MATH1324 Supermarket Price Wars Online Tutoring

Woolworths v Amazon

Introduction

Woolworths Australia was founded in 1924 as an Australian-based retailer giant. The company is operating in segments including Australian Food, Endeavour Drinks, Hotels, BIG W, and New Zealand Food (Reuters, 2020). It has a current market share of 34% followed by 27.6% market share of Coles and 11.4% market share of Aldi (see figure 1 below for market shares).

Although the company has been taking leaps in market share expansion, the evolution of digital technology has been posing many threats for its profitable operations recently. Amazon, as a major digital business player, has recently decided to jump in the Australian grocery market for competing with Coles and Woolworths (Verdict Foodservice, 2019). A huge reduction in prices by Amazon and its superior services are threatening the margins of Woolworths (Pollak, 2017). Hence, this report is written for analyzing the internal and external issues faced by Woolworth and providing the solutions to grapple with the major two threats i.e. corporate staff’s insufficient training for handling online orders and dwindling supplier relationships.

Situation Analysis

Internal Capabilities

• Ability to attract and retain the highly experienced employees at the workplace
• Dedicated supply chain of fresh foods and healthy food products (Woolworths, 2020)
• Ability to deliver the value to its customers and enhance profitability (Australian Food News, 2017)

Core Competencies

• It owns world-class supply chain focused on efficiency and cost cutting for managing the unnecessary expenses(Arli, Dylke, Burgess, Campus, & Soldo., 2013).
• It is well positioned due to its slogan “the fresh food people” as it created the differentiated image of healthy products amongst consumers(Biddle, 2016).
• It implements innovation concept at several stages of project including “re-fresh” and the “new idea program” in petrol retailing.
• It is vertically integrated with suppliers so that its market power can increase.

Current Challenges

• Declining cloth sales due to aggressive promotions by the competitors
• Online grocery market is constantly subjugated by the major supermarkets and disrupted by the discounters like Aldi and Amazon(Chanthadavong, 2020).
• Failure to deal with rising online grocery demand by Australians recently. According to survey, 73% of the young consumers shop online (Bodgan, 2018).
• Its online shopping system doesn’t allow ordering fruits and vegetables by weight. Although the costing is by weight but the quantity is done using item count. There is also some variance between the anticipated and actual weights delivered at door step(Finders, 2019).
• Deliveries are done at an elevated temperature (as much as 12.3⁰ C) for items like Chicken(Bodgan, 2018).
• Woolworths’ employee training packages are not efficient in training employees for speak-up hotline and email services. The e-learning modules for online customer representatives are also not efficient as the company has not invested sufficiently in the project of e-learning(Mirage News, 2019).
• The online grocery service is inefficient as majority of the staff members do not know the online ordering mechanism (Finders, 2019).
• Due to its aggressive strategies, it is damaging the relationships with suppliers. According to Mitchell (2020), many suppliers of Woolworths reported to be unhappy with Woolworths as it asked them to mitigate 50% of the price increases. Moreover, Woolworths has recently lost its ground due to bad morale and commercial acumen while partnering up with suppliers(Mitchell, 2020).
• Recently, suppliers have been rating Aldi and Coles above Woolworth when it comes to fresh fruits and vegetable delivery. Moreover, suppliers complaint that Woolworths has been charging extra 3% to cover the marketing costs during sales while Amazon and Aldi absorbs the losses on sales in its own profit margin (Battersby, 2017).

External Analysis

Due to the above identified internal issues, the competitors like Amazon have emerged to enter the online grocery market in Australia.

• The challenging retail environment in Australia has put pressure on Woolworth as it struggled to compete with discounters like Aldi and Amazon for past five years (IBISWorld, 2018).
• Aldi’s expansion in Southern and Western Australia has allowed it to seize market share over the past five years (IBISWorld, 2018).
• Due to industry’s attractiveness, online grocery sales are growing exceptionally in past five years causing AmazonFresh to enter the market (IBISWorld, 2018).
• The anticipated arrival of AmazonFresh in next few years is likely to put further pressure on Woolworth to improve its online sales, online ordering system, employee training and suppliers’ relationships (IBISWorld, 2018).
• The posed threat by AmazonFresh entry is also putting pressure on Woolworth in terms of reducing prices (IBISWorld, 2018).
• Opening of dark stores by Coles and AmazonGo stores in Australia are causing Woolworths to rethink about investing in online shopping (IBISWorld, 2018).
• AmazonFresh’s entry in retail industry will likely cause trouble for online sales by Woolworths due to its strong negotiating power and lack of storefronts (IBISWorld, 2018).
• Investments in store systems, mobile applications and online platforms are likely to rule over the retail industry for expanding consumer reach(IBISWorld, 2018).

Objectives

The key objectives of this report are to;

• Introduce e-commerce modules for training 100 customer representatives for catering online sales in first quarter of 2021. Its reported that 500,000 online customers of Woolworths are not dealt efficiently as their needs are not met exclusively from online customer representatives(Cameron, 2017).
• Improve the supplier score to reach 8 points by the half year through 2020. This should be done so that the risk of losing suppliers to competitors can be reduced further (Mitchell, 2020).

Plan

Woolworths need to invest heavily in its digital strategy as it is identified that the online grocery shopping has increased and demand from tech-savvy in-store customer is on the rise. The growth in dark stores by Coles and AmazonGo shows how retailers are responding to increased online demand (Dayan & Arnolds, 2012). Within the evolving digital retail environment, online grocery applications and websites are experiencing strongest growth where consumers tend to interact with each other and global retailers (Kaur, 2018). Hence, penetrating in online environment needs handsome investment in customer service operations so that consumers can be dealt in short times. The first solution is presented for improving the online customer service for the customers of Woolworths by training the staff members accordingly.

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