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Introduction: Market Analysis And Impact Of Technological Change On Woolworths Limited- Supermarket Industry
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Figure 1: Logo of the Woolworths Group
(Sources: Woolworths Group, 2022).
The objective of the research project is to examine the market characteristics of Woolworths Limited in the supermarket industry, study the market system, evaluate the outcomes of technological change on the market and Woolworths and determine the effects on the firm's position, profit optimization and governmental regulations.
Analyzing Woolworths Limited and its market is valuable for multiple reasons
Understanding the competitive landscape: Examining Woolworths Limited and its market gives knowledge into competitors, their market share and approaches, promoting the development of successful competitive strategies
Identifying market trends and opportunities: Examine aids recognize developing trends, customer priorities and hidden market segments, allowing Woolworths Limited to link its products and approaches accordingly.
Assessing performance: Examine enables for assessing market share, and customer satisfaction, helping in recognizing weaknesses, strengths, opportunities for growth, brand reputation and financial performance (Hanaysha, 2018).
Mitigating risks: Examining helps recognize potential risks like market volatility, allowing the development of risk management approaches and regulatory changes.
Informing strategic decision-making: Examining gives significant knowledge for creating goals, formulating strategies, managing adequate resources, and establishing competitive superiority.
This research structure emphasizes the market analysis and effects of technological change on Woolworths Limited in the supermarket industry. It comprises mentioning objectives and importance, examining the market and rivals, evaluating the impact of technological change, utilizing economic analysis for profit optimization and providing an overview of the implications and governmental regulatory considerations.
Market Analysis
Woolworths Limited operates in the retail industry, and the firm mainly targets the food, drinks and wide-ranging retail market segment. The essential characteristic of the retail industry is customer service oriented, and it maintains a physical and online presence.
Figure 2: Annual Retail turnover in Australia
(Sources: Statista 2023)
The total size of this industry - retail turnover in Australia in 2022 is approximately 411.5 billion Australian dollars. It has gained a 10% growth rate from the previous year(Statista,2023). The Australian retail sector is dominated by industry leaders such as ALDI, Big W, JB Hi-Fi, Kmart and Kogan.com. There is a transition to systematic retail and the growth of digital distribution channels. Innovative developments and an emphasis on customer experiences guide the competitive landscape (Industry Research Report, 2023). The retail industry faces fast-changing consumer preferences, tough competition, technological breakthroughs, supply chain difficulties, issues concreting compliances and ethical sourcing and production. The Australian retail industry contributes approximately 4.4% to the GDP (Australian Bureau of Statistics, 2020), and this industry employs 1.3 million individuals, which is an essential source of employment opportunities in the nation ( ABS, 2021).
Figure 3: Competitors
(Sources: Mumbrella, 2020).
Coles, ALDI, IGA, Costco, and Online retailers(e.g. Kogan.com and Amazon) are the main rivalries to Woolworths Limited in the consumer goods industry. Coles and ALDI's pricing techniques and promotional initiatives directly impact market pricing decisions. ALDI's competitive pricing strategy pressures Woolworths to adhere to lower prices. IGA develops competition, particularly in regional and local markets. Costco's wholesale offerings impact pricing decisions for bulk buying. Online retailers challenge the industry with competitive pricing and accessibility (Mumbrella, 2020). Privately owned stores serve niche markets, affecting pricing decisions. Woolworths' pricing models are impacted by these rivalries to maintain competitiveness and market shares.
Figure 4: Total Revenues
(Sources: Self-Created)
This is the above data of the revenues collected from the different sources like the annual reports of all companies; Coles stood at $39370 million in the Australian market whereas Woolworths stood at $ 60849 million in particular in Australia in 2022.
Figure 5: Total Revenues
(Sources: Self-created)
The HHI is a measure of the concentration ratio computed by aggregating the squared market shares of the company in an industry (Spiegel, 2021). A high HHI shows concentration, while a low HHI recommends competition. It evaluates market power and possible anti-competitive behaviours.
HHI = Squared of market shares Coles+ Squared of market shares ALDI Squared of market shares Costco + Squared of market shares Amazon+ Squared of market shares Woolworths Squared of market shares IGA Squared of market shares Others.
In order to calculate HHI calculated on the given market shares data, these steps should be followed
Square the market share of each firm
- Coles: (9.5674%)^2 = 0.9149%
- ALDI: (1.1179%)^2 = 0.0125%
- Costco: (0.0243%)^2 = 0.0006%
- Amazon: (0.1215%)^2 = 0.0001%
- Woolworths: (14.7871%)^2 = 2.1905%
- IGA: (0.0608%)^2 = 0.0000%
- Others: (74.3818%)^2 = 55.3949%
Sum the squared market shares of all firms in the market
HHI = 0.9149% + 0.0125% + 0.0006% + 0.0001% + 2.1905% + 0.0000% + 55.3949%
= 58.5135%
Hence, the Herfindahl-Hirschman Index (HHI) is 58.5135% for the specified market share distribution. Or can it be written 5851.35
The Market Concentration Ratio determines the evaluation of the market share held by significant players and firms within an industry (Kozáková & Barteková, 2020).
Figure 6: Market Concentration Ratio
(Sources: Self-Created)
The two major players are Coles and Woolworths, where they both got the result after summing up a market contraction ratio is 24.3545% in the overall retail industry.
In order to interpret the Herfindahl-Hirschman Index (HHI) outcomes of 5851.35, they can be used.
If the HHI is below 1500, this shows an intensely competitive market with many firms, recommending a market structure approaching monopolistic.
If the HHI is between 1500 and 2500, this indicates moderate market dominance and shows a market with a certain degree of competition and some concentration.
If the HHI is above 2500: This shows a highly concentrated market structure with fewer firms, recommending a market structure near oligopoly.
In the case of an HHI of 5851.35, the outcome is higher than 2500. This indicates a highly dominated market with a significant concentration of market shares among a few leading firms (Abdul Aziz et al., 2023). Hence, based on the HHI outcomes, the market can be understood as having features of an oligopoly, where a small number of companies lead the market and have a profound impact on market dynamics and the competitive landscape
Impact of Technological Change
One important technological change affecting the retail industry is the extensive implementation of machine learning and Artificial Intelligence (AI). AI technology is
transforming different aspects of retail, like customized marketing, customer services and supply chain management. AI-driven chatbots and digital assistants are improving customer interaction and offering immediate support. Retailers use machine learning algorithms to examine customer data and habits, delivering customized product suggestions and individualized marketing campaigns (Shankar et al., 2021). Furthermore, AI is engaged in demand predictions and management of inventory, and optimization of deliveries, including mining the overall cost. Overall, the incorporation of AI revolutionized the retail sector by enhancing efficiency, improving customer experiences, and catalyzing business success.
The nature of technological change in the retail industry is identified by incorporating Artificial Intelligence (AI) and machine learning, fostering data-centric knowledge and improving customer services. This change allows retailers to collect and examine vast customer data, customize offerings and streamline delivery procedures. The effects on market dynamics are essential as retailers can effectively create a competitive advantage through customer-centric methods, customized marketing approaches, and enhanced operation (Woolworths Group, 2022). AI enables retailers to be more agile and competitive, restructuring market dynamics and data-driven by shifting the attention towards customer satisfaction, cost mining and excellence in operations—the fundamental nature of this change and its outcomes for market dynamics.
Analyze the effects of the technological change on various aspects
Cost of production: Discuss how the change impacts the firm's cost structure.
Integrating Artificial Intelligence (AI) and machine learning in the retail industry, like in the case of Woolworths Limited, has important implications for the company's cost structure. With AI technology, Woolworths can streamline its operations, including stock management, delivery management and demand estimation. AI algorithms can examine large amounts of data to recognize patterns, improve resource management, and reduce waste. This is to enhance efficiency, better utilization of the resources and cost saving, ultimately leading to more optimized and cost-saving production procedures for Woolworths. In addition, AI can implement automation, minimize the requirement of manual labour and positively impact cost minimization (XU, 2022). On the whole, the adoption of AI technology strengthens Woolworth's cost organization by improving efficiency and cost savings in all areas of its operations
Entry or exit of firms: Examine the potential impact on market competition and barriers to entry.
The incorporation of machine learning and AI in the retail industry, showcased by Woolworths Limited, can significantly affect marketing competition and obstacles to entry. With AI technology, retailers like Woolworths can obtain a competitive advantage through customized experiences, personalized marketing and efficient delivery management. This generates higher barriers for new companies as they must invest in equivalent capabilities to compete effectively. In addition, AI has potent market positions of present leaders, making it difficult for newcomers to set themselves. Overall, this technological change promotes a more competitive market landscape with potential barriers to entry for new players.
Government policy: Consider the response of the government to technological change
Government policy plays a vital role in adapting to technological advancements in retail. With the execution of machine learning and AI, governments must set regulations for consumer privacy, security of data, and competitive fairness. They can incentivize businesses to integrate these technologies and allocate funds to digital infrastructure to facilitate their incorporation (Sun et al., 2019). The government's response to technological advancements influences the operating environment and framework for retailers in the industry.
Economic Analysis and Profit Maximization
Use demand and marginal revenue curves to determine equilibrium output and price.
Figure 7: Demand and Marginal revenue curves
In order to examine the profit maximization condition of Woolworth Limited, the concepts of demands and marginal revenue curves can be used. The equilibrium output and price can be ascertained by recognizing the points where the marginal cost equals marginal revenue. At the same point, Woolworths would be manufacturing the volume of products where the additional revenue obtained from selling one more unit is equal to the incremental expenditure required in manufacturing that unit. The demand curve at this equilibrium quantity would then consider the relevant pricing.
Incorporate average total cost and marginal cost curves to assess production efficiency.
Figure 8: Average total cost and marginal cost curves
In order to evaluate production efficiency, it is necessary to integrate the average total cost (ATC) and marginal cost (MC) curves. The ATC curve denotes the average cost-per-unit cost of production, while the MC curve denotes the further cost of producing one extra unit. Woolworths can assess its manufacturing efficiency by analyzing the MC curve with the ATC curve. If the MC is below the ATC, it recommends that the firm is efficiently operating. In order to analyze product efficiency, Woolworth can analyze the interaction of the MC curve with the position of the lowest ATC curve, denoting production efficiency. Efficient allocation of resources can be considered by the interaction of the MC curve with the demand curve at the optimal quantity; examining these relationships enables Woolworths to enhance financial performance by optimizing the production volume.
Conclusion
The market analysis uncovered Woolworth's opiates in a concentrated market with Coles as the major rival. AI exertion has enhanced efficacy but generated barriers to entry. Government policies ensuring data privacy, security and competition are essential. Woolworths may adapt and create to maintain its position. Collaborating with the government and the industry is essential for a fair approach to technological change.
References
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- Hanaysha, J. R. (2018). Customer retention and the mediating role of perceived value in retail industry. World Journal of Entrepreneurship, Management and Sustainable Development.https://shorturl.at/gvwX0
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