1. Introduction:
A strategic review can be defined as a procedure through which organizations every year evaluate their functioning and also detect new value generating prospects within a business. A strategic review can be about enhancing the execution of a particular division in a business or exploiting another market nearness circumstances.
The benefits of performing a strategic analysis involves
¬ Enhanced alignment with the administration group.
¬ Superior organizational structure according to the strategy.
¬ Higher engagement of personnel for the sustenance of business strategy and better performance.
¬ Better financial allotments and outcomes.
In this report a strategic review is being conducted on Coles Supermarkets Australia Pty Ltd, operating as Coles was established by G.J. Coles in 1914 in Collingwood, Melbourne. With over 800 stores, 900 liquor stores, 80 hotels and 100,000 employees, Coles represents for more than 80 percent of the Australian market. Coles also have an online provision called Coles Online which is accessible to over 85% of the Australian population where consumers can either click & collect or acquire goods by getting them delivered to their home. From 1986 to 2006 Coles was operated under the brand name of Coles Myer Limited, and after that changed to Coles Group Limited. In the year 2007 November 23rd a Western Australian public company named Wesfarmers operating from Perth acquired Coles Group Limited for $19.3 billion.
The principal role of the supermarket industry is to act as an intercessor for manufacturers, and in addition deliver services to supplement its trades. A great growth is achieved from the past 5 years and it is expected that there will be a growth rate of 2.2% in 2017 – 2018 with already generating $102.0 billion revenue in the Q1 and providing employment for over 362,000. Industry GDP progress has likewise been solid the previous 5 years. The major players in supermarket industry include Coles, Woolworths, ALDI, IGA, Costco etc.
Coles runs over 800 stores across Australia and had a total sale of $30 billion in 2016/17 with 33.2% of control over the supermarket industry being one of the biggest operator with its close rival Woolworths which has control over 35.7%. By thoroughly scrutinizing the internal and external environmental factors of Coles, the required changes in the strategies being implemented can be known and recommendations can be made based on the results if needed.
2. Strategic Analysis:
2.1 Methods:
Many sources like newsletters, websites, databases, business documents and industry reports were used to gather information about Coles Supermarkets Australia Pty Ltd and its strategies. The information about the company, market share and strategies that are being implemented is acquired from Coles website and the acquisition information about Coles by Wesfarmers is acquired from Wesfarmers website. The supermarket industry and industry GDP information is acquired from “Australian Food and Grocery Council” where detailed information is provided about the revenue generated by the supermarket industry and as well the growth comparison between different financial years is elaborately mentioned. The legal issues being faced by Coles are acquired from “Australian Competition and Consumer Commission”.
Other sources include some news websites like The Australian, Ibis, abc news, News.com, Inside FMCG. By scrutinizing these websites, the strategies being implemented, performance of the company in different quarters of a financial year, social material, technological news, legal information, governmental information, failures in executing the strategies etc., is obtained. In abc news and News.com the main cause of strategy failure, reasons for the downfall of Coles market share information is acquired.
2.2 Strategic Analysis:
PESTEL analysis on Coles Supermarkets Australia Pty Ltd.
PESTEL stands for Political, Economical, Social, Technological, Ecological and Legal. By applying PESTEL analysis on Coles it is observed that:
Political
Governmental measures in contradiction of the duopolistic type of market.
Introduction of “three pronged plan” by “Bank Reform Party”.
Economical
Rapid growth of its rival companies like Woolworths, Aldi.
Dropping prices to conserve market stake.
Small expending Australian consumers.
Social
In 2017 $24 million is the amount of money raised for national cancer charity by partnering with Red kite.
Amid financial year 2017 goods manufactured by Coles won 51 industry awards.
Technological
Installation of Self – Check out services.
Introduction of Coles online services, android and apple applications.
Legal
Lawful accusations by ACCC for ill-using market power.
Environmental
Ban on plastic bags.
Recycling of card board wastes.
By applying PESTEL analysis it is observed that there are more negatives than positives in the managing measures of Coles that are causing a decrease in growth and consumer demand.
Political:
Being one of the biggest supermarket in Australia next to Woolworths the governmental measures taken on Coles is a setback. In order to prevent the extinction of smaller businesses and to encourage and make it easy for potential new entrants, some reforms are taken on the business expansion of Coles and also a “three pronged plan” was introduced by Bank Reform Party(BRP) which contains
¬ A ‘Fair Go Code’ to prevent the misuse of supermarket power.
¬ Helping the smaller and medium sized businesses to sustain in the supermarket industry.
¬ Explanation of unacceptable behavior to ACCC in basic and simple language.
Economical:
With a rapid increase of market share mainly by Woolworths and Aldi there is a drastic fall in the market share of Coles to 30.9% in the financial year of 2016/17 and is expected to fall more in 2017/18. In order to regain its lost market share Coles started a ‘Price War’ (Selling goods at lower costs than other businesses) against its rivals to attract more customers. This resulted in further more drop in the market share as the operational costs remains the same which led Coles run out of profits margin. In the recently released half yearly financial results it is reported that the earnings dropped to 14.1% from $920 million to $790 million.
Social:
The social work done by Coles is a positive where so many charity funds are being collected to support people suffering from cancer by partnering with Red Kite. An estimated $23 million kilograms of food is donated to different communities by partnering with SecondBite since 2013.
Technological:
Compared to other business rivals Coles have more improved technological aspects which increases the customer demand. Self – check out facilities are provided in every store where customers can bill their goods on their own. Coles online is another service introduced by Coles where customers can shop online and get their goods delivered home. Android and Apple applications of Coles are also available to know about the prices and the new deals offered.
Legal:
Legal accusations on Coles by ACCC for the unreasonable behavior with its suppliers and misusing the negotiating power costed Coles $10 million causing a serious impact on its growth as well as its connections with the suppliers.
Environmental:
Recent ban on plastic bags is a great measure by Coles to encourage consumers to bring their own bags to reduce the usage of plastic products as much as possible.
Two most significant influences:
¬ With the governmental measures being against the duopolistic nature, the entry barrier is decreased to reduce the competition and allow newer businesses enter the supermarket industry allowing the consumers to equate the rates afore taking the buying judgments which is an increase in the bargaining power of the consumers. If Coles can provide better quality products than its rivals at better prices, then it will help in regaining its lost market share.
¬ Consumers are more bothered about the quality of a product than the price of the product. If the quality of the product is good and price is higher, consumers won’t hesitate buying them. Therefore, Coles should concentrate more on the quality of the products they are supplying rather than the prices.
Two Key Forces
Threat of Substitutes:
With agriculturists markets and convenience stores Coles faces numerous backhanded rivalries making the threat of substitutes high. Farmers selling cheap and healthy organic products and expansion of products offered by convenience stores it should be considered as a potential threat in the future.
Threat of new entrants:
It can be considered that the threat posed is low as Coles already being an established company with surplus resources in terms of number of stores, employees and capital is no match for the new entrants except for the developing businesses like Aldi and Costco.
Strategy Canvas:
Fig.1 Strategy Canvas of Coles with two main rivals
Three most critical success factors:
¬ Being one of the biggest and reputed supermarket business in Australia with less competition of its size other than Woolworths without losing its position to other rival supermarkets is a big success factor for Coles.
¬ Introducing updated technology like self checkouts, mobile applications and online services making it easy for the consumers.
¬ Supplying a wide range of goods by being a ‘one stop purchase and go’ for the consumers.
Influence of innovation:
Innovation is always a great thing to work out with by self examining things like what the business is lacking and what consumers are expecting from them.