Threat, Risk, and Impact on Woolworths: Business Viability Analysis

This essay provides a comprehensive analysis of the threats and risks impacting Woolworths, a major retail organization in Australia. It identifies both macro and micro external factors, such as political and economic threats, technological advancements, strong competition, and price wars, as well as internal factors like unethical practices and supplier domination. The essay further categorizes the risks into strategic, operational, financial, and compliance-related risks, detailing their potential impacts on the company's viability, functionality, profitability, and growth. Finally, it outlines the strategies Woolworths employs to overcome these threats and mitigate the identified risks, including positioning, pricing, innovation, cost reduction, and specific mitigation strategies for each risk category.

Running Head: Management
Threat, Risk, and Impact on Woolworths
Essay
System04104
2/24/2019

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Table of Contents
1. Introduction.........................................................................................................................2
2. Overview of the Company..................................................................................................2
3. Major Threats and its impact on Woolworths....................................................................3
3.1 Threats from Macro External Factors...............................................................................3
3.1.1 Political Factors.........................................................................................................3
3.1.2 Economic threats........................................................................................................3
3.1.3 Technological Advancement.....................................................................................4
3.1.4 Legal Factors..............................................................................................................4
3.2 Micro External Factors.....................................................................................................4
3.2.1 Strong Competition....................................................................................................4
3.2.2 Price War...................................................................................................................5
3.3 Threats from Internal Factors...........................................................................................5
4. Major Risks and its impact on Woolworths........................................................................5
4.1 Strategic Risk....................................................................................................................6
4.2 Operational Risk...............................................................................................................6
4.3 Financial Risk...................................................................................................................6
4.4 Compliance Risk..............................................................................................................6
5. Overcome strategy of Woolworths to face the Threats......................................................7
5.1 Positioning Strategy..........................................................................................................7
5.2 Pricing Strategy................................................................................................................7
5.3 Focus on Innovative Ideas and Growth............................................................................7
5.4 Reduce the cost of operation............................................................................................8
6. Strategy to Mitigate Risks...................................................................................................8
6.1 Mitigation of Strategic Risks............................................................................................8
6.2 Mitigation of Financial Risks...........................................................................................8
6.3 Mitigation of Operational Risks.......................................................................................8
6.4 Mitigation of Compliance Risk........................................................................................8
7. Conclusion..........................................................................................................................9
References................................................................................................................................10

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1. Introduction
The Woolworths is one of the giant retail organisations in Australia and dealing in a variety
of retail products in all over the country through more than 3000 retail stores. The Australian
Retail industry consists of almost 14000 retail businesses with very few major players in the
market that involves strong competition in the Australian retail industry (Inside Retail
Australia, 2018). This report is based on various threats and risks that affect the profitability,
growth, viability, and operation of the Woolworths in Australia. The first two section of the
report talks about the major threats and risks that affect the Woolworths business operation.
The major threats for the company come from the competitors and their pricing strategy.
Although these threats can be broadly divided into two categories; Threats from internal
factors and threats from external factors. Further, the various types of risk have been
discussed. These risks can be categorised as strategic risk, operational risk, financial risk, and
compliance risk. For successful operation of the business, it is essential for any business
organisation to mitigate these type of risks and it is well explained in the last part of the
report that how Woolworths overcome these threats and mitigate these risks followed by a
small conclusion that provides a brief summary of this report.
2. Overview of the Company
Woolworth is one of the popular giants in retail supermarkets of the Australian retail market.
Woolworths is a leading retail store in Australia and it was founded in 1924. Woolworths is
operating its business in the Australian market with Coles. They both form a duopoly in the
Australian retail market. Woolworths runs more than 3000 stores in Australia and New
Zealand, and more than 19000 workers are working in the Woolworths. This retail
organisation mainly deals in grocery stores, where people can easily buy vegetables, fruits,
packaged foods, etc. Apart from this, the company also deals with some other products such
as home appliances, beauty products, and electronic gadgets as well. In home appliances,
company sales TV sets, refrigerator, furniture, stationery items, beauty products, and some
other household products. Although, Woolworths have secured number two place in 2015 out
of 2000 companies (Biddle, 2016).
The company is also known for selling products on its own brand name and labelling.
Woolworths sale these products on the cheap rate in the market and also manipulate the
prices of products, because they set the price because of its own packaging and labelling on

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the product. Woolworths was sometimes blamed in the past for their unethical behaviour and
misleading the consumers by false information on the products related to product quality and
standards. The company was blamed for misleading their consumers about the defective
products that were sold to the consumers by giving them false and inappropriate information
about the product quality. This unethical behaviour of the organisation and several other
competitors in the market such as ALDI and Coles poses threat and challenges for this
supermarket giant in the Australian retail market (Verma, 2018). Thus, the current situation is
that Woolworths Company is facing strong competition, threats, and risk from both internal
and external factors where competitors provide quality products and services to the retail
customers on a very cheap rate and attract customers from attractive schemes and pricing
strategy. Woolworths is also facing strong threats from its internal factors and company is
also blamed in the past for its unethical practices and manipulating prices of the products.
3. Major Threats and its impact on Woolworths
There are some external and internal factors that pose risk for Woolworths and affect their
profitability and operations in the Australian retail market. However, facing strong
competition and price war in the Australian retail market is the major challenge for the
company. Apart from these challenges, some other threats are posed by political, legal, and
economic factors, and these threats can be classified in external and internal risk factors, are
described below:
3.1 Threats from Macro External Factors
3.1.1 Political Factors
Political instability and the importance of political policies do matter in every country and in
every business organisation. Woolworths operates its business in many countries and they
should aware about the political change and its effect on the business and its profitability
because it operates more than a dozen countries and exposes itself to different types of
political environment (Price, 2016). Thus, diversify such systematic risks of political
environment is a major challenge for the Woolworths.
3.1.2 Economic threats
Slow growth and uncertainty in the Australian economy is the major threat for the company
because the Australian economy poses threats for retail players as the economic growth in the
country is not stable rather it is stagnant and might be possible that it will remain stagnant in

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future as well. The unemployment rate and hike in fuel prices and wages rate are also posing
threats for Woolworths. The other macro factor such as saving rates, foreign exchange rates
and, and economic cycle also determine the profit and business operation of the Woolworths
(Keeves, 2017). The Australian economic policy also intervenes in the retail market
especially in food and staples retailing and it further results in effect the company's
profitability.
3.1.3 Technological Advancement
The technological advancement among the competitors poses a strong threat for the
Woolworths. The technology has huge impacts on the product offering by these retail players
in the Australian market. Thus, the company should care about the technological factors that
pose a serious threat for the company (Grimmer, 2018). The rate of technological diffusion is
also a concern for the Woolworths. It is necessary for any firm to do the technological
analysis of the industry but Woolworths also consider the speed at which technology disrupts
that industry.
3.1.4 Legal Factors
In a number of countries, the law related to the protection of intellectual property rights is not
so robust. Thus, entering a new retail market is a risky approach for the company, if the rules
and regulations of such country are not favourable. Change in law related to product
manufacturing, patent rights, copyrights, and employment law poses a high level of threats
for the Woolworths. The change in law affects the profitability and its product sales process
in the country.
3.2 Micro External Factors
3.2.1 Strong Competition
This is the major threat for the Woolworths because there are few other giants in the retail
market such as ALDI, Coles, AUR, and SPAR Australia gives a strong competition. Coles
and ALDI both almost copy the same services and products of Woolworths and their pricing
strategy affect the market of Woolworths. Apart from this, threats of new entrants is also a
major problem for Woolworths, because Australian retail market is full from the large
number of small and medium size organisation that deals in the retail business. The big
players like ALDI and Coles pose threats for the company from their effective pricing
schemes and strategies (Brook, 2018).

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3.2.2 Price War
ALDI and Coles share a major portion of customer groups in the Australian retail market and
they more focus on "low-cost model" strategy that attracts customers. This is the major way
through which they compete in the market, and ultimately they do not have any choice apart
from this to face competition with Woolworths (McCarthy, 2018). Thus, the low pricing
strategy poses strong threats for the Woolworths. Consumers who find cheap products in any
retail organisation among these three, they will definitely invest their money to avail the
service on a cheap rate rather than investing in costly products or services.
3.3 Threats from Internal Factors
The major threat for Woolworths in Australia from internal factors is its unethical practices
because many times the reputation of this retailer giant in Australia was questionable. Thus,
product quality and standards are the major issues in Australian retail markets (Jie, and
Gengatharen, 2018). Product quality and unethical practices of Woolworth is the major issue
that poses strong threats for the company for a long time. In recent times, customers are more
aware of the market and they mainly focus on a variety of products with standard quality
at low prices (Haskelberg, et. al., 2016). Apart from this, the Woolworth is also struggling
with the domination power of suppliers because they have a large number of alternatives in
the Australian retail market and they utilise these market as a large opportunity market
(Knox, 2014). This problem increases the cost of raw material for Woolworths that further
leads to high-cost services and an increase in the overall cost of operations. Therefore, the
high prices of products and services in comparison to other players are causing a major
problem for the Woolworths (Scott, 2012). This all results in high operating costs for the
company and it further leads to the increment in the overall cost. The effect of these problems
causes an increment in the debt and decline in the sales of the product in the company.
4. Major Risks and its impact on Woolworths
Woolworths consists of a various type of business operations that are further exposed to
various types of risks such as strategic, financial, operational, and compliance-related risks
that are integral to the retail business operation and online markets. Although, the company
manage these risks with risk management approach. There are several types of risks that
impact the business operation of Woolworths is as follow:

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4.1 Strategic Risk
The retail-trading environment in Australia is more competitive and it seems to be continuing
in future because of high competition among the retail players, price war, technology
disruption, and because of changing needs and expectations of customers. Apart from other
external and internal risk-drivers are also responsible for creating risk for the organisation.
Failure of Woolworths to encounter these risks may adversely affect the market share and
business performance of the company that further leads to the negative effect on the
profitability of the company (Bailey, 2017). If the retail organisation fails to focus on these
transformation initiatives, then it might be caused the heavy loss for the business
organisation.
4.2 Operational Risk
The Woolworth retail supermarket was blamed several times in the past for their inferior and
defective products and services. Woolworth is a subject to operational risk but it could be
exposed several times when it was failed to meet the people expectations. Failure to meet the
product safety and standards, data breaches, providing wrong information about the products,
mislead customers, and some business disruption is also caused serious risks for the company
because it destroys its reputation and brand image in the mind of customers. The above
weakness can result in technology failures, supply chain interruptions, industrial disputes, and
also harm its market reputations (Alm, Takeno, and Engelseth, 2016).
4.3 Financial Risk
The availability of funding and management of capital and liquidity are the key financial
factors to promote the business operations and growth in the retail sector, especially in
Woolworths. The financial risks are somehow related to these financial factors. Thus, a little
fluctuation in the foreign exchange rate could affect the business’ profitability. Even a failure
to turnaround or materially adverse interest rates can create financial risk for the business
operation and it further affects the overall business operation of the company.
4.4 Compliance Risk
The Woolworths also faces the risks from the applicable laws, rules and regulations related to
merchandise, and adverse regulatory or legislative changes in the provision related to the
business process also affect the business operation of Woolworths. Any changes or
alternation in these laws or rules and regulations directly or indirectly affects the profitability
and reputation of the company (Caner and Banu, 2014). These changes might be caused by

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some financial penalties on the company or results in some other adverse consequences for
the business operation. Lack of internal protocols or failure in adapting these regulatory
changes causes a number of compliance risks for the business operation.
5. Overcome strategy of Woolworths to face the Threats
Woolworths is one of the leading retail organisations in Australia and facing lots of
challenges and threats from both external and internal factors. Due to strong competition and
price war in the retail industry in Australia, Woolworths is facing many challenges in
attracting and retaining customers (Gellert and Schalk, 2012). From the above analysis of
threats and risk that affect the profitability, viability, and growth of the company, there are
several strategies that can be recommended to the Woolworths to overcome these challenges
(Culley, et. al., 2017).
5.1 Positioning Strategy
To face strong competition and encounter the risk poses by competitors, Woolworths should
focus on its brand positioning strategy and lowering the price of their products because it
helps in attracting customers. The Woolworths should provide various reward points and
offers to retain and attract new customers.
5.2 Pricing Strategy
Actually, other players in the market are playing the game of low pricing strategy. Thus,
Woolworth should understand the price strategy of other competitors and should encounter
the threat by putting an affordable price in such a way that gives profit and attract customers
as well. Execution of a fair pricing strategy of Woolworths creates customer value. The
Woolworths can also execute "Lean Retail" model to improve their growth and efficiency in
the Australian retail market. The pricing of the product should be set in such a way that gives
strong competition to other competitors like ALDI and Coles.
5.3 Focus on Innovative Ideas and Growth
To encounter the technological challenges, it is essential for the company to focus on the
modern technology in the stores, and should focuses on some innovative ideas that lead to the
future growth and also enable the organisation to meet the customer needs and their
requirements (Kurnia and Schubert, 2018). The company should also focus on bringing the
modern trend of business patterns such as online communication and buying-selling process.

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5.4 Reduce the cost of operation
Woolworths is a large retail organisation so their operating cost is high and that results in
further a huge over cost as well. The heavy competition in the industry causes an increase in
debt of the company and a decrease in the sales volume (Xu, Gao, and Hammond, 2017). To
face this threat of declining sales in future, the company can prefer more goods with a huge
variety because the demand for products will definitely increase with the increasing
population.
6. Strategy to Mitigate Risks
6.1 Mitigation of Strategic Risks
To mitigate the strategic risks Woolworths should focus on their store networks, technology,
supply chain improvements, and their digital channels. The organisation should also focus on
delivery offices to establish high standard transformation initiatives that help the company to
connect with the organisation and retain them for a long time (Phillipov, 2016). They should
also focus on sustainable growth opportunities in the market that leads to profit
maximization.
6.2 Mitigation of Financial Risks
The Woolworth should create a committee that governs the fund management of the
company, measure and mitigates financial risk including foreign currency risks, liquidity
risks, and inflation rate risks. The company should have a financial plan that helps the
company to meet its financial risks (Carrigan, Marinova, and Szmigin, 2015).
6.3 Mitigation of Operational Risks
To mitigate the operational risks company should focus on providing regular training to the
employees and company should also create policies regarding business operations, including
people safety, food and product standards and safety, health and wellbeing of consumers. The
company should focus on continuous improvement in consumer safety, cyber security, and
technological advancement (Nakandala, Dilupa, and Lau, 2018).
6.4 Mitigation of Compliance Risk
The Woolworths should focus on compliance framework that works upon various regulatory
and legal compliances. The compliance committee should make policies that are accepted
everywhere and should work along with the government to proposed legal and regulatory

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changes (Thomsen, 2016). The code of conduct and training programs of Woolworths should
be design in such a way that promotes awareness of legal, internal, and regulatory policy
requirements.
7. Conclusion
In the conclusion, it can be said that Woolworth is one of the leading retail market players in
Australia, but facing a number of threats and risks that have an adverse impact on the
business operation of Woolworths. These threats and risks adversely affect the profitability,
growth, viability, and business operation of the organisation. The major threat that is
currently facing by the Woolworths is strong competition from the competitors. Another
threat is the pricing strategy that leads to the price war in the retail industry in the country.
Overcome these threats is essential for Woolworths as it is continuously losing its customers.
Apart from this, the company was also blamed in the past for its unethical practices when the
company mislead their customers and give them inappropriate information about some
defective products. To encounter these threats it is essential for the company to make a
suitable strategy that enhances their brand image and the company should also focus on a fair
pricing strategy that gives strong competition to its competitors. Apart from this, to mitigate
the risks they should work on creating on both technological and legal aspects because they
cannot provide a quality service or quality products to their customers if they will not update
their technology. The company should also focus on bringing the modern trend of business
patterns such as online communication and buying-selling process to remain competitive in
the Australian retail industry.

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References
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Biddle, I. (2016) The Wesfarmers/Woolworths duopoly war: The Bunnings vs. Masters
battle. Busidate, 24(3), p. 3.
Brook, B. (2018). Woolworths’ renewed focus on multi-billion dollar ‘impulse purchase'
market [online]. Available from:
https://www.news.com.au/finance/business/retail/woolworths-renewed-focus-on-multibillion-
dollar-impulse-purchase-market/news-story/5fea8b12626f520b8d3737f2bcb4cdb0
[Accessed: 24/02/2019]
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Trevena, H., Zheng, J.M., Louie, J.C.Y. and Gill, T. (2016) High variation in manufacturer-