Strategic Management - Sanos - Nestle- ANZ - Assessment Answer

December 28, 2017
Author : Ashley Simons

Solution Code: 1AAHF

Question:Strategic Management

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Strategic Management Assignment

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Solution:

Introduction

Brand: Coles Supermarket

Problem statement: How Coles Supermarket will overcome the discontent associated with its unhealthy competition in its large-scale food product retailing

Executive Summary

Coles supermarket Pty ltd is a supermarket based in Australia. The supermarket chain was established in 1914. There are two market players in the country’s food production, Woolworths and Coles supermarket. The supermarket’s influence in both the retail and wholesale sections of food production chains is a concern for millions of Australians. The corporatized structure of the supermarket is a concern because of the compromise in quality and pricing. Additionally, the supermarket is denying other small scale businesses an opportunity to take part in the food production and supply in the country. According to Dick & Merrett (2010, p.29), Coles supermarket structure and operations thwart any competition threat because of the supermarket’s economies of scale. Moreover, the quality of the product is compromised because of the duopolistic nature of the market. The consumers have a limited choice of food products. For this reason, the report will feature the effects the supermarket is having on food suppliers, Australian economy, communities and consumers. The analysis will also cover the strategies devised by Coles supermarket to counter the rising consumer consciousness to the state of affairs about to food production and supply in the Australian.

Introduction

Coles supermarket has a large retail network of the food product supply in Australia. The supermarket’s huge influence in the retail food supply is associated with the chain of acquisitions the supermarket has had in the recent past. Such acquisitions have boosted the supermarket’s market power and influence in food production and supply. According to Humphery (2011, p.31),Coles supermarket is involved in the private labelling of its products. Such a strategy gives the entity an advantage over any other retailer operating in the sector. The report will cover some of Coles supermarket’s strategies towards reducing large-scale food production and supply negativity. The strategies include de-corporatization of the supermarket’s operations and ceding of its market power to allow other medium and small-scale market players to d business. The other strategy, which will be featured in the report, is the reduction in private labeling of products. Instead, the supermarket will label the locally-sourced produce subject o geographical provenance. The report will also cover a reduction on the supermarket’s acquisitions. The move will enhance growth and thriving of medium and small-scale food producers and suppliers.

Coles supermarket has been under pressure to consider the plight of the medium and small-scale retailers who wish to participate in the lucrative food production and supply business in Australia. The media has also lodged complaints against the practices of the supermarket. In fact, the media has produced movies discouraging the corporatization of food retailing. The social and health effects of Coles supermarket’s economic model are underscored in the films like ‘Fast Food Nation’ and ‘The Future of Food’ (Keith, 2014, 29). The corporatized supermarket framework is a threat to the economy of Australia because it limits business opportunities for other potential market players. The customers have cited food product quality compromise and exorbitant food pricing as the main reasons for Coles supermarket’s flexibility in the market.

The unhealthy competition of Coles supermarket is a disservice to the Australian economy because it has led to a concentrated food market. The supermarket dictates prices in the sector hence locking out prospective market players. The local producers are hard-hit by Cole supermarket’s production and retailing strategies. Knox & Knox (2015, p.84) assert that Coles supermarket chains are offering stiff competition to other retailers leading to closure of some small-scale local food producers, which negatively impacts on the Australian economy in the long-run such market influence. It also creates acrimony in the community because the small-scale and medium-sized businesses form the majority of enterprises in Australia. The consumers are also denied the freedom of choice of products because the supermarket uses its private label for most products. The product private-labelling ignores customer diversity and promotes monotony.

The concentration of the food retailing negatively impacts the communities given the big geographical size of Australia. Additionally, Coles supermarket’s mode of operation compromises quality. The customers lack alternatives hence they must either take Coles products or Woolworths’. The fact that Coles eliminates most of the retailers from competition means that the customers must contend with the exorbitant prices set by Coles and Woolworths, who are the major players in the food retailing sector in Australia (Mills, 2012, p.54). The forces of demand and supply usually determine the equilibrium prices for the products in the market. However, the case is different in Coles supermarket whereby there is arbitrary price setting. The duopolistic market structure of Coles supermarket is a testament of the supermarket’s ignorance of healthy market participation. The supermarket also exploits the farmers who sell their produce to it. The farm product sellers are compelled to comply with the terms set by the supermarket because of lack of adequate alternatives for them.

The mode of Coles supermarket’s operation lacks goodwill of the consumers, other retailers, potential competitors and the government. The supermarket usually buys its products in bulky. Consequently, the entity substantially influences the pricing of the products. The acquisitions made by the supermarket boost its profitability and operation efficiency while it negatively impacts on the economy. Sternquist (2013, p.71) conjectures the large-scale producers are that the only beneficiaries of Coles supermarket’s corporate operations. They produce in large quantities and provide a ready market in Coles supermarket. The Coles supermarket’s hyper-concentration of the food retailing leads to the importation of food products. The large-scale buying of local produce leads to the shortage of such produce to the low-income earners. Consequently, there is shortage of supply of the food products while Coles supermarket offers such products to the high-income earners. The supermarket wields strong purchasing and selling power, which leads to a considerable decline in the number of independent food retailers.

The supermarket always engages in price wars because of its large-scale operation. However, the farmers, food product retailers, the media, consumers, the community and the government have mounted pressure on Coles supermarket to reconsider its business strategies in a bid to provide a level playing field for all food retailers in Australia. According to Dick & Merrett (2010, p.93), de-corporatization will reduce the market power enjoyed by the supermarket. In this regard, the free market mechanism will be used to determine food retail prices instead of the Coles’ current approach to price determination. The initiative will also remove barriers to entry into the food retail business including Coles’ discretionary price determination and majority influence in local business decisions. The barrier on premise leasing of Coles’ competitors will also be removed to enhance healthy competition in the food retail sector in Australia. The labelling of products according to the geographical location of production will also serve as recognition of the producers and the consumers hailing form the geographical regions of the productions.

The supermarket will also be compelled to stop the acquisition of retailers it considers a potential threat. The move will boost competitiveness in the market. Such health competitiveness will boost sound price determination. According to Keith (2014, 35), a free market mechanism will lead to food product quality management. There will be a need for the supermarket to cede the power it has in certain regions. The initiative will be a gesture of goodwill to the small-scale and independent food product retailers. The de-corporatization initiative is critical in the sense that it will reduce government food product imports. The food producers will evenly distribute their products to all regions in the country. Consequently, the elimination of Coles supermarket’s bottle-necks will culminate in the adequate supply of food. Coles will need to restructure its operations to enhance customized supply. The conversion of retail chains to supply zones will enhance the supply of a wide variety of products. The initiative will provide customers with a choice.

The increase in the range of products offered to customers will eliminate the need for an increase of prices. The re-modelling of the supermarket’s operations will enhance healthy competition. In this case, Coles will shift from its corporate structure to an independent market player. Product expansion and differentiation will also serve as a sure way of easing Coles supermarket’s tension to relinquish its market power. Product differentiation will provide customers with a variety of products to choose from, hence boosting sales. The differentiation strategy is based on its power to change customer’s perception on a product.

Conclusion

The report has highlighted the effects of Coles supermarket’s market power, large-scale food product retailing, on the independent retailers, the community, the government, economy, and consumers. The corporate model of the supermarket eliminates independent retailers. It also concentrates the food product retailing leading to shortage of food supply and consequent food product importation. The supermarket can de-corporatize and customize its products to satisfy the consumers. The move will also enhance health competition and equitable distribution of food products across Australia.

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