Nature of the entity

Herein, this essay is based on analysing the operation of a competitive retail company, i.e., Woolworths and the industry in which it operates its business. woolworths is the largest supermarket chain in australia, operating in over 995 stores in all over Australia, having 968 supermarket stores and 19 convenience stores as well. Woolworths depends upon 115000 staff members in its outlets, centres and offices to offer customers best quality products. Woolworths has increased its brand loyalty by selling groceries. The aim of this report is to assess the leading factors determining the quality of services and identifying the potential area, which enhances the companies’ competitiveness.  For the better understanding of the retail industry, tools have been used PEST, SWOT and Porter’s five forces.

Woolworth’s business operations

Woolworth’s limited is one of the leading companies in Australia having its widespread operations across the nation. It was established in the year 1924 in Sydney, and since then it has transformed itself from a small variety store to a big supermarket marking an astonishing growth. Woolworths has its operations in 995 supermarkets and 3 Thomas Dux stores. The companies current business operations are conducted through supermarkets, consumer electronic stores, petroleum, hotels, discount departmental store and liquor outlets. The company operations are recognized for its quality goods and services across different locations (Brown-Paul, 2016). Their operations have set standards from manufacturing to retail outlets. These operations are mainly across Australia and New Zealand but also putting in efforts to mark its presence in areas of UK and US.

Woolworths has been listed as a public company on ASX (Australia’s stock exchange) for more than 20 years. The companies striving growth has been remarkable due to its increasing investments in Project Refresh and establishing completely new systems of the supply chain to upkeep the standards of supplying 96% of fresh crops and 100% fresh meat from the farmers and growers of Australia. They have approx. 28 million customers and 3000 stores alone in Australia and New Zealand. The company maintains a consistent growth and also maintains its ambition to flourish in new businesses (Woerner, Weill and McDonald, 2013). The company makes considerable future investments to meet the customer wants and expectations by employing new marketing plans.

The companies about 84 stores are under refurbishment activities wherein 38% on Big W, 27% in customer electronics and 47% in the Australian market in order to meet the fluctuating needs of customers (WOOLWORTHS HOLDINGS LIMITED 2017). To meet the investments, the company has secured a sum from syndicate bank amounting up to $580 million and the US $ 100 million is procured by hedging AUS $ 12 million. Both the borrowings cumulated interest amounted to $338.2 million. The prime motto of the company from the financing perspective is to strengthen its balance sheet, group integration, managing of group’s capital and also realising its medium-term targets.

Analytical procedures

Woolworths make use of reliable sources for explicitly reporting their financial practices. Indeed to make this possible the company uses Australian Accounting framework stating the truth and fairness of the information provided by the company (Sinha and Uniyal, 2011). Business uses the historical costing method to prepare its financial statements as this method entails about the companies past transaction and also alert about the cash needs as well as future resource requirements. The financial statements are further in due accordance with the Financial Reporting Standard. The interpretation of the financial reporting is as per the International Accounting Standard Board.

Industry size and growth

Currently, Australia has been seeing a wide variety of retailers all with a compelling range of corporate and organizational objectives. As inferred by the bride(2013),retail sector is one of the emerging sectors, which has transformed itself with developing technology and interest of customers due to changing trends and needs. Australia experiences fierce competition in the supermarket and grocery segment. As a fact, globalisation has led to a magnificent change in customer’s values and wants which has impelled companies running within this industry to stay abreast of all the latest trends to gain customer satisfaction effectively.

In the total size of Australia retail sector is about $ 217 trillion and in this respective sector, an increasing trend of 10% growth is marked yearly. The major changes that are recorded in customer’s overall behaviour instigate retail companies to drive their efforts in meeting the customer’s attention and attaining considerable targets. The overall trend has increased by 0.7%, and turnover has been hiked by 3.5% as per July 2017 reports.

The supply chain of the retail industry is quite complex and requires consideration of multiple factors to operate in this sector successfully (Johannesson, 2011). Some of the factors, which the industry needs to pay attention towards, are network analysis, transportation management, inventory optimising, performance drivers, logistics outsourcing and the rest. It is important that the organization moulds itself to varying marketing conditions and monitors their supply chain strategies to cope up with complex issues throughout the retail supply chain.

The retail sectors are driven by multiple market players who are certain regarding their tactics to form a competitive positioning within the industry. The prime competition of Woolworths is with Wesfarmers who is also a ruling competitor in the retail estate industry. As or 2016 reports Wesfarmers earned about AUS $ 65.98 billion is the largest revenue earning company in Australia. While, Woolworths was positioned second as it could procure about AUS $61.149 billion of revenue in 2016 (Biddle, 2016). Wesfarmers is known for its cross-cutting strategy and puts in its best efforts to meet the interest of its customers. Both Wesfarmers and Woolworths are globally recognized companies and have spread their operations successfully in regions of US and UK (Lees and Winchester, 2013).

Woolworths Limited operations

Figure 1: Aldi speedy growth and its impact on established duopoly, i.e., Woolworths and Wesfarmers

(Source:COLGAN, 2015)

Th key complexities that drive the retail environment and adds to the cost of companies smooth operations. To reduce the complexity issue in the retail operations company must incorporate warehousing and merchandizing IT systems (Marais, 2012.). Further to control the costs and enhance flexibility towards the constant environmental change the store staff must be trained to provide a satisfactory experience to end customers and use considerable technologies to train and develop staff in stores.

The probable threat that hampers the company’s growth in the retail industry are:

• Decrease in consumer demands
• Hit of recession
• Changing in shopping habits (Garg and Garg, 2013)
• Price wars between the key competitors

Legal and environmental regulations

Multiple laws like the Australia consumer laws, Fair Competition laws, freedom of Information Act, retailing market procedures and the rest administer the retail industry. Woolworths with a reputable standing in this industry needs to abide by these laws. Any misrepresentation or act of omission by the company can lead to penal consequences. Moreover, since the company is operating beyond the borders of Australia it is important it also maintains a record of other countries regulatory laws as well (Serrano, 2011). Also, it is important that the company reports are adequately prepared as per the respective accounting standards with suitable disclosures. Lastly, the company must show its growing concerns towards the environment by not indulging in any prohibited act resulting in environmental concerns.

PEST Analysis of Woolworths

Political Factors

The Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) has benefited Woolworth. The single economy operation is done by Woolworth because the trading cooperation brings the two countries together. Shareholders, both Foreign and domestic and Woolworth are secured in the political stability of both countries. “IMD World Competitiveness Yearbook”, 2011 has given 3rd rank to Australia and 5th rank to New Zealand.

Operation of woolworth is in the economically sound environment. As compared to the rest of the world Australia and New Zealand have a relatively high standard of living. As per estimates by the International Monetary Fund, 2010 GDP per capita at purchasing power parity of Australia (,699) is ranked number 10 and New Zealand (,966) number 32.

Investors and customers choose those products that are organic and prefer a company with a green-tag and frequently buy and use them. They are also aware of the environmental impacts of their investing and consuming. The needs of customers are addressed by Woolworth with their convenient and efficient services in a very short period of customers shopping.

Regulatory environment

To improve the efficiency of their service and satisfy their customers Woolworth utilized the innovations of information communication technology. For reduction of waiting time for customers spent in checkout queues Visa’s payWave was also introduced (Budmar, 2011).Various significantly positive macroeconomic environment factors like political, economic, socio-cultural and technological have contributed to the success of Woolworth and made it a number 1 retailing company in New Zealand and Australia.

The risk relating to the power of supplier and buyer is high, and the reason behind same is that the industry has high competition. Moreover, other alternatives are easily available to customers as well as a supplier; thus the price of products has to be compromised to a certain extent. Threat relating to substitute is also high due as extreme competition is available and a variety of substitute are available (Hall, 2012). The products having high quality and normal price are preferred over others. New entrants cannot make their position in an easy manner as already significant brands are existing in the market.

Other factors affecting operational aspects of company are inflation and taxation rate in economy as it influence their cost and pricing strategy. Further; with the increasing competition company is required to be innovative by assuring quality to maintain their leading position in the market.

Industry Developments

The potential business risks faced by Woolworths are the price war by its very strong rival Coles. In order to win the customers, the company has chosen to slash the prices which have led to eroding their own profit. The price war is risky tactics followed by the company since the industry of retail has already seen large retailer being reduced to just half by incurring huge losses (Peneda, 2010). The price war in the retail industry of Australia still not on the verge of ending. This poses a great threat to the investors who have huge shares in this industry. The company does not seem to possess the expertise to devise other measures for retaining their customer base instead of just slashing the prices relentlessly.

The company has been focusing on technology innovation by formulating new ways of doing business through newer and better distribution channels. Addition of some new service model, development of new products and careful marketing and pricing is also being done to combat competition. New distribution mechanisms have been derived such as electronic distribution via financial planners. The company has also introduced Direct Insurers who are operating online. The major risks that fall in this place are of the competition prevailing in the industry. Before the launch of new service, the company ensures that the risk management system is in place.

Financial practices

Figure 2: New and Enhanced Distribution Model of the Company

Based on a new operating model ‘Lean Retail’, Woolworths has defined its three-year growth strategy. According to the KMPs of the company this Lean Retail Model introduced by the Group is expected to deliver more than $500 million reduction in cost (Benjamin, 2012). This will improve investment in all areas along with lower prices, improved access to services, better convenience and innovation. This expansion programme will have three important aspects-

• COST- improving efficiency in an environment of low inflation
• CUSTOMER- multi-faceted and flawless offers being provided to them
• GROWTH- improving customer bases and market share.

All these expansion programmes and investment will be funded through cost management that will significant and continuously focus on operations that are non-customer facing.

The company has replaced accounting requirements relating to lease from AASB 117 to AASB 16 Lease. The reason behind the same is change accounting standard applicable to leases. The same has majorly affected the transaction relating to an operating lease which has not been presented as liability statement of affairs and the amount relating to lease liability will represent the future payments regarding lease payments.  However, as per new accounting standard, the same will require being recognized the same in balance sheet from January 2019. The same will remove the guesswork and require estimation to be done with more accuracy (Block, 2011).  Thus, the company requires reconsidering the methods which have been applied for estimation for ensuring that it meets the requirement of an amended accounting standard. In case of revenue, expenses and assets; these are recorded net of GST and changes in AASB 15 which are to affected from 25^th June 2018 relating transaction method will be applied as the same has not been yet applied to books of accounts.

The operations of the company are increasing on a continuous basis at the global level. Thus, it is required to continue to consider environmental law and provision of Commonwealth of Australia and other states and territories in which it is operating. Presently, no significant liabilities have been incurred regarding same, but with an increase in the pace of operations, it requires to be more aware regarding licensing requirements and other legal requirements relating to operations of the company.

In November 2016 Company has executed for a loan amount to $700 million from the syndicated bank, and the same comprise trench of $US 300 million matured in April 2017. The purpose of the finance is accomplishing the obligation as ‘self-insurer’. The facility was initially provided for three years till November 2017, and presently it is fully drawn. Further, appropriate liquidity risk maintained by the company in order to meet its debt obligation on the due date.

Competition in the retail industry

The company applies appropriate required information technology in order to perform operations with increased efficiency. Application of data and technology with regulatory and general policies complement the functioning of Group strategic focus in major areas (Hall, 2012). The policy of company comprised implementation of expertise and experience for evaluating and monitoring the operations. These technologies are amended from time to time along with leveraging digital technologies so that best results can be achieved.

Strategies can be specified as the plan which is required to be followed in a predetermined manner in order to attain the goal of a company. Woolworth has complied requirement of accounting standard IFRS 9; the same provides a measure to assess the future requirement of the business (Marcuse, 2011). Woolworths is making efforts toward zero food waste, and for same, it is having a partnership with food rescue organizations like Food Bank, Oz Harvest etc. Further, strategies are developed and implemented in the same manner to that the goals can be attained relating to organization profit, customer benefit and that too after considering environmental factors.

On clearly noting down the ratios it could be noted that the Woolworths has had a varying trend. The trend reveals that the company has made positive improvement since 2016. The financial standing of the company is improved by way of considerable investments and diversification in the present state.

Communication and enforcement of integrity and ethical values in Woolsworth Group

The company demonstrates integrity, honesty and trust by doing the right thing all the time that is during work at office hours while representing the company to the outside world (that is while presenting annual reports) and also during the non-working hours (informal meetings).  The Code of Conduct laid down by the company is applicable and enforced among all groups such as the directors, employees, consultants and contractors of the Woolworths Group. It is the responsibility of every individual to sustain and maintain the Code of Conduct and to persuading each other to do the same. The behaviours and actions of Woolworths are guided by the clearly laid down and well-communicated values.

The main concentration of Woolsworth as per the reports is not only on achieving results but in the methods and strategy followed for achieving them. For the purpose of hiring recruits, it is necessary to ensure that the employees so hired must-

• Carry out their duties in good faith, by following applicable policies and procedures and acting in a way which is in the best interest of the company.
• Complete the applicable training as per the role assigned thereby meeting the highest benchmarks set for appearance and behaviour (Peneda, 2010).
• Not indulge in behaviour, which breaches requirements of compliance with the company and law
• Protect the assets of the company and its reputation;
• Be respectful and friendly;

The Company always strives to endow the information to government officials as and when required by them.   The company follows the standard ASA 260 for distinguishing between management and those charged with the governance. The independence is often reflected in the reports by an independence declaration. Deloitte Touche Tohmatsu has been the independent auditors. The company also has an overarching framework for communicating specific matters to those charged with governance (Seo, 2014).   The company also promotes two-way communication between the auditor and those charged with governance. ISA 260 is applicable to the company for communication of essential information. Their extent of involvement with the company is based on the matters to be communicated. The maters that involve planning are often communicated in the audit engagement.

Potential areas to enhance competitiveness

The management has developed a culture of care and commitment towards the improvement of physical and mental health has been a key focus over many years. The management continuously invests in new programs to improve safety governance by addressing critical risks (Serrano, 2011). For the purpose of managing risks, these are classified into four categories- strategic, financial, operational and compliance. The Group has a framework for enterprise risk management which provides a sound framework for managing the material risks used in combination with along with corporate governance. This personnel re-enforce a culture of accountability.

The company’s executive Key Management Personnel has the authority and responsibility for all the managerial functions and activities like planning, organizing staffing and directing for the Group (Sethuraman, 2010). Their experience monitors the company’s culture, oversees management people and succession planning. The structure of the company is that of a line and staff organization.

Figure 3: Corporate Culture of Woolworths

By considering the organisational structure of company, it can be said that company had applied semi-hierarchal structure to ensure flexibility with authority in operational tasks. Communication is done by making use formal techniques to prevent vague rumours and ambiguity in tasks. Each task and activity is documented to manage authority and responsibility in a better way.

In accordance with the company policies and norms; it can be cited that company had adopted Global recruitment standards for their corporate HR policies to ensure fairness; equality and diversity norms in the workforce. All legal aspects such as working hours; minimum wage rate; human rights of employees are strictly followed.

Conclusion

In accordance with the present study, the conclusion can be drawn that Woolsworth is leading company in the retail sector having prosperous opportunities for growth and expansion. The company demonstrates integrity, honesty and trust in their operational policies and complying with the regulatory framework and accounting policies by providing viable disclosures.

References

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