I blabber on here regularly about the strategic decisions of Australia’s two biggest retailers – Coles (now part of the Wesfarmers empire) & Woolworths. The sheer size and breadth of these two firms’ operations warrant considerable attention.
The folks at ABC TV’s Hungry Beast have done a great job of bringing together the relevant stats and information about strategic agenda (and outcomes) for these two giants in a very neat, short presentation:
As their graphics show (although not explicitly), there is a lot going on in terms of Porter’s Five Forces. Coles/Wesfarmers and Woolies have affected the economic structure of their industry(s) substantially so as to:
– reduce Rivalry (by acquiring competitors, and by building strength across retail markets so as to reduce the likelihood of competitive attacks)
– increase their Bargaining Power vis-a-vis Suppliers
– reduce Buyer’s choices of store operators (and thus their Bargaining Power)
– build substantial Barriers to Entry (although I would argue the Hungry Beast folks have misused the term greenfield).
The result is two firms that a massively oversized for the relatively small economy in which they operate. Australia accounts for roughly 1.1% of the global economy (in terms of GDP). Adding NZ (where these firms have much smaller coverage) only raises that figure to 1.26%.
Nevertheless, these firms come in at #26 and #28 on the Deloitte rankings of Global retailers by revenue. They are larger than all but 3-4 of the US’s supermarket chains, and of the British chains only Tesco is larger. Other than the US’s Kroger, Safeway and Supervalu, and Germany’s Edeka, no other large grocery chains operate in anywhere near as few countries (the rest are in 8-36 countries).
Seems like more evidence why I should be shopping at Aldi, my local farmers’ market and independent liquor outlet…
And thanks to Sakshi for bringing this clip to my attention.
Tags: Aldi, Australia, bargaining power, barriers to entry, business, coles, Edeka, finance, Five Forces, grocery, Kroger, michael porter, Porter's Five Forces, retail, Retailing, Safeway, Strategic management, strategy, supermarkets, Supervalu, Tesco, wesfarmers, Woolies, Woolworths
International BS Blog 
March 17, 2010 at 6:12 pm |
Social comments and analytics for this post…
This post was mentioned on Twitter by hntweets: Why Aussie groceries cost so much: http://bit.ly/bXFhis Comments: http://bit.ly/bvPpr7…
March 17, 2010 at 6:58 pm |
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March 17, 2010 at 9:19 pm |
The major barrier to entry, it’s hard to find decent new locations for supermarkets because of how big they are, is, I think overplayed. First, Australia is better in this regard then most other places, becasue of the low population density of most cities. Second, there are many places where it isn’t that bad. Take someplace like Canberra: No problem finding locations. If that barrier was really the significant parameter we would be seeing more alternative supermarkets where the barrier is lowest. We don’t. Aldi seemed to have been assuming this was the best strategy earlier on, but now they seem to be building mostly in central places.
I’m not saying it’s good two virtually identical mega retilers are the only game that matters, just that it may not be some textbook case.
March 17, 2010 at 10:19 pm |
How is it that information like this only becomes of media interest when the fan is hit and broken.
The business strategy that W & C are taking is not sustainable, sure consumers will moan and cry … maybe even protest, but ultimately this beast was brought into existence by the consumers.
Monopolies don’t just happen overnight, consumers should learn to spot these trends.
March 17, 2010 at 10:49 pm |
Human filth. May their empires burn, and may the greedy suits in charge die in poverty in the gutter.
March 18, 2010 at 12:42 am |
@Markus
Wow, such vehemence
March 18, 2010 at 6:30 am |
(via Hacker News)
Its kind of depressing which companies seem to grow into enormous enterprises in Australia. Mining companies and supermarkets. Pillaging natural resources, shafting farmers and consumers. Those seem to be our most successful business models. Depressing indeed.
March 18, 2010 at 6:37 am |
(via Hacker News)
We need to be careful about equating company size with company ‘nastiness’.
The mining firms are (partly) of a huge scale because that is what is needed to succeed globally, and they have achieved the scale through very considerable international expansion (including substantial mergers – think Rio Tinto, and BHP Billiton).
As the post argues, the two big Australian retailers haven’t been anywhere near as ‘brave’ internationally.
March 18, 2010 at 6:39 am |
(via Hacker News)
And banks. A lot of the biggest companies in Australia are banks.
As the post argues, the two big Australian retailers haven’t been anywhere near as ‘brave’ internationally.
March 18, 2010 at 6:44 am |
They are more like the retailers… huge local players, but pretty shy about international expansion.
March 18, 2010 at 7:48 am |
What a great presentation! Very neat and accurate. It is a tough market out there and one that is very well protected at many layers. Change is slow but is coming. Consider your choices and make where you shop a conscious one, each time. Carefully consider the marketing messages being presented and the motives and timing behind them. Given the costs involved in marketing, nothing is done without expectation of a return. Do not get drawn into obvious attempts to ‘convince’ you about their goodwill. One should question why they need to sell that side in the first place? Embrace your power of choice and excercise your freedom of choice next time you choose where to shop. Only then can the slower and bigger beast of change gain momentum. And yes, there are a lot of very large companies out there that embrace their power in relation to their size with great consideration and promote corporate responsibility they can foster and encourage in others.
March 18, 2010 at 8:13 am |
(via Hacker News)
It’s worth noting that the cheapest priced groceries at Woolworths and Coles tend to be their own brands, which cover a very wide range of products that you’d find at a supermarket.
The Woolworths Select branded items, while being the cheapest, are often of a higher quality than a lot of name brand competitors.
March 18, 2010 at 8:20 am |
I’m sorry but no. You’ll constantly hear people banging on about how the in-house brands are made by other reputable brands, and the likes of ACA and Today Tonight will constantly reinforce this fallacy.
While it is true that reputable brands sometimes manufacture the in-house brand’s product, it is not (as ACA would have you believe) a case of Cadbury’s quality chocolate in cost saving packaging. “Reverse tendering” occurs, where the head office “buyer” will set an objective cost and manufacturers will compete in a reverse auction towards it.
(via Hacker News)
Cadbury and Nestle (and anyone who can keep up) will not simply provide their standard premium product, but look to cut as many costs as possible. What you will get is a final product that will probably be made from different ingredients, probably be manufactured with a different recipe and probably manufactured using different machinery/methods.
What you are left with is a product that barely resembles its manufacturer’s name brand product, and as long as it passes unit testing/quality control, Woolies or Coles don’t really care. The almighty dollar.
March 18, 2010 at 8:27 am |
Looks like costco is making a big push into Sydney. And I have seen Aldi stores around the place, looks like we might have some competition soon.
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