HI5003 Economics for Business: Analysis of Woolworths Retail Industry

This report provides an economic analysis of Woolworths within the Australian retail trade industry. It begins with an introduction to Woolworths and the retail sector, highlighting the industry's background and market structure, which is identified as oligopolistic. The report then examines factors influencing the demand and supply of Woolworths' grocery products, including price, related goods, income, tastes, technology, weather conditions, labor, and taxes. The concept of elasticity is discussed in relation to groceries, noting price inelasticity for essential food supplies. Finally, the report concludes by summarizing the key economic aspects of Woolworths' operations and its position within the Australian retail market, offering insights into the company's responses to market dynamics and external events.

Economics for Business

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Introduction to the company........................................................................................................1
Industry/sector background.........................................................................................................2
The market structure of the industry/sector.................................................................................2
Factors that influence demand for the company’s product(s).....................................................3
Factors that influence supply of the company’s product(s).........................................................3
Elasticity......................................................................................................................................4
Impacts of an event on the industry/company.............................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Economics is a field of study which is concerned with demand, supply, production and
consumption of products and services in an economy (Barberis, 2013). Economics for business is
a branch of this study which is concerned with the decisions made by a business organisation that
must be aligned with the economic outputs of a nation. The main aim of this report is to build an
understanding regarding the economic aspects of an industry and the businesses operating in that
industry. For this purpose, the industry that has been chosen for consideration is Retail trade
industry of Australia and the company selected and which is engaged in this industry is
Woolworths Group. The present report will include introduction to the selected organisation and
industry along with the evaluation of the market structure of selected industry. Furthermore, this
report will include various factors that impacts the demand and supply of certain products
offered by the selected company. Lastly, elasticity concept in context of certain products will be
analysed along with the impacts of an event on the industry/company.
MAIN BODY
Introduction to the company
Woolworths is a supermarket chain company that has owned grocery stores in and around
Australia. This company is a large scale organisation which was established in 1924 and
currently has headquarters in Bella Vista, Australia. The Woolworths Supermarket is a company
owned by Woolworths Group that employs 0.2 million employees approximately. This company
is a growing organisation which even has strong digital presence and believes in delivering
quality products (Woolworths introduction, 2020). This company operates in retail trade industry
of Australia and retails various products including groceries, home appliances and other regular
use products. The main product that is focused in this report as well is “groceries”. This company
is engaged in retailing fresh food products with the motto of delivering healthy products.
Economically, this company is the most revenue generating organisation in retail trade industry
in Australia. Woolworths has various competitors that compete for market share in market. This
company has changed the overview of the retail industry by achieving a competitive edge in its
market. The products and services of this company are highly demanded in market making it a
high revenue generating enterprise.
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Industry/sector background
The industry selected in this report is retail trade industry of Australia. This industry is the
most profitable and growing sector of this region which contributes 4.1 % of the gross domestic
product of Australia. The number of businesses working in such industry are 140000
approximately that helps in generating employment of around 10%. This industry not only
employ the people of Australia but also fulfil all the requirements of Australian population. The
retail industry is considered as most diverse industry of this region as it employs people around
the world and there are various types, scope and variety of businesses present in this market. The
overall demand for this industry is higher than the non retail services in Australia. While
analysing the overview of this industry, it is important to note that this industry had faced ample
challenges in past from which, this industry has passed and resulted into a productive sector for
the economy (Economic Structure and Performance of the Australian Retail Industry, 2020).
The market structure of the industry/sector
The market structure is a concept which includes various characteristics of a market that
impacts the nature of the competition in a market and impacts the pricing decisions in the
market. The market structure is also related with the share of market by the top competitors in an
industry (Bös, 2014). The market structure of retail trade market of Australia is oligopolistic
where there are few major supermarkets and these companies plays a dominant role in market.
These dominant organisations in the retail trade industry of Australia includes Woolworths,
Coles and few others. These overall market conditions of the retail trade market impact the
overall growth of this market. The market structure of this market is likely to be change due to
demand of online market. The growth patterns of this market structure are wildly unique as the
non grocery retailers of this market are observed to acquire high growth after 2015 but the
grocery retailers are the market leaders of this industry for a long time period. The difference in
the overall growth between this market and the retail market of other companies is that offline
retail market still holds a dominant position in Australian market. The market structure of this
industry is impacted by various factors which includes technology which is pushing this market
towards online trading, globalisation; which has resulted in distributed dominance due to high
number of competitors and supply chain strategies of this industry.
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The retail trade industry of Australia has a market structure which complies this market to
enforce workplace relations regulations so that flexibility can be facilitated and best practice
productivity measures are used by the companies engaged in this market. The workplace
regulations for this market structure are strict due to which companies need to restrict their
competitiveness and ability to innovate (Eichhorn, 2013). The limitations which are faced by this
market includes restriction on trading hours according to which market players have to trade in
certain hours only which provide benefit to online retailers. Another limitation is the planning
and zoning regulations according to which companies nee to allow new entrants in market.
Factors that influence demand for the company’s product(s)
Woolworths is a large scale organisation and deals in multiple products but in order to
analyse its demand and supply, the grocery is the product which has been selected. There are
various factors due to which grocery products of this company are impacted. The demands of
such products are impacted by below factors:
Price – This factor is the most important and influential factor that is directly related to
the product. The Woolworths is the highest revenue organisation of retail trade industry of
Australia as it sells its products at low prices which attracts consumers and increases the overall
revenue of this company. When the price of the groceries of this company, increase the demand
of such products decreases as consumers starts to search for less costly alternatives.
Related goods – This factor includes complementary and substitute goods; grocery are an
essential item of a human which cannot be supplemented but there are various other brands
which also sell groceries and their products can substitute the products of this brand. The
competitive brands such as Wesfarmers tend to decrease their price due to which demand for
groceries of Woolworths decreases. Another substitute of groceries is groceries made available
through online businesses. Due to pandemic situation, people are tending towards ordering their
groceries online by which demand of Woolworths groceries are decreasing.
Income – This factor is for the income level of consumers; this factor implies the
spending power of consumer which impacts the demand of the selected product. Due to the
current pandemic caused by COVID 19, the income level of people has been impacted resulting
into low income gain which directly impacts their spending power leading to lower demand for
groceries (Kalecki, 2013).
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Tastes and preferences – This is the another factor that impacts the demand of groceries
of Woolworths. According to the current scenario, people prefer it eat healthy and cook their
food at home due to pandemic situation, this has turn into benefit for Woolworths as the demand
for their groceries product has been increased (Fuss and McFadden, 2014).
These factors impacting the demand of groceries are analysed with the help of a graph
below which shows the increase and decrease of demand of groceries due to certain factors.
(Source: Factors that influence demand, 2020 <https://courses.lumenlearning.com/wm-
macroeconomics/chapter/factors-affecting-demand/>)
Factors that influence supply of the company’s product(s)
Supply is the ability of an organisation to produce and sell the products in order to fulfil
the demand of the consumers and market. The supply graph has been attached below showing
the relationship of supply and price. Similar to this graph, supply of the selected product increase
and decrease according to the pricing strategy of the company (Lavoie, 2014).
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(Source: Supply curve, 2019)
The factors along with price which impacts the supply of groceries of Woolworths
includes the following:
Price – This factor is related with the pricing strategy of Woolworths as if the company
decides to set their pricing strategy as competitive pricing strategy and intend to sell goods at low
prices then the supply of the products will increase by benefiting the economies of scale.
Technology – this technology is the major factor that impacts Woolworths. Even after
introducing the online channel, the company fails to acquire higher market share when it comes
to online retail market. This increasing technology has resulted into lower the supply of groceries
of this company.
Weather conditions – Woolworths is a successful company but the groceries product in
which this company deals is a natural product which is produced according to the weather
conditions. In case, where the weather conditions are extreme, the supply of groceries decrease
and the case where the weather conditions are favourable, the supply of groceries increases.
Labour – This is the another factor that impacts supply of groceries of Woolworths.
Groceries are the natural products that require extensive labour and in the case where availability
is lower or cost of labour is higher, the supply of groceries decrease and the case where the
availability is higher and cost of labour is lower, the supply of groceries increases.
Taxes – This is the another factor that impacts the supply of groceries. When the
government increase the tax on the sell of groceries, the supply of such products decreases and
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vice versa. This factor is an indirect factor that impacts the production power of the company
first and the supply of the product (Ruegg and Marshall, 2013).
All the factors analysed above impacts the supply of groceries of Woolworths. These
factors can even be controlled by taking appropriate measures so that demand in the market can
be fulfilled. Supply will be determined by factors such as price, the number of suppliers, the state
of technology, government subsidies, weather conditions and the availability of workers to
produce the good. This determinant can even impact the overall performance of an organisation.
Elasticity
The Groceries elasticity studied in this analysis include much of the regular food products
on Australian home shopping lists. This helps one to keep in mind the budgeting choices of
households in compliance with the concerns of alternative and complementarity.
Supermarket should use Almost Perfect Demand Process analysis as a guide to approximate our
elasticity results and resolve the issue of zero observations using multivariate as well as semi-
nonparametric approaches during the first step of the calculation.
The degree of segmentation that they address in this article in food products is unique to
Australia. Third, they have independent measures of domestic elasticity for Australian-born
homemakers. Contrasting these residences' food demand actions with both the quarterly data
situation, supermarkets try to make several inferences on how the demand for food could differ
between families with Australian-born as well as foreign-born household members. Simple food
resources are essential especially among household with lower incomes (Kalecki, 2013). There
continues to be price inelastic for essential food supplies. As with supply, as prices increase,
quantity demanded means higher price rises. Whenever an individual item price increases by a
certain amount, however if they do have the very same requirement, the buyer will no longer
consider buying the item. It is reasonably crucial to know what else this issue is, perhaps not if
customer are an ordinary grocery shopper, because if a grocery store owner or specialist food
retailer who worries regarding food prices.
Price elasticity of demand for groceries products seems more like that should be done by
an accountant or a distributor, but in fact anyone with a product or service can do it. Competitive
rivalry has been at the all-time peak in the days that everyone live and I t is crucial for any
organisation to be informed about how inflation will affect them, how costs will increase and
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when costs will increase. It is also necessary for supermarket to focus not just on their
projections but also about the actions of the customers. If a consumer is happy one day and then
spend a fair amount it is not assured that next week they will pay the very same. The key priority
for every company is to expand and have a better service for the customers.
Impacts of an event on the industry/company
The company's net income from continued activities plummeted during the year down 21.8
percent to $1.16 billion, hit primarily by substantial one-off expenses of $500 million pertaining
to workers payment deficiencies and $275 million for COVID-related costs involving extra in-
store maintenance and surveillance. COVID-19 has a significant effect on the price results of the
Company for the year. EBIT development in H2 was affected by COVID after a solid first half
Party EBIT development of 11.4 percent (Lavoie, 2014). Although retailers are typically
prepared to slash costs to empty their stores of an oversupplied commodity, when the opposite
happens, they are far less likely to boost prices. Hotels' suspension for most of the past four
months of the fiscal year has resulted in a significant fall in its H2 EBIT relative to the previous
year. Fortunately, despite significantly higher consumer and team protection costs, the effects of
the declines were partly offset by solid sales-driven EBIT increases throughout company retail
businesses. Unfortunately, again for near future, Woolsworth continue to be actually living with
COVID. In addition company endorse government efforts to suppress the epidemic and promote
the economy but anticipate circumstances to remain uncertain and demanding. As a
consequence, our emphasis will remain on importance, selection and comfort and then
company will not hesitate on building a COVID safe atmosphere for both their clients and teams
(Ruegg and Marshall, 2013).
Net revenue rose by 9.9 percent (normalised) to $9.3bn during the period for Endeavour
Beverages, with equivalent sales rising 7.9 percent. The group outlined the 2020 difficulties as
overall revenue rose by 23.2 percent during the period, but it is also observed that this compared
with "a sluggish market climate throughout the third and fourth quarters.
CONCLUSION
In the last of report, it has been concluded that Woolworths are adjusting their distribution
network, in particular transporting their inventory from warehouse to stores. However, if we
move any farther through the production process, there could be other problems in the mid or
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medium to long term as warehouse volumes start to fall. From the viewpoint of food production
Australia is well-placed, with a large agriculture industry in which a substantial percentage of
their staples, fruits and veggies are grown locally so COVID-19 situation have not impacted very
much in the entire period.
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REFERENCES
Books and Journals
Barberis, N. C., 2013. Thirty years of prospect theory in economics: A review and
assessment. Journal of Economic Perspectives. 27(1). pp.173-96.
Bös, D., 2014. Public enterprise economics: theory and application. E
Eichhorn, W. ed., 2013. Measurement in Economics: Theory and Applications of Economics
Indices. Springer Science & Business Media.
Fuss, M. and McFadden, D. eds., 2014. Production economics: A dual approach to theory and
applications: Applications of the theory of production. Elsevier.
Kalecki, M., 2013. Theory of economic dynamics (Vol. 6). Routledge.
Lavoie, M., 2014. Post-Keynesian economics: new foundations. Edward Elgar Publishing.
Ruegg, R. and Marshall, H., 2013. Building economics: theory and practice. Springer Science &
Business Media.
Online
Factors that influence demand. 2020. [Online]. Available through:
<https://courses.lumenlearning.com/wm-macroeconomics/chapter/factors-affecting-
demand/>
Supply curve. 2019. [Online]. Available through:
<https://www.investopedia.com/terms/l/lawofsupply.asp>
Woolworths introduction. 2020. [Online]. Available through:
<https://www.woolworths.com.au/>
Economic Structure and Performance of the Australian Retail Industry. 2020. [Online].
Available through:
<https://www.pc.gov.au/inquiries/completed/retail-industry/report#:~:text=Contents-,Key
%20points,the%20nature%20of%20goods%20sold.>
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