Retailing and Bargaining Power free essay sample

Woolworth’s supports strong competition in the retail market. Competition keeps prices low for customers and drives improvements in products, range and services. Our aim is to be the most competitive retailer across our stores in whatever market we are in. Increasing competition has been present in all categories in which Woolworths operates. This has increased discounting activity. Retailers have also taken full advantage of the high Australian dollar to pass through cost savings in better prices. Woolworths has developed strong long-term direct relationships with producers and suppliers across the primary industries sector.Some pricing action initiated by other retailers, for example private label milk reductions, has caused considerable concern among suppliers that long-term profitability will be impacted. Whilst Woolworths did not initiate this pricing, we took the decision to match it so that we continued to offer our customers competitive prices. A Federal Parliamentary Inquiry was held in 2011 to consider these issues and concluded that: â€Å"In general, price discounting is likely to be pro-competitive and of benefit to consumers. We will write a custom essay sample on Retailing and Bargaining Power or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Provided it does not constitute predatory pricing, a retail price cut should not be discouraged. † The report implied that discounting had not affected farm-gate prices, but indicated that the degree to which any losses suffered by processors are passed on to farmers remains a key concern. Woolworths participated fully in the inquiry and has argued in this and other forums that delivering value to consumers has to be balanced with sustainable return for the producers and that the long-term health of Australia’s farming sector is critical. Porters five forces analysis According to Porter (2008), â€Å"awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack†. Industry structure drives the competition and profitability – no matter whether the industry is emerging or mature, high tech or low -tech, regulated or unregulated (Porter, 2008). From the five-force analysis a company can take its position in the industry based on its competitive strengths. But the strategy shouldnot be focused on elimination of rivals, because it is a risky strategy. A profit windfall from removing today’s competitors often attracts new competitors and backlash from customers and suppliers (Porter, 2008). 1. Bargaining power of Buyers In Australia supermarkets offer almost homogenous products, which have low switching costs between stores and thus has provided buyers with extremely high bargaining power. The bargaining power of buyers in this industry is very high, with the exception of stores customizing their offering o a specific market.2. Bargaining power of suppliers The bargaining power of suppliers in the supermarket retailing industry varies depending on the brand name of the suppliers and the size of the supermarket. Such as British American Tobacco and Coca Cola are that type suppliers who enjoy strong power in the supermarket. Hence, the bargaining power of suppliers in the supermarket retail industry in Australia is high to moderate. Powerful suppliers will result in higher priced inputs.To a company, the larger a supplier is, the higher the dependency on the particular supplier, and leads higher bargaining power of supplier. 3. Industry Substitutes In the supermarket industry there are also a number of substitutes for consumers such as convenience stores, pharmacies, non-affiliated petrol stations, online stores, grocery stores, delicatessens and fresh food markets. Consumers are willing to pay high prices for the convenience e. g. closer to home, no queues, easier parking. Thus the availability of substitutes in the supermarket industry is moderate to high.4. Threat of new entrants Due to low price offer in Australian retail shops and domestic supermarket industry it is not an attractive industry to enter, with a low profit potential. The scarce availability and high market price of land, huge capital requirement, government restrictions and regulation etc. can act as barriers to entry. The relationship of existing big players with the suppliers and requirement of establishing own distribution centers by the new entrants can also be a barrier. It seems that the barriers to entry in supermarket industry are moderate.5. Rivalry among competitors The rivalry between competitors in the supermarket industry is intense. CONCLUSION According to Porter (2008), â€Å"Rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers†. The retail industry in Australia is mature and intensely competitive with a low profit potential and thus is not an attractive industry to enter. Despite the intense competition and low profit potential, Woolworths have a 10.7% growth in its sales (Alam and Majumdar, 2011), which is a clear indication of its superior business model. From the above discussion we can say, Woolworths has understood the business as a process and expanded its boundaries to include customers and suppliers. It has identified its strengths, added value to multiple activities in new and innovative ways, and leveraged its capabilities to enhance the flexibility of operations through close integration and coordination of independent activities. As the company broadens its products offering s and expands into new markets, e. g. New Zealand and India, it is likely that the benefits will only grow entrenching Woolworths as the dominant player in the retail market and preserving the sustainability of its competitive edge. Comments Comments The relationship between Coles and Woolworths and their suppliers is under a microscope from politicians, competition regulators and consumer group. Furthermore, the company is considering launching a retail brand called Woolworths Local in an attempt to play up its close relationship withAustralian farmers and suppliers. The most recent move by Woolworths comes amid growing concern about supermarket-supplier relationships in Australia, which has seen both Woolworths and Coles face heat from the Australian Competition and Consumer Commission (ACCC), industry groups and the media. Negotiations for a voluntary code of conduct to govern the relationship between supermarkets and suppliers have been underway for nearly a year.Australian Food News reported earlier in September 2013 that food law experts FoodLegal are to run a symposium on supermarket-supplier relationships in Sydney in November 2013. Speakers at the symposium will include supermarket and supplier representatives, as well as policy makers and legal representatives. As long as margins stay healthy, and customers don’t mind too much where their savings come from, the battle between Coles and Woolworths seems likely to continue. That’s probably bad news for suppliers, and good news for property developers.