Woolworths v Amazon The Price Wars

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). 

Figure 1: Market Shares in Retail Industry Australia

Source: (ABC News, 2018)

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). 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. 

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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. 

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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). 

 

 

SWOT Analysis 

Strengths Modern store layouts and features increased consumer preference for Woolworths in 2018  (IBISWorld, 2018). Automated distribution centers have allowed Woolworths to reduce the staff cost  (IBISWorld, 2018). Owns 180 supermarkets in New Zealand and has strong base of foreign expansion for generating additional revenues  (IBISWorld, 2018). Increased investment in data analytics by purchasing 50% share in Quantium in 2017 (IBISWorld, 2018).

Weakness Sold/closed the hardware business in 2016 for focusing on Food segment  (IBISWorld, 2018). Backlash of consumers due to price wars  (IBISWorld, 2018). Bad relationships with suppliers due to expansion of private-label products. It faced legal proceedings during 2015 for dealing unconscionably with its suppliers  (IBISWorld, 2018).  Lagging online delivery system and insufficient training of employees for catering online orders  (IBISWorld, 2018).

Opportunities Real household disposable income is increasing while giving industry an opportunity to grow  (IBISWorld, 2018). Consumer sentiment index is rising and remaining positive since 2019  (IBISWorld, 2018). Population is increasing due to which supermarket demand is rising in Australia. Online sales offerings are increasing with major players expected to expand into online grocery stores  (IBISWorld, 2018). Investment into online platforms and mobile delivery systems are shaping the retail industry of Australia  (IBISWorld, 2018).

Threats Increased competition has slashed profit margins of retail industry in Australia in 2018  (IBISWorld, 2018). Expansion of private-lable products from Coles and Aldi are threatening Woolworths profits  (IBISWorld, 2018). Pressure by Aldi and AmazonFresh has caused prices to fall over the recent period across the whole industry  (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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• Train the Online Staff Members:

The growth of online grocery shopping options have taken on shoppers attention as many grocery providers like Woolworth are worried about competition from online grocery sellers like AmazonFresh (Biz Community, 2018). Woolworth can up the level of its customer service by training its staff on both product knowledge and store’s digital tools so that the customer representatives can become store ambassadors. For improving the knowledge of employees, they should be rewarded so that they can help consumers understand the online tools (Kaur, 2018).

Investing in customer relationship management (CRM) can bring fruitful results for Woolworths. According to Dayan and Arnolds (2012), the effective employee training is key success factor for improving CRM implementation. Trained employees can think more thoroughly and can successfully implement the CRM practice (Dayan & Arnolds, 2012). It is recommended for Woolworth to invest in SalesForce CRM application and provide 80% scholarship to its employees for getting training in e-commerce and digital customer service so that it can move from level 1 to level 4 of online customer services (see figure 2 below).

Figure 2: Online Service Maturity Assessment

Source: (TTEC, 2020)

Woolworths is recommended to invest in Certified Training Programs offered by CSIA in Australia for getting its employees trained to cater the online needs of the customers. This will not only improve workers’ morale, but also increase customer satisfaction.

• Improve Suppliers’ Relationships

Woolworths require following a strategic approach towards supply relationship management (Wins, 2019). The company needs to move away from reactive to strategic approach. A reactive approach is the one where the company waits for negative situation to incur and then approaches the suppliers for resolving the issue. Such a strategy only wastes the time of suppliers as well as retailers. A strategic approach would require Woolworths to plan and start ahead of signing the agreement with the suppliers (see figure 4 below)  (Wins, 2019).

Figure 4: Approach to SRM

Source:  (Wins, 2019)

Steps:

• Training of Online Representatives:

• Find the suitable courses
• Deal with the CSIA for getting collaboration
• Choose employees for training
• Pay 80% fees for the courses
• Track the employees performance by taking exams and conducting workshops

• Improve Suppliers’ Relationships 

1. 1. • Find different best Suppliers’ Relationship Management System

• Buy a Suppliers’ Relationship Management System after evaluating the alternatives

• Communicate with Suppliers about payment terms and offer different deals through Supplier Connect Portal

• Sign the contract with Suppliers’ for negotiating on payment terms and logistics

• Focus on corporate social responsibility framework and sustainability processes for satisfying the suppliers

Role:

The roles for both identified solutions are distributed as follows;

• Training of Online Representatives: 

The whole responsibility of all stages is of Human Resource Manager who will be responsible for finding the right employees, right courses and fee structures. However, Finance Director will be involved during offering the scholarships to workers. Project manager will be responsible in tracking the progress of workers in the training course.

• Improving Suppliers’ Relationship 

A Supplier Relationship Manager will be responsible for the overall implementation of SRM process and managing vendor relationships. The IT manager will be involved in finding the right SRM software and buying the package for company. The deals and communication with suppliers will be conducted through SR manager who will create documented process for guiding the team through administration of suppliers. Preparation of SOPs and agreements will cover the points of agreement between suppliers and Board Members of Woolworths. The whole responsibility will lie on IT manager, SR manager and the team members as reports suggest that having a SR specialist can increase engagement with suppliers by 37%. 

Timeline:

Training Package
2021
Months	Jan		Feb		Mar		Apr
Weeks	Week 1-2	Week 3-4	Week 1-2	Week 3-4	Week 1-2	Week 3-4	Week 1-2	Week 3-4
Finding Suitable Courses
Dealing with CSIA
Choosing Employees for Training
Paying Fees
Tracking of Employees Training

 

Supplier Relationship Management

2021

Months

Jan

Feb

Mar

Apr

May

June

Weeks

Week 1-2

Week 3-4

Week 1-2

Week 3-4

Week 1-2

Week 3-4

Week 1-2

Week 3-4

Week 1-2

Week 3-4

Week 1-2

Week 3-4

Hiring the SR manager

Finding Different SRM Software

Choosing The Software

Implementing the Software

Communicating with Suppliers

Signing the Deals with Suppliers

 

Budget:

Course Name	Provider	Coverage Per Person Course Fee (80%)	Total Budget
Certified Customer Service Leader Program	CSIA	$          240	$      24,000
Certified Customer Service Excellence Program	CSIA	$          200	$      20,000
Certified Complaint Handling Excellence	CSIA	$          200	$      20,000
One Cycle			$    64,000

Source: (CSIA, 2020)

Item	Total Cost
Expected Per Annum Salary of SR Manager	$        106,000
Price of Epicor Software	$          10,000
Total Budget	$        116,000

Source: (E2B Technologies, 2020) and (Payscale, 2019)

Total budget will be approximately $200,000 with $20,000 of contingency and risk cost available for covering any unforeseen expenses.

Conclusion:

Both Supplier Relationship Management and Training of Employees can bring fruitful results for Woolworths as these steps are essential to fit in the digital era of today. For improving the customer experience, a holistic approach using digital strategy can make company frictionless and overcome obstacles. By improving the CR managers skills, Woolworths will have higher reach ability, consistency of information and will be able to provide purchase convenience to its online customers. Moreover, the threat of losing suppliers to competitors will bog down after improving the SRM by hiring SR manager and buying SRM software that rightly fits the culture of Woolworths. 

References

ABC News. (2018). Total Grocery Market Shares. Retrieved May 19, 2020, from https://www.abc.net.au/news/2019-05-03/supermarket-market-share-roy-morgan-single-source/11073926?nw=0

Arli, V., Dylke, S., Burgess, R., Campus, R., & Soldo., E. (2013). Woolworths Australia and Walmart US: Best practices in supply chain collaboration. Journal of Economics, Business, & Accountancy Ventura , 16 (1).

Australian Food News. (2017). Woolworths announces new strategies to win over grocery shoppers, AFN reveals full detail. Retrieved May 20, 2020, from https://www.ausfoodnews.com.au/2015/05/06/woolworths-announces-new-strategies-to-win-over-grocery-shoppers-afn-reveals-full-detail.html

Battersby, L. (2017). Suppliers rate Aldi above Woolworths and Coles. Retrieved May 19, 2020, from https://www.smh.com.au/business/suppliers-rate-aldi-above-woolworths-and-coles-20130305-2fidz.html

Biddle, I. (2016). The Wesfarmers/Woolworths duopoly war. Busidate , 24 (3), 3.

Biz Community. (2018). Woolworths forges ahead with digital strategy. Retrieved May 19, 2020, from https://www.bizcommunity.com/Article/196/182/170146.html

Bodgan, M. (2018). The opportunity (and challenge) of online grocery for Coles and Woolworths. Retrieved May 20, 2020, from https://www.livewiremarkets.com/wires/the-opportunity-and-challenge-of-online-grocery-for-coles-and-woolworths

Cameron, N. (2017). Woolworths details 3-year strategy to become customer centric. Retrieved May 19, 2020, from https://www.cmo.com.au/article/574302/woolworths-details-3-year-strategy-become-customer-centric/

Chanthadavong, A. (2020). High demands send Woolworths and Coles’ online delivery into disarray. Retrieved May 20, 2020, from https://www.zdnet.com/article/high-demands-send-woolworths-and-coles-online-delivery-into-disarray/

CSIA. (2020). Training Courses. Retrieved May 19, 2020, from https://www.csiaonline.co/pages/courses

Dayan, O., & Arnolds, C. A. (2012). The influence of new product launching strategies on CRM success : an exploratory study. Journal of the Southern African Institute for Management Scientists , 21 (1), 2-17.