Woolworths is an Australian grocery chain and a longtime leader in the field. In the Australian retail sector, the firm has achieved a great degree of development and expansion, and there are several elements that have contributed to this. Thus, the purpose of this study is to provide an analysis of its environmental analysis.

External Analysis of Woolworths

External environment analysis can be done with the help of two methods that are microenvironment analysis and macro-environmental analysis.

Analysis of Macro Environmental Variables

This analysis for the company is performed with the help of Porter’s Five Forces method and PESTEL analysis method that may help better understand the impacts of environmental factors on the organisation’s performance in the market.

Porter Five Forces Model

This model helps to analyse the various elements related to the market that affect the organisation’s performance. Following is the analysis for the company based on the report of Woolworths Group Limited (2022):

Buyer’s Negotiation Power: There are many supermarkets and retail establishments in Australia that supply necessities to customers; therefore, the negotiating power of buyers is substantially larger in relation to the Australian retail business. Customers’ negotiating power has increased dramatically due to the increased variety of alternatives available to them.

Suppliers Negotiation Power: An review of the Australian retail business shows that the market is extremely concentrated, with a few significant firms controlling the bulk of the market. Consequently, the negotiating strength of suppliers has been moderated by this rise in their ability to influence negotiations.

Entry Barrier: To put it another way, bigger businesses have made it exceedingly difficult for the new players to come into the industry circumstances, thus lessening the overall danger of new entry.

Revelry Among the Competitors: Due to the fierce competition for market share among the few big players in the Australian retail business, such as Woolworths, Coles Supermarket, Wesfarmers, and Asda, the danger of rivalry has been seen to be substantially greater than that of new entrants.

Risk of Substitutes: In order to ensure the daily consumption of retail everyday consumable items, there is a significant risk of substitutes. The fear of substitution is negligible since there are no other options for them. Because they have no other choice, consumers must consume retail items.

PEST Analysis

This analysis is used to evaluate the circumstances related to the external industrial environment that impact the performance of the company. Following is the PESTLE analysis for the company:

Political Factor: The changes in the competition policy by the Federal Government of Australia has restricted the retail companies to get competitive advantages by applying a non-competitive approach (ncp.ncc.gov, 2021). As a result of this, the company cannot eliminate competition from the target market. It is becoming more difficult for small shops to compete in the business due to the growing market domination of these big merchants.

Economic Factor: Slow economic growth during Covid-19 has affected the profitability of the organisation due to reducing exchange rate changes and declines in the value of the dollar. On the other hand, the restrictions on the movement of customers during Covid19 have also affected the in-store sales of the company that causing impacts on its performance (Dutta and Awasthi, 2021).

Social Factors: Due to changing customer preferences, the retail industry in Australia is under pressure to improve its social and community development in order to remain competitive. In regard to this, the steps related to green product development are effective for the company to change the view of customers towards its products that help in enhancing the social image of the company in the market (Woolworths Group, 2020).

Technology Factors: Woolworths has examined the use of green refrigeration technology to keep perishable goods for extended periods of time, indicating the importance of the technical aspect in the retail business and Woolworths in particular (Woolworths Group, 2020).

Environmental Factor: Woolworths and the broader retail business in Australia, in particular, are being impacted by the environmental aspect related to a few products. Because Woolworths’ fuel and winery operations are threatening the environment’s performance, these companies have affected the company’s profitability in these business sectors, according to an assessment of the environmental concerns that influence plan for reducing carbon-emission in Woolworths’s retail business (Woolworths Group, 2020).

Legal Factor: The retail business, in particular Woolworths, has been impacted by the carbon tax enacted throughout Australia. This policy of the government has restricted the earnings of the company but, at the same time, has increased the burden of the company to produce low-carbon products to meet the expectation and pressure of the investors on the company (Powell, 2020). Woolworths’ performance has also been impacted by the need to operate in a fair manner since it is mandated to adopt a fair policy in conducting its commercial operations.

SWOT Analysis of Industry

In order to analyse the company’s strategic performance, SWOT analysis is used that effectively look towards the strengths, weaknesses, opportunities, and threats of the company through the help of its internal and external performance.

Strengths: It is Woolworth’s position as the market leader in Australian retail that gives the firm the capacity to utilise the market potential via its strong resources, including technology resources, people resources, and a strong presence across the sector. The wise application of its resources is partially affected by external environmental conditions, which necessitate minimising its carbon footprint and findings cost-efficient ways of reducing packaging and achieving zero food waste by 2020 (Woolworths Group Limited, 2022)

Weaknesses: Aside from its inherent advantages, Woolworths’ development strategy is doomed to be undermined by the shifting circumstances of the outside world, making it difficult for it to maintain its grip on the Australian retail sector (Powell, 2021). To illustrate this point, the Australian government has prohibited Woolworths from collaborating with Coles to maintain higher pricing for its items in order to encourage greater growth levels.

Opportunities: The retail industry across Australia shows good growth potential, and the factors such as computerisation, advances in supply chains, and consumer lifestyle changes have all affected the abilities of retailers and provided good opportunities to grow (Neo, 2019). Woolworths is also positively looking towards embracing this option by adopting the strategy of multi-option retailing to cope with the changing needs of its customers.

Threats: The threats to Australian retail are mainly from the higher competition level in the industry, with Woolworths primarily competing with the Coles Supermarket (Neo, 2019). Apart from this, government intervention is another major significant factor affecting the growth of Woolworths, in particular within Australian retail.

Conclusion

As per the above presented critical analysis of the company’s environmental research, it concluded that Woolworths is focused specifically on attaining a higher level of growth in its operation. This growth is mainly supported by its strong commitment to the satisfaction of its employees and customers. The analysis of the external environment conditions as faced by the Australian retail industry indicated that the factors such as the political condition in the form of governmental influences, changing social patterns and trends within customers and also the adverse economic conditions, including highly competitive business environment conditions have all affected the strategy and growth of Woolworths in a negative manner. The analysis also indicated that the internal environment conditions have also impacted the growth potential of Woolworths.

References

Dutta, A. and Awasthi, S. (2021). Australia’s Woolworths sees lower earnings from food unit, shares slide 10%. Retrieved from https://www.reuters.com/business/retail-consumer/australias-woolworths-sees-lower-earnings-food-unit-lockdowns-ease-2021-12-13/

ncp.ncc.gov (2021). Welcome to the National Competition Policy Website. Retrieved from http://ncp.ncc.gov.au/#:~:text=The%20National%20Competition%20Policy%20was,consumers%20and%20the%20wider%20community.&text=Australia’s%20National%20Reform%20Agenda%20is,to%20the%20National%20Competition%20Policy

Neo, P. (2019). Supermarket wars: Woolworths takes commanding lead over Coles in battle for Australian grocery sales. Retrieved from https://www.foodnavigator-asia.com/Article/2019/04/30/Supermarket-wars-Woolworths-takes-commanding-lead-over-Coles-in-battle-for-Australian-grocery-sales

Powell, D. (2020). Woolworths pledges to cut emissions as investor pressure mounts. Retrieved from https://www.smh.com.au/business/companies/woolworths-gets-serious-on-climate-change-as-investor-pressure-mounts-20200924-p55yrl.html

Powell, D. (2021). Woolworths prepares for ‘new phase’ of COVID as sales return to normal. Retrieved from https://www.smh.com.au/business/companies/woolworths-sales-surge-despite-most-challenging-quarter-20211027-p593h3.html

Woolworths Group Limited (2022). Woolworths Group launches Corporate Responsibility Strategy 2020. Retrieved from https://www.woolworthsgroup.com.au/page/media/Latest_News/woolworths-group-launches-corporate-responsibility-strategy-2020

Woolworths Group. (2020). Woolworths Group’s 2030 emissions reduction targets endorsed by UN-backed Science-based Targets initiative. Retrieved from https://www.woolworthsgroup.com.au/page/media/Latest_News/woolworths-group%E2%80%99s-2030-emissions-reduction-targets-endorsed-by-un-backed-science-based-targets-initiative