Supermarket Industry in Australia

1 | P a g e Supermarket Industry Analysis
Kaplan Business School Melbourne Campus
SUPERMARKET INDUSTRY IN AUSTRALIA
The Supermarket industry in Australia is dominated by two major corporations:

Woolworths
and Coles. Woolworths and Coles represent almost 80% of the industry, these two
giants have
dominated the Australian market for the last 100 years The current situation can be
defined as a
“very cosy duopoly” (Sims, 2015). No other country in the world has as large a
percentage of its
dry groceries market controlled by two chains. (Xenophon, 2014 as cited in Knox M,
2014)Coles
and Woolworths are now the 19th and 15th biggest-selling retailers in the world
(Kalish and
Bearse, 2015).
This market duopoly translates into a lack of negotiating power for suppliers,
higher prices and
lower options for consumers.
The other 20% of the Australian market is held by Metcash, Independent small
grocers and
discount supermarket ALDI, which is growing above 10%.
German-owned ALDI has grown very quickly in Australia by selling almost exclusively
private-
label products at discounted prices. This has been a pivotal point in the industry.
The products
offered in supermarkets have changed significantly over the past five years, as
Woolworths and
Coles have had to step it up to compete with ALDI's low prices.
Source: (RoyMorgan, 2014)
© Fillingerova, Fernandez,
Garcia, Graciella, & Putri, 2015
PESTLE ANALYSIS:
COLES
Mission Statement: “To give the people of Australia a shop they trust,
delivering quality,
service and value”
Brand ambassador: Curtis Stone
Branding: Save every day
In 1914 GJ Coles, opened the first Coles store in Smith Street, Collingwood,
Victoria. Today, Coles
is present in every Australian state and territory with 741 supermarkets, employing
over
100.000 staff members. (Coles.com.au, 2014)
In 2007 Wesfarmers acquired Coles-Myer group, since then, Coles has more than
doubled its
earnings before interest and tax, which has helped generate significant shareholder
value for
the Wesfarmers Group.
Key Strategies:
 Reduce the cost of the weekly shopping basket -Lower everyday prices
Coles offers staple groceries at very low prices. Since 2011, the price of
milk has been
retailed for 1$ per litre.
 Extensive & better quality Coles Brand

In order to compete with ALDI, Coles is focusing on providing a value
alternative to
well-known brands, for a fraction of the cost.
(Wesfarmers,
2014)
WOOLWORTHS
Mission Statement: “Every man, woman and child needs a handy place where
good
things are cheap”
Brand ambassador: Jamie Oliver
Branding: The fresh food people
The first Woolworths store opened in 1924 in Sydney, Australia. The Founding CEO,
Percy
Christmas, stated a key principle for Woolworths: Every man, woman and child needs
a handy
place where good things are cheap. Woolworths is widely regarded as a strong, down
to earth
and family oriented company with ethical values and a hardworking, responsible
culture.
Today, Woolworths has more than 3,000 stores across Australia and New Zealand that
span
food, liquor, petrol, general merchandise, home improvement and hotels. Woolworths
is a
proud, home-grown Australian business, employer of more than 198,000 people and
committed
business partner of many thousand local farmers, producers and manufacturers.

(Woolworthslimited.com.au, 2014)
Key Strategies:
 Extend leadership in Food and Liquor

They key is to develop a new ‘Everyday Rewards’ and customer insight driven
communication strategy.
 Put in place the enablers for a new era of growth

The importance of having a versatile online platform that caters to the new
customer
needs and lifestyle. This will enable customers to shop online from home or
on their
smartphones by using tap and take or have the products delivered.
(Woolworths Limited, 2015)
ALDI
Mission Statement: “All people, wherever they live, should have the
opportunity to
buy everyday groceries of the highest quality at the
lowest
possible price.”
Brand ambassador: None
Branding: Like brands, only cheaper.
ALDI began operations in 1913 with the opening of a small food store in the German
town of
Essen. Soon this little “service store” become a popular place to shop
The company has been operating internationally for over 50 years, with 7,000 stores
worldwide
serving millions of people across three continents. The first Australian store
opened its doors in
January 2001, ALDI has continued to grow and now over 300 stores successfully
operate in
Australia. (Corporate.aldi.com.au, 2015)
ALDI understands that its customers want value for money but do not want to
compromise on
quality. ALDI uses a lean approach to its business operations to offer its
customers quality
products at competitive prices.
Key Strategies:
 Small, simple stores

The average size of stores is 836 square metres, compared with about
3500 to 4500
sq. m for a conventional supermarket (Webb, 2008).
 Almost all products are ALDI’s own brand.

ALDI ranges around 900 products in stores against tens of thousands at
Woolworths
and Coles. Products are left on pallets for customers to pick up and
load into their
carts. Customers also bag their own groceries and pay for plastic bags
(Webb, 2008).
COMPANY ANALYSIS
Coles Supermarkets
A. Market Opportunity Analysis
Coles is one of Australia’s largest retailers providing fresh food, groceries,
general merchandise,
financial service, liquor and fuel through national stores network and online
(Coles, 2014).
B. Demand Chain Analysis

Coles’s value proposition is “to give the people of Australia a shop they trust,
delivering quality,
service and value” (Coles, n.d.). The diagram below explains how Coles delivers
this value to its
customers:
Highly Effective Supply Chain

Coles efficient distribution network is a tangible resource and a capability in its
in-bound and
out-bound logistics. The improvement of technological capabilities and supplier
relationship, it
is highly valuable as it was the significant cost-savings achieved throughout its
entire logistics
network.
Brand Reputation
Coles reputation of supplying Australian grown produce was built over many years
This was
done via positive consumer experiences with its products which can be attributable
to stringent
quality assessment procedures throughout its supply chain. Hence, this brand
reputation is
valuable intangible resources as it provides meaningful differentiation to its
competitors and
has directly contributed to higher levels of customers’ satisfaction.
Location
By the end of 2014, Coles has launched 80 new format stores including eight
superstores that
are located in strategic areas. Also, they have renewed approximately 80 stores to
improve
store layout so that customers can enjoy more shopping at Coles (Coles, 2013).
Effective Top Management
Coles top management are well aware of the importance of sustainability practice,
thus they
implements several strategies including ethical sourcing such as RSPCA approved
chicken,
sustainable palm oil, cage-fee eggs and sow stall free pork. As consumers are
becoming more
health conscious, this strategy will be valued exceptionally and hence enable Coles
to
differentiate themselves from their major competitors.
C. Supply Chain Analysis
One of the main strategies of Coles is to cut cost by improving its supply chain
management. On
the other hand, Coles has put more infestation to improve make the transformation
(Buffin, n.d).
Almost 90% of Coles brands are Australian made, it comes from fresh produce local
farmers.
There is also ‘Australia First’ sourcing policy in order to support the Australian
food industry
(Kenyon, 2012).
Coles has contracts with transport provider in order to conduct the logistic
activity. Suppliers
have to arrange inbound freight to deliver the goods to Coles Distribution Centres.
Otherwise,
suppliers can use Coles Collect Coles system so that they just need to ask Coles to
collect the
goods from their place. This system aims a better planning and efficient inbound
service both
for Coles and the suppliers. Coles has the ability and management system of its
distribution
from suppliers to Coles Distribution Centres and Coles Distribution Centres to
Coles
supermarkets shelves. This supply chain improvement allows Coles to manage the
product flow
and ensure that DC capacity is effectively utilized.
Communication is one of the most important parts of the whole supply chain system.
Coles has
launched the Coles Supplier Charter that contains all of the information for the
suppliers when
they work with Coles. Coles will conduct all the dealings with the suppliers in
accordance with
the Coles Supplier Charter (2014). Furthermore, there is Supplier Portal (n.d.) to
support the
efficiencies and give a better communication between the two parties. This portal
also provides
information to assess suppliers’ performance and identify opportunities along the
value chain.
WOOLWORTHS
In June 2014, Woolworths was still the largest retailer by market share owning
39.6% of total
market share (Bariacto and Di Nunzio, 2014). The two most prominent drivers of
value which
help to secure such market share are competitive pricing and fresh produce. Lately,
a new value
driver has emerged: widening access to produce through nation-wide network of
physical
stores as well as online shopping and delivery. Below is SWOT Analysis that
highlights
Woolworth’s strengths and weakness in the face of opportunities and threats in the
market.

Woolworths’ value proposition is centred around providing fresh groceries: “we’ll
always work
hard to make our customers are happy by providing them with nothing but the best of
fresh
food” (Woolworths Limited, 2012). The brand slogan Fresh Food People is well
established and
perpetuated most media channels including TV, radio, and internet. The below
Resource Based
Theory provides an insight into the creation and delivery of value across the
supply chain.
Tangible Valuable Rare Costly Non-

Competitive
Resources to substitutable
Consequences
imitate
Sustainable
Integrated supply chain Yes Yes Yes Yes
competitive
advantage
Temporary
Over 3,000 stores AUS &
Yes Yes Yes No
competitive
NZ
advantage
Temporary
In-store sushi kitchens Yes Yes No No
competitive
advantage
Sustainable
Various store formats Yes Yes Yes Yes
competitive
advantage
Temporary
Brand ambassador: Jamie
Yes Yes Yes No
competitive
Oliver
advantage
Intangible Valuable Rare Costly Non-
Competitive
Resources to
substitutable Consequences
imitate
Sustainable
Established brand Yes Yes Yes Yes
competitive
advantage
Competitive
Promotions and Marketing Yes No Yes No
parity
Sustainable
Online channel operations Yes Yes Yes Yes
competitive
advantage
Everyday Rewards
Competitive
Yes No Yes No
membership
parity
Sustainable
Mercury II system for
Yes Yes Yes Yes
competitive
efficient logistics
advantage
Temporary
Partnership with eBay Yes Yes No No
competitive
advantage
Valuable Rare Costly Non-

Competitive
Capabilities to
substitutable Consequences
imitate
Fresh or Free Guarantee Yes No Yes No
Competitive
parity
Price control – competitive Yes Yes Yes No
Temporary
pricing strategy
competitive
advantage
Responsible sourcing
Sustainable
initiatives Yes Yes Yes Yes
competitive
advantage
Large portfolio of brands Yes Yes Yes Yes
Sustainable
providing buffer against
competitive
food retail crisis
advantage
Woolworths’ customers want the freshest quality for good value. Integrated supply
chain with
in-built features to keep food as fresh as possible provides sustainable
competitive advantage
through cost-savings and quality control. The introduction of the new convenience
store format
in urban areas where high rise block apartments have thrived in recent years
(Cummins and
Sprague, 2014), is predicted to capture the rising market of urban dwellers. Having
a portfolio
of store formats such as convenience/petrol, full-line, new market, metropolitan,
etc. brings
sustainable value to the customers by reaching them at convenient locations.
Woolworths also owns important intangible resources which contribute to the
maintenance of
its sustainable competitive advantage. These include its well-established brand,
market leading
online shopping channel with recipes and convenient shopping lists, and new
technologically
advanced supply chain and logistics system Mercury II (Mitchell, 2014) aiming to
create
efficiencies in the logistics of food as well as liquor and general merchandise.
Woolworths’ value-creating capabilities include Responsible Sourcing initiatives as
a response
to the growing concern over the treatment of farm animals and profitability of
Australian
farmers. In order to meet future demand, Woolworths helps suppliers gain
certifications in the
form of grants and research (Woolworths Limited, n.d.). Moreover, Woolworths
benefits from
being part of a conglomerate of various brands which shield the food retail brand
from loss of
market share and profitability.

One of Woolworth’s strengths is its integrated supply chain, in which the company
controls the
logistics, warehouse storage and distribution of products. Since Woolworths’
primary focus is
on the fresh produce, there are close-knit relationships between Woolworths and its
farmers.
They try to establish an effective supply chain though the control of produce size,
aesthetics,
volume, taste, etc. The following activities are involved in Woolworths’ supply
chain:
Outbound & Inbound logistics

Woolworths dictates strict rules of produce to farmers and maintains the best
possible
conditions for preserving food fresh through their use of distribution centres and
truck with
controlled temperature boxes (Woolworths Limited, 2012). The majority of goods are
supplied
through direct contract, leaving the wholesaler out of the process. Woolworths
attempts to
maintain the value of its fresh produce by aligning distribution channels so that a
product is on
the store shelves no longer than one day after being dispatched from the farmer
(Woolworths
Limited, n.d.).
Communication System - Operations
Woolworths coordinates its value through its operations. It has recently invested
into a new
logistics software – Mercury II system – which should cut the costs of transporting
groceries
and general merchandise across Australia (Mitchell, 2014). Moreover, Woolworths
Quality
Assurance (WQA) program sets up specifications on size, weight, aesthetic values
and
temperature in order to provide fresh and top quality produce consistently. The
retailer advised
its beans supplier to use smaller packaging in order to allow more airflow through
the box and
preserve the look and quality of supplied beans longer (Woolworths Limited, 2012).
Suppliers - Procurement
Woolworths’ Fresh Food Future Program is an ongoing investment to fund and promote
new
projects that improve the sustainability of its food supply chain (Woolworths
Limited, n.d.).
Through building sustainable food supply, Woolworths is coordinating the value of
offering a
wide range of fresh Australian produce. In order to create cost-savings in the

procurement
process Woolworths is helping its suppliers to specialise and encourages
monoculture which
yields more produce (FlavourCrusader, 2015). The drawback here, however, is that
such
produce is more prone nature’s disasters like flooding, diseases or pests.
ALDI Supermarkets
Supermarket industry in Australia is dominated by two big giants – Woolworths and
Coles.
However, since its opening, ALDI is slowly catching up. Although ALDI keeps a close
eye on their
competitors, it always sets its own course. It picks and understands its target
customers, and
never tries to copy the strategy of its competitors. This is why ALDI is special:
Strengths Weaknesses
• Targeted product offerings •Manual system used
•Simple operations •Narrow product range
•Private label sourcing •Limited number of staff
•Price edge over competitors •Poor quality control
management
•Low profit margin •Minimal perishable goods
•Deep pockets of parent company
•Good relationship with suppliers
•Limited partnership
Opportunities Threats
•Electronic commerce •Staff turnover
•Increase market penetration •Product recalls
•Product quality improvement •Aggresive marketing of
its
•Succession planning for staff competitors
•Loyalty club card
•Customer service

ALDI’s value proposition is to provide customers with products they regularly buy
at the
highest quality and at guaranteed low prices (ALDI, 2015). It delivers this using
the following
value drivers:
The most important for customers is ALDI’s price control, which is its key success
factor. It is
able to sell low-cost products through its effective lean management system; low-
cost but highly
productive staff; healthy financial status; economies of scale from procurement;
and efficient
transportation and distribution systems.
ALDI uses lean production aims to produce more using less resource. Whenever local
supplier is
available, ALDI taps them to reduce the need for long and costly delivery journeys.
Products are
received exactly when they are needed to eliminate large inventories. They use the
bar codes
attached to each item to forecast sales (Business Case Studies, n.d.b).
To minimise its staff requirements, ALDI limits its trading hours (Coriolis
Research, 2000). It
opens from 8am until 8pm from Monday to Saturday, and from 10am until 4pm on a
Sunday. It
also provides training to its employees for them to perform a variety of duties
throughout the
store (Business Case Studies, n.d.b).
As an international retail store, ALDI receives financial assistance from its
parent company. Its
German parent company ALDI Sud invested around $2 billion to support its expansion
plan in
Australia (Speedy, 2013).
ALDI buys in bulk to allow it to negotiate better with its suppliers. Furthermore,
once a price
has been negotiated with the supplier, no additional trade spending is made –no
slotting fees,
introductory allowances, promotional discounts, volume allowances, even funding,
voluntary
donations, etc (Coriolis Research, 2000).
Given these, Moody’s Investors Service predicts that ALDI will pose a long-term
challenge to
Woolworths and Coles. It expects ALDI’s store growth to continue at 5-6% a year
over the next
five years, thus surpassing the big two (Pash, 2015). As of November 2014, ALDI has
already
opened more than 300 stores in Australia and is expected to open more than 400
stores across
the eastern seaboard by 2016 (News.com.au, 2014). Each store is estimated to bring
a profit of
$10-20 million annually, with non-food items accounting for about 30% of its sales
(Heffernan,
2014).
ALDI wanted to enhance the efficiency of its supply chain for the suppliers in
packing and
transportation areas. Together with CHEP, a leader in supply chain management and
also pallet,
container, and crate pooling provider, they have launched a new system of reusable
plastic crate
for their fresh produce supply chain called Gen 3. Hafiz (2013), states that by
working with
CHEP on the Gen 3, ALDI achieves a one-touch solution and increase the efficiency
in many
points of its supply chain. She also says that the efficient supply chain means
their customers
are not paying for unnecessary overheads. To do so, ALDI has to simplify as many
operations as
possible to cut down the costs and maintain the low price goods.
According to aldisuppliers.com.au (2013), ALDI’s delivery system is divided into
domestic and
international supply. For domestic supplier can deliver their palletized goods to
ALDI’s
distribution centre or use ALDI logistic to pick up the goods from suppliers’
warehouses;
whereas, for international supply, it is suppliers’ responsibility to deliver and
arrange the
shipment to Australia with the assistance of ALDI internal logistic or its logistic
supplier
partners.
To communicate with its suppliers, ALDI has an online supplier network that
contains all
information needed to work together. In addition, supplier’s bargaining power is
low. If the
suppliers do not agree with the price given by ALDI, then ALDI will find other
suppliers
(Brandes, 2005).
SUMMARY ANALYSIS
As we have seen, the value drivers for the supermarket industry are mainly focused
on cost,
accessibility and relationships. We can conclude that all three supermarkets
analysed, create
value in very distinct ways to bring their individual competitive advantages
forward.
ALDI has had a huge impact on the Australian consumer perception towards private
label
groceries. ALDI stores offer includes limited choice but well-presented stock at a
very low price.
It largely appeals to the low income/discount-seeking customer, stores are mainly
situated in
lower-income areas, accessible and close to their target market.
Coles, caters to the price conscious shopper by focusing on delivering value for
money. Coles is
now offering staple groceries, such as milk and bread, at a low price. The company
has largely
improved its service since it was acquired by Wesfarmers, increasing supply chain
efficiencies
and revamping the quality and quantity of their private label products. (Armstrong
and Adam,
2015) Around 90% of Coles brands are Australian made. Coles has an ‘Australia
First’ sourcing
policy that supports the local food industry, which is extremely important to
Australian
consumers.
On the other side of the spectrum we find Woolworths. Woolworths creates value
through its
investment in integrated supply chain of various brands which yields cost savings.
Its large
portfolio of brands allows it to invest in online shopping channels and new store
formats in
order to make its products accessible to various customers in various locations.
Woolworths
also attempts to transform its value from ‘cost’ to ‘symbolic’ and gain competitive
edge over its
rivals. It delivers value in the form of Responsible Sourcing, which differentiates
it brand to
appear more ethical and socially responsible rendering the retailer less prone to
price wars.
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Supermarket Industry in Australia

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Supermarket Industry in Australia

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1 | P a g e Supermarket Industry Analysis

Kaplan Business School Melbourne Campus

SUPERMARKET INDUSTRY IN AUSTRALIA

The Supermarket industry in Australia is dominated by two major corporations:

Source: (RoyMorgan, 2014)

Brand ambassador: Curtis Stone

Branding: Save every day

 Extensive & better quality Coles Brand

Brand ambassador: Jamie Oliver

Branding: The fresh food people

business partner of many thousand local farmers, producers and manufacturers.

 Extend leadership in Food and Liquor

 Put in place the enablers for a new era of growth

(Woolworths Limited, 2015)

Brand ambassador: None

Branding: Like brands, only cheaper.

 Small, simple stores

 Almost all products are ALDI’s own brand.

B. Demand Chain Analysis

Highly Effective Supply Chain

C. Supply Chain Analysis

B. Demand Chain Analysis

Tangible Valuable Rare Costly Non-

Valuable Rare Costly Non-

C. Supply Chain Analysis

Outbound & Inbound logistics

wide range of fresh Australian produce. In order to create cost-savings in the

B. Demand Chain Analysis

C. Supply Chain Analysis

Woolworths Limited 2014, ‘How We Were Founded - Woolworths Limited’ [online],

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