HI5003 The Market Structure Of Coles And Woolworths Assessment Answer
THE MARKET STRUCTURE OF THE COMPANY
Australian Supermarket Industry
As discussed above, Coles group operates in the supermarket industry of Australia. According to the draft report by the Australian treasury 2018, more than 80% of the supermarket sector revenue is generated by four big groups (AC, 2018).
Coles and Woolworths are the two biggest groups in the supermarket sector holding over 65% of the market share (AC, 2018). The huge market share by the two giants significantly impacts the retail sector with their practices (Keith, 2012).
Coles and Woolworths are established players in the Australian supermarket industry. ALDI, a budget-friendly option entered Australian supermarket space in 2001 and since then has grown tremendously. Its impact has been felt in Australian supermarket already by changing the pricing through availability of low-cost products. In order to differentiate their own products, Coles and Woolworths have now started focusing on better experience, both in-store and online. Technology as well as marketing and promotional strategies is being applied to capture as much market share as possible. Hence, the market is characterized by fierce competition and ever changing business models.
According to IBIS (2018), the market share of Australian supermarkets and grocery stores was as follows:
This can be presented graphically as follows (IBIS, 2018):
From the above, it can be seen that large chunks of market share are concentrated with a few market players such as, Woolworths, Coles Group and ALDI, which together constitute more than 75% of the market.
Economic Market Structure
All of the above data indicates that the Australian supermarket industry is characterized by presence of few large players that dominate the market. There is fierce competition in the market and high spend on promotion and marketing so as to capture maximum market share.
This is one of the main characteristics of an oligopoly market structure. The main features of an oligopolistic market structure are (Perloff, 2008):
- Few Large Sellers: An oligopoly market is dominated by a few large sellers where decisions of one firm directly impact the decisions of the other firm, particularly those related to prices. This is true in the subject case where there are top 4 players practically capturing more than 75% of the market share.
- Marketing and Promotions: An oligopoly will have firms advertising frequently and will normally have a large budget reserved for the marketing and promotional activities as it helps to capture more consumers. This is also true in case of Australian Supermarket industry where the top three players engage in frequent advertising warfare.
- Fierce Competition: Oligopoly market will reflect a tendency to collude in order to reduce market competition and players will be very competitive. The current players are also fiercely competitive so as to capture the Australian market share.
- Interdependence: An oligopoly has few large players such that a price cut by one player will have a significant direct impact on the other players. There is a high degree of interdependence in the firms such that there is a kinked demand curve where prices are sticky.
According to IBIS (2018), the supermarket industry of Australia continues to be fiercely competitive with the current players looking at minimizing the costs and streamlining the process so as to attract maximum consumers and capture maximum possible market share. The report predicts that this will continue for coming years as well. Additionally, some of the new players are expected to enter the Australian supermarket industry in nearby future which will bring more challenges for the dominant players.
Some of the expected new players are Costco (American) which is expected to start with Perth, Kaufland (German) which is expected to start its journey with Adelaide and David Jones (South African) which will begin with a gourmet food store in Melbourne.
The industry will face further pressure, especially the brick and mortar stores as online stores become even more popular due to convenience and price competitiveness. This is particularly true of smaller stand-alone stores whose market share is declining steadily as the large, multinational corporations capture the market.
However, as the Australians value quality over price, the specialty food retailing within the market remains lucrative. This can be an opportunity for the players in the market by providing healthy and quality alternatives to the consumers.