on Woolworths' profitability. The report concludes with a summary of findings and provides references and appendices, including Woolworths' organizational structure, food strategy, and profitability data.

Running head: MANAGEMENT
Organizations and Leadership
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Author Note:

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Executive Summary:
The objective of the report is to provide an insight into the cost-effectiveness of the
Australian retail industry. The firm chosen for this particular report is Woolworths which
is one of the most reputed retail firm across Australia. The report undertakes a macro-
environmental analysis through a PESTEL framework that helped in portraying the
impact on the present and the future performances. The report also undertakes analysis
of the porter’s five forces which helps in determining factors that contributed to the
profitability of the firm. The report further identifies the futuristic changes of these factors
and their influence on the firm’s profitability.

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Table of Contents
Introduction:.......................................................................................................................3
Macro-environmental Variable that Impact Current and Future Performance: PESTEL
Framework.........................................................................................................................4
Porter’s Five Forces Analysis and Determination of Profitability of the Industry:.............7
Change of Factors in Future and their Impact on Profitability of Industry:......................14
Conclusion:......................................................................................................................15
Reference:.......................................................................................................................17
Appendices:.....................................................................................................................18
Appendix 1: Organizational Structure of Woolworths..................................................18
Appendix 2: Food Strategy of Woolworths...................................................................18
Appendix 3: Profitability of Woolworth for the Year 2018............................................19

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Introduction:
The aim of the report is to provide an insight into the profitability of Woolworth.
Woolworth is a part of Australian retail industry and is a major retailer of Australia.
Introduced in the year 1924, Woolworths in addition to Coles formed a duopoly within
the Australian supermarkets and accounted for close to about 80 percent of the market
of Australia (woolworthsgroup.com.au 2019). This merchant has close to 995 stores
across Australia and employed approximately 115,000 employees thereby ensuing that
the customers are provided with convenience and greater level of service. Woolworth
works with the Australian growers and the farmers in order to ensure best quality
products to the customers. Woolworth is also known as the innovative retailer since it
had a better understanding of customer need. According to the records published in
2008, Woolworths is the nineteenth biggest retailer across Australia (Akbar and Ahsan
2014). The retailer not only specialized in selling groceries like fruit, meat, packaged
food and vegetables but also sold DVDs, magazines, beauty and health products,
household items, baby supplies and stationery. The retailer has the mission of
delivering the best in terms of value, quality and convenience of the customers.
Woolworth also believes in the value of being environmentally responsible, imparting
fair working condition and in producing quality goods. In the year 2018, the profits of the
retailer rose by 37.6 percent which has been close to $969 million.
The report commences with an insight into the macro-environmental variables
demonstrated by the PESTEL framework and the ways it impacted the present and the
future performance. The report also conducted a Porter’s five forces and identified the
present profitability of the industry along with factors that drove the profitability. Further,

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the report also shed light on how the factors might change and the impact that it might
have on the profitability of the industry.
Macro-environmental Variable that Impact Current and Future Performance:
PESTEL Framework
Political Factors:
The political scenario of Australia has been that of a liberalized and capitalist
democracy. Here state plays a major role in being intrusive with the economy through
adoption of various roles (Fowler 2013). It is however the parliament that undertake a
decision on important taxes for the protection of national economy or implementation of
the protection law in relation to environment for protection of national heritage
In other words, Australia represent a harmless destination for making any
investment due to the presence of stable as well advanced political and regulatory
environment within the country that acts as a means of certainty and confidence to
investors. The efficient, transparent, open and lower levels of corruption pose will pose
very little threat to the supermarket chain like Woolworths thereby casting an impact on
the current and the future performance. This allowed the business to flourish in a better
manner.
Economic Factors:
Australia represents the biggest economy around the world and remains
dominated by the service sector. Economic growth in Australia is primarily dependent
on the mining and the agricultural sector (Storey 2016). Australia has a prosperous
mixed market economy. The market economy of the West experience a higher level of

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GDP and lower level of poverty. The free market of Australia is considered amongst five
most developed countries across the world and has four key components that includes
manufacturing, trade, finance and services. Besides, the country stands at the tenth
position in index which offer ease of performing its business to the retailers. In addition
to this, the GDP figures of the country in fourth quarter of the 2019 has been $343,469
million which marks the country in the thirteenth position in terms of the GDP. The
quarterly GDP per capita has been found to be higher in comparison to the previous
year. All these factors have a positive impact on the present and the future
performance of retailers like the Woolworths.
Social Factors:
Australia refers to a multiracial multicultural country with present population close
to 20 million. The population is expected to experience a projected rise to 3.7 million by
end of 2026 due to rise in the number of aged population, increase in the number of
separation or divorce cases and the delay in marriages. The economy is thus diverse
without no such official religion (Jacobs 2016).The people of Australia is educated and
accepted English as a primary language.
The rise in the population of the country provided positive boost to the current
and future performance of retailers like Woolworths in terms of increase in sales and
enhanced profitability.
Technological Factors:
In the recent year, Australia has been a front runner when it came to technology.
The introduction of the new technologies of communication like internet and e-

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commerce provided boost towards the competitiveness of business on global scale
(Gibson, Rosen and Stucker 2015). The incidence of the various technologies allowed
the different Australian firms in making use of the internet technology and undergo a
further expansion in global markets.
The emergence of technology has also allowed retailers to make themselves
available via various app thereby enhancing the convenience of the customers. This not
only raised the sales figures but also enhanced the profitability of retailers like
Woolworths thereby enhancing their present and future performance.
Environmental Factors:
In the current years, environment became major and it forced the manufacturing
industries in adopting materials which have recyclable features and at the same time led
to lesser level of pollution (Gifford and Nilsson 2014). Huge changes in temperature
spell a negative impact on sectors like farming, insurance and tourism. Nevertheless,
global warming has also brought about remarkable changes in environment.
Hence, this external factor became a vital factor for retailers like Woolworths. The
present and future performance of the firm in context of profitability and sales depends
on the level of contribution which the retailer had made in terms of sustainability.
Legal Factors:
Australia put across various regulatory obligations for a business. These
regulations helped in ensuring integrity within market, level of fair competition and
sufficient level of protection from relevant parties.

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Implementation of legislation related to the discrimination and the impaired
discrimination, demand for the higher level of requirement along with a rise in the
demand for minimum amount of wage for firms are few examples that impact the
present and the future operations of retailers like Woolworth (Gregg and Parthasarathy
2017). The changes in the legislations enhances the cost of the retailer while
regulations have a direct influence on purchasing power of consumers thereby spelling
an influence on the present and the future performance in terms of sales and
profitability.
Porter’s Five Forces Analysis and Determination of Profitability of the Industry:
Figure 1: Diagrammatic Representation of Porter’s Five Forces
Source: (Tanwar 2013)

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As mentioned by E. Dobbs (2014), awareness regarding the five forces analysis
enables a retailer like Woolworth to better understand the structure of the industry in
order to stake the industry that seem increasingly profitable and lesser vulnerability for
attacking. He further added that regardless of whether an industry is matured or in an
emerging state, whether it is high or low tech or it is regulated or unregulated, the
structure acts as the determinant in driving competition as well as profitability. Thus, the
analysis of five forces, enables retailers like Woolworth in establishing a position within
the industry depending on the competitive strengths. The strategy must not totally focus
towards eliminating the rivals as it will attract new set of competitors and lead to counter
attack from the customers as well as the suppliers. The Porter’s five forces analysis will
ensure:
 An analysis of competitive environment of Woolworths
 Identification of the power and overall competitive rivals. In addition to this, it
alsso helps to identify the new market entrant, supplier, customer and the
substitute product which influences profitability of retailer.
 An evaluation of the above mentioned elements helped in guiding the business
strategy for enhancing the competitive advantage.
In addition to this, analysis of the model also helps in identification of undeniable
force which play a key role in shaping each industry as well as market around the world
(Srivastava, Franklin and Martinette 2013). The forces helps in regularly measuring
attractiveness, competitiveness and the profitability of a market or an industry. These
forces however includes:

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1. Threat from Substitute Products:
This indicates threat from substitute goods which might be used as standby for
the products of the retailers (Porter and Heppelmann 2014). Retailers that produce
goods for whom there exist no close substitute will have seem to possess power in
raising its pricing as well as locking favorable items. However, the readiness of the
closer substitutes will allow customers to weigh the price and convenience and
sometimes seem to forgo the retailer’s product thereby weakening the power of the firm.
The retail industry of Australia put across various substitute option for consumers
like the convenience stores, pharmacies, grocery stores, non-affiliated petrol station,
online stores and the markets for the fresh food. Consumers seem to be ready for
paying greater price for the convenience these products offer. Hence, availability of
substitutes in the retail industry might cause profitability of Woolworth to vary from
moderate to higher.
2. Rivalry amongst Competitors:
These forces put across various competitors and ability in challenging the retail
industry (Yunna and Yisheng 2014). In this regard, it has been found that Woolworth
face strong rivalry from its competitors that can spell negative impact on the profitability
of the firm. The low competitive rivalry, superior power of firms in charging higher prices
and setting terms for attainment of higher sales and profit acted as driving factors. The
suppliers and the buyers seem stay loyal to a retailer if it is capable of offering healthier
deal or lower the prices. Woolworth seem to face tough rivalry from its competitors. The
retailer might overcome this by undertaking innovation of new service or products, by

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adopting economies of scale along with spending money on the building of capacities
otherwise it might have an impact on the sales and profitability.
3. Supplier Bargaining Power:
The force here indicate how suppliers are able to drive cost of the inputs at the
retail industry (Cheng 2013). It is mostly influence by overall suppliers of key inputs for a
good. This also indicate uniqueness of the inputs and company’s cost of switching
amongst the suppliers. What act as the driving force are the presence of the number of
suppliers that determines the intensity of the firm’s reliance on its suppliers. Presence of
few suppliers makes the firms more supplier reliant while presence of a large number of
supplier aids in driving input cost but also seem advantageous for the retail industry.
The bargaining power of the suppliers in retail industry undergoes changes based on
the brand name and size of the supermarket. Since Woolworth represents a brand
amongst the retail in Australia so it experiences a supplier power that ranges from
between moderate to higher. This often leads to a profitable situation for the retail
industry.
4. Bargaining Power of the Potential Buyers:
This indicates power of customers or buyers in driving prices down (Mathooko
and Ogutu 2015). The overall buyers or customers of a firm indicates the threat level
since it helps in determining the cost to be borne by the retailer in finding a new market
for its output. Powerful and a larger group of client seem to possess increasing power of
negotiation in lowering prices and getting better deals in order to choose from the best
possible alternative. This acts as one of the key driving force. In addition to this, the

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push by Federal Government and the Australian Competition and Consumer
Commission (ACCC) for lowering the barrier of completion and allowing newer
competitors for entering market seem to have raised the choice for the consumers
thereby leading to an increase in the bargaining power of the consumers. An additional
drive would be the rise in the bargaining power of the consumers. These factors would
bring the bargaining power of consumers to moderate level in the future for retailers like
Woolworth. This might have an impact on the profitability as sales might reduce.
5. Threat of the Newer Entrant:
This represent the threats experience by new entrants within retail industry
(Sutherland 2014). In this case, the threat level is influenced by force of the new
entrants into the market. The lesser amount of time and money that a new entrant
requires in entering the retail industry, makes it an effective competitor thereby leading
to the weakening of the position of a firm. The retail industry with strong entry barriers
will serve as striking feature for firms thus permitting them to charge higher prices and
negotiate via better terms. The low price offered by the retailers like Woolworth makes
the retail industry less attractive for the new entrant as it will lead to lower level of
revenue generation. Besides, the association between existing big players like
Woolworths with the suppliers along with the need for establishing an own center for
distribution makes the industry less attractive to the new entrants as they neither have
the resources or the competencies. Hence, the barriers to entry for the retailers like
Woolworth is quite higher. This helps Woolworths to gain more profitability through
increased sales.