How do the three main supermarkets in Australia (Woolworths, Coles and Aldi) differentiate themselves from each other?
Woolworths and Coles have huge market power, meaning these two firms dominate the Australian grocery retailing industry (about 34% and 28% respectively in 2018 according to a report) . Aldi are becoming more prominent with about 12% of market share in 2018 and set to increase.
Their strategies are different. Although all are focused on trying to keep costs competitive, Woolworths also emphasises quality of its merchandise more than the other two, so is usually a bit more expensive.
In this topic you are discussing the concepts of market power and different business strategies. (In broad terms, strategy here means does the firm focus on low cost products (e.g. Aldi) or does it differentiate itself through higher quality but more expensive products (e.g. Woolworths). It is usually difficult to successfully do both as a very influential business theorist Michael Porter argued in some classic books (1985; 1990). Possibly Woolworths does both successfully but you can find out and argue your point.
Suggested structure for Topic One
For Topic One the structure could be as follows. However, this is a suggestion only; this is your essay so think about it yourself and use your creativity.
Describe the current market shares of Australian grocery retailing. You can use graphs (e.g. a pie chart) and tables to save words. Discuss the advantages and disadvantages for both the firms and customers in this oligopolistic structure. Is the situation of just a few firms dominating grocery retailing in Australia unusual or is this situation similar in other comparable economies such as New Zealand and Canada?
Discuss the various strategies that the firms use. You can use Demand & Supply (D&S) diagrams and cost curves. Because accessing original data on elasticities and costs will likely not be possible (commercial confidentiality), then you can use your own interpretation. For example, a D&S diagram for Woolworths compared with Aldi (Then under the diagram put, Source: own interpretation based on literature). Discussing economic strategies includes analysing advertising, ways of lowering costs, creating customer loyalty (such as using reward points for shopping at their store), using technology in their supply change management, etc. For example, Coles’ former parent company Wesfarmers owns other well-known retailers such as Target, Kmart and Officeworks. This formerly allowed Coles to benefit from massive bulk buying. (This may no longer be the case since Wesfarmers ‘spun it off as an independent public company in 2018 but you can find out.)
You can apply critical thinking skills as well. For example, does the pursuit of lower inputs costs by these firms mean that suppliers such as Australian farmers are exploited? Are workers in these firms exploited? How strong are the labour unions?
Given the dominance and clever strategies of these giants, what should be done to curb their market power? Are additional competition policies required to protect consumers? Are additional policies needed to protect suppliers from exploitation from these powerful oligopolistic buyers? What are the risks to consumers of this dominance? This is where you exercise some normative economics. You can argue that lots should be done. Conversely it is just as legitimate( depending on the evidence discussed in the body of the essay ) to argue that additional regulation is not needed as the big giants are simply playing by the rules in a market economy.
Relevant Econ1001 Weeks for Topic One: Weeks 2, 3, 5, 7, 8, 9 & 10 (useful), 11. Also refer to related textbook chapters.
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