Strategic Analysis of Woolworths

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Strategic Analysis of Woolworths

Name                                : Samantha Evelin

Student Number (ID)        : 20080581

Due Date                        : Monday, May 14, 2007

Lecturer                        : Dr. Quamrul Alam

Tutor                                : Md. Nazmul Amin Majumdar

Unit Code/ Name                : MGF 3401/ Strategic Management

Word Limit                        : 3500 words

Word Count                        : 4061 words


Table of Contents

Executive Summary        3

1. Introduction

        1.1 Industry Profile        4

        1.2 Company Profile        4

2. Body

        2.1 External Analysis        6

                2.1.1 Porter’s Five Forces Analysis        6

                2.1.2 Driving Forces        10

                2.1.3 Critical Success Factors        11

        2.2 Internal Analysis        12

                2.2.1 SWOT Analysis        12

                2.2.2 Core Competencies        16

                2.2.3 Value Chain        18

        2.3 Woolworths’ Competitive Strategies        20

                2.3.1 Corporate and Business Strategies        20

                2.3.2 Implementation Strategy        22

Recommendations        23

Reference List        24


Executive Summary

        The purpose of this report is to provide a strategic analysis of Woolworths in its Australian retailing industry. There are some external environments that affect Woolworths’ businesses, such as discussed in Porter’s five forces analysis, which are: rivalry among competing sellers, threats of new entrants and substitute products, and bargaining power of Woolworths’ suppliers and customers. There are also some driving forces that influence Woolworths’ businesses, such as government influences and sociocultural influences. Woolworths also has to analyze its critical success factors in its external analysis.

        This report also provides the internal analysis of Woolworths, such as Woolworths SWOT analysis (the strengths, weaknesses, opportunities, and threats Woolworths possesses). Woolworths’ core competencies analysis (resources and capabilities) is also one of the internal analysis Woolworths has to analyze in order to grab opportunities and avoid threats. Analyzing the value chain of Woolworths, such as its primary and support activities, will help Woolworths improve its own stores managements.

        Woolworths has some business and corporate level strategies, such as cost-leadership strategy for its business-level strategy and unrelated diversification for its corporate-level strategies. Making strategies and successfully implementing them is one of the key factors of Woolworths’ success.

        This report also provides some recommendations for Woolworths in order for it to stay competitive in its retailing industry, such as establishing loyalty programs for its customers and managing its efficiency in order to sustain its core competencies for its long-term success.


1. Introduction

1.1 Industry Profile

        The industry in which Woolworths compete, in the Australian retailing industry, has been the supermarket and grocery business since its first commencement in Sydney (Woolworths, 2007). The supermarket and grocery industry in Australia is highly competitive, where the growth rate is continual, but relatively slow (always less than 10 per cent per year) (Hill, Jones & Galvin, 2004, p. c47). In the industry, some competitors for Woolworth are Coles/Bi-Lo, Franklins, Davids, Composite Buyers, QIW, FAL and IHL (Hill, Jones & Galvin, 2004, p. c47). This statement is also supported by Beaumont (2004, p. 10), who added IGA as one of the major competitors for Woolworths.

        However, after the downfall of Franklins, there are only two big players who remain with Australia-wide operations: Woolworths and Coles/Bi-Lo (Hill, Jones & Galvin, 2004, p. c47). There is significant argument as how much market share the two companies each control. And according to retail market analyst Dimasi Strategic Research, Woolworths has an estimated market share of 28.4 per cent and Coles/Bi-Lo 22.5 per cent at the end of 2003 (Anonymous, 2004).

1.2 Company Profile

        Woolworths first started its business in December 1924 as a single basement store called the Woolworths Stupendous Bargain Basement, opened in the old Imperial Arcade in Pitt Street, Sydney (Woolworths, 2007). Then, Woolworths continued to grow rapidly, and had soon acquired a chain of stores. In 1985, Woolworths acquired Australian Safeway and established itself as the “Fresh Food People” – with commitment to delivering fresh food to their customers. In 1993, the $2,450 million Woolworths’ share float was the biggest in Australia’s history (Woolworths, 2007).

        Now, Woolworths has a shopping centre in almost every metropolitan and regional centre in Australia (Woolworths, 2007). The company comprises of a number of businesses, which are liquor (Safeway Liquor), electronic goods (Dick Smith), general merchandise (Big W), grocery (Safeway supermarket), and other stores such as Food For Less, Ezy Banking, Dan Murphy’s, et cetera (Anonymous, 2006).


2.1 External Analysis

        In order to succeed in its retailing industry, Woolworths need to analyze its external environment. Robbins, Bergman, Stagg & Coulter (2003, p. 82) define external analysis as “outside institutions or forces that potentially affect an organization’s performance”. An analysis of a firm’s external environment is important because “external environment influences a firm’s strategic options, as well as the decisions made in light of them” (Hanson et al. 2005, p. 45). In this case, analyzing and understanding of Woolworths’ external environments, matched with the knowledge of Woolworths’ internal environment, and making the most of the knowledge, will enable Woolworths to form its strategic intent, to develop its strategic mission, and to take strategic actions that result in strategic competitiveness and above-average returns. External information will also allow Woolworths to adapt and change accordingly to its surrounding in order to stay competitive.

        This report will analyze Woolworths’ external environments using Porter’s five forces analysis, driving forces, and critical success factors.

2.1.1 Porter’s Five Forces Analysis

        Michael E. Porter’s five forces analysis can be used as a framework for the external environment analysis of Woolworths. It comprises of rivalry among competing sellers, threat of new entrants, threat of substitute products or services, bargaining power of suppliers and bargaining power of customers.

        

Source: How competitive forces shape strategy (Porter, 1979)

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2.1.1(a) Rivalry among competing sellers

        There is a high concentration in the Australian retailing industry, with only few major players competing in the industry, Woolworths, Coles/Bi-Lo and IGA (Beaumont, 2004, p. 10). Using tactics like price competition, product introduction, and advertising slugfests, Woolworths’s businesses such as Safeway is continuously competing with its competitors for a strong position in the industry (Porter, 1979).

        Also, according to Hill, Jones & Galvin (2004, p. c47), the Australian retailing industry in which Woolworths’ businesses, such as Safeway Supermarket, compete has a slow growth rate (less than ten per cent per ...

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