Market Analysis: The Case of Woolworth Limited

Posted: February 03, 2017

Brief Overview of Woolworth Limited

Retail industry in Australia is one of the most well-developed markets with around 140 thousand companies operating in this area. Yet, the retail market contains only a few major players pointing to the characteristic features of oligopoly. Woolworth Limited is one of few big companies operating in the retail sector. Due to oligopoly, larger players, like Woolworth, enjoy better returns than the smaller businesses. In general, Woolworth has 31 percent of market share in retail and is considered to be one of the major contributors into the Australian economy producing $53 billion or 4.1 percent of GDP of the country (Woolworth Limited). The company has a long history, as it opened its first store in 1924. Woolworth tends to be the biggest retailer in Australia and New Zealand and to have a strong presence in UK. The firm operates nearly 872 supermarkets in Australia and 156 in New Zealand (Woolworth Limited).

Since the beginning, the company managed to grow and innovate in the reason of increasing its market share. For example, Woolworth became a first store in the world that printed receipts for the customers through cash registers (Woolworth Limited). Through the series of acquisitions, the company managed to expand very fast entering foreign markets and conquering the Australian one. Nowadays, Woolworth has only one strong competitor, Coles Ltd., and it was admitted that due to intensive competition between them, it became almost impossible to enter retail market for a newcomer (Knox).

As it is easy to see in the Figure 1, Coles entered the competition with serious intentions elevating the sales growth each year (Speedy). Such close competition may have a serious impact on the ability of the smaller players to enter the market of supermarket industry. In addition, oligopoly created by these companies created serious barriers for the existing players to increase their market share. Both companies obtain an immense amount of financial resources and the ability to attract high-quality staff, which makes the retail industry in Australia to be an oligopoly.

Governmental Involvement into Retail Industry

Australian government has an ability to influence the supermarket industry concerning the legislation of trading hours. The country’s officials implement monitoring and regulating instruments through Australian Competition and consumer commissions (ACCC) in order to maintain lawful and fair conditions of the market and to safeguard the rights of local consumers (ACCC). In the present conditions of supermarket industry the government has to introduce necessary legislation that will decrease the barriers for newcomers in this sector.

Yet, it was admitted that the Australian officials acknowledge the oligopolistic features of retail industry and recommend for businesses to embrace this fact, admitting that this specificity has been a long-term feature of Australian market. It was emphasized by the officials that Australia is “an oligopoly community; we shouldn't fight it; we should make the most of it” (Kitney and White). Such attitude to this question may be explained by the fact that such businesses as Woolworth contribute to prosperity of the country in general. At the same time, small and medium businesses can be supported by the government through decreasing taxes, proposing benefiting credits for novice businesses, preventing major players from introduction of higher prices on their products. In general, the government has to take care about the newcomers in retail market, which nowadays is considered to be not an attractive industry to enter, as well as about the consumers that suffer from oligopolistic nature of market the most.

For example, by introduction in 2010 of the Competition and Consumer Act (CCA), which was actually a major amendment of Trade Practices Act of 1974, the Australian government managed to improve consumer laws and to establish better conditions for competition in the market (ComLaw). CCA managed to improve the relationship between the suppliers, consumers, and retailers in the supermarket industry eliminating unfair practices that existed before the introduction of amendments (ComLaw). With the help of Act the ACCC managed to restrict Woolworths from buying a store (Kitney and White).

The Commission is trying to monitor the supermarkets' utilization of petrol discount vouchers as well as their relationship with suppliers that revealed that the major players required decreasing the prices on their products in order to increase their shares in the market. Shopper dockets were also explored by the ACCC, which is the scheme employed by the supermarkets that fostered the purchase of their products for petroleum discounts (Chibber). At the same time, it is possible to say that the changes presented by CAA are not enough for the improvement of situation in retail sector.

Possible Governmental Interventions

First of all, it is crucial for the Australian decision-makers to restrict the major companies, like Woolworth and Coles from further acquisitions and the unfair deals made between them and the suppliers. Oligopoly pushed the suppliers to lower their prices, as there are few buyers in the retail market and the companies like Woolworth can dictate their conditions without serious barriers (Jones 3). One of possible interventions is to invest into the retail market by supporting agriculture and food production. However, it is important for the government to make sure the smaller businesses can compete with the major players. This can be considered as the most effective way of fighting the oligopoly.

The officials have to introduce more effective credit scheme for the newcomers and to decrease the costs for licensing and registration. Grants can be introduced for the entrepreneurs that plan to enter retail market. At the same time, it is crucial to focus on the regulatory policies that will restrict major players from increasing their costs for the goods and to make one-dimensional deals with suppliers. Acquisitions and schemes presented in the supermarkets have to be eliminated by introduction of respective legislation forbidding such practices.

However, it is vital to remember that there were losers and winners with the introduction of such interventions. Specifically, fighting the oligopolistic businesses that actually boost Australian economy can be bad for the GDP and its further growth in general. It is possible that due to such regulations, the companies like Woolworth and Coles will concentrate their attention on the global expansion and decrease their presence in Australian market. In addition, both companies can make certain agreements between each other creating a monopoly in the retail sector. Yet, the consumers will win due to increased competition in the market, as it will enable them to enjoy lower prices and more diversified product range. The new businesses will have more chances to enter the market with lower barriers.

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