PESTLE Analysis of Woolworths: SWOT Analysis, recommendation

SWOT and PESTLE Analysis of Woolworths

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Importance and Description of PESTLE Analysis of Woolworths


Introduction to Woolworths:

Woolworths is an Australian company that has its retail outlets in Australia and New Zealand. Woolworths group was founded in 1924 and the main operations of the company include running up of supermarkets with the aim to provide suitable and convenient shopping to customers. This group of retail stores deals with various well-established brands in retailing. Woolworths is the second largest company in Australia and New Zealand. The main products of Woolworths include various grocery items such as DVDs, fruits, vegetables, meat, packaged food, health products, baby supplies, etc (Woolworths, 2019). Woolworths also has established an online presence i.e. Woolworths online to provide a “click and collect” option to customers.

Woolworths has earned revenue of the Australian dollar 55.669 billion in 2017 and the operating income of the company in 2017 amounts to the Australian dollar 2.326 billion in 2016. The company has hired more than 2 lakhs employees in current times and the major divisions of the company include supermarkets, online stores, liquor retailing, general merchandise selling stores, hotels and gambling etc ("Woolworths Group: Quality Brands and Trusted Retailing", 2019).

Article Summary

This article evaluates Woolworths, the largest supermarket retail chains in Australia on the basis of various external factors. For this assessment, a comprehensive PESTLE analysis has been carried out followed by a SWOT analysis of the supermarket retail chain. The evaluation takes into account the crucial factors for 2021 and beyond. It also sheds light on how the COVID-19 pandemic has changed the supermarket industry and how consumer patterns are changing too.

PESTLE Analysis:

Various macro environment factors affect the working of an organization and analysis of a number of macro-environment factors affecting an organization is referred to as the PESTLE analysis. PESTLE analysis helps in defining strategies for the organization by analyzing various threats and opportunities likely to be confronted by the management team (Academy, 2019). Various factors evaluated in PESTLE analysis include political, economic, social, technological, legal and environment-related factors. A detailed review of all these factors helps in determining the factors likely to impact the working and operations of an organization. Following table shows a brief explanation of each factor evaluated under PESTLE analysis:

All these models have their own importance and are useful to know the internal as well as external factors that may influence the company. Further, the following three elements are considered in each of the different approaches of industry analysis:

PESTLE ANALYSISDETAIL
POLITICAL FACTORSPolitical factors refer to interventions imposed by the government on business firms. Various political factors such as government policies, political stability, foreign policies, environment laws, trade restrictions, etc (Political Factors Affecting Business, 2019).
ECONOMIC FACTORSEconomic factors affect the economy as a whole which further impacts the working of business firms in the industry. Various economic factors include interest rates, tax rates, inflation rates, wage rates, employment rates and growth rates of the economy (Economic Factors, 2019).
SOCIAL FACTORSSocial factors refer to various social and culture-related factors which influence the purchase and consumption behavior of consumers regarding various products and services. social factors include various cultures, community, family and society-related factors. These factors also affect the lifestyle of consumers in the industry (Social Factors, 2019).td>
TECHNOLOGICAL FACTORSTechnological factors refer to various technological advancements taking place in the industry and influencing the business firm to bring various technical innovations. Technological factors affect various marketing actions in an organization by developing new ways of working and producing goods and services (Alkemi, 2018).
LEGAL FACTORSLegal factors include the imposition of various laws and regulations by the government and other higher authorities. These factors affect the way business firms operate and consumer behavior in the industry. Thus, legal factors affect various decision making and operational activities of organizations. (Legal Factors, 2019)
ENVIRONMENTAL FACTORSEnvironmental factors are ecological factors that influences growth, survival and operations of business organizations.

Woolworths Industry Analysis

Ever since the onset of the COVID-19 pandemic the supermarket industry and retail enterprises in Australia have undergone drastic changes. The pandemic directly impacted the purchasing power of consumers, per capita incomes, and buying preferences of consumers. The revenues in the country are hitting record lows while the spending is on the rise. Besides, the budget deficit of the Australian government is at an all-time high in peacetime. Speaking of people’s purchasing power and living standards, it may take several years to restore Australian citizens’ pre-pandemic standards of living. (The Costs of COVID: Australia's Economic Prospects in a Wounded World, 2021). All these factors will have a direct impact on the supermarket and retail industry in the country.

Also, the present scenario requires the supermarkets to integrate greater technological innovations. This is because consumers are now more interested in contactless deliveries or ‘Click and Collect’ services to ensure maximum safety in the middle of a contagious pandemic. The world has witnessed more than 3.8 million deaths due to the fatal pandemic while total confirmed cases stand at around 175 million. Given that, there is fear and apprehension among people which are driving new changes in their purchasing habits. They want to purchase from supermarkets that offer maximum convenience and safety. Also, in the pandemic, various provinces of Australia have been under varying stages of lockdowns and shutdowns. Most retail businesses have faced supply chain issues, declining revenues, a decrease in sales during COVID times, and stage 3 lockdowns in Australia.

However, Woolworths recovered well from the pandemic losses in 2020, and in the first half of the 2021 financial year, it has posted a huge profit. The Australian supermarket leader posted a profit of $ 1.35 billion in the first half of the current fiscal year. This is a 28 percent increase in comparison to the same period in 2020. The company attributes this colossal increase in profits to the elevation in the sales of essential items during the ongoing pandemic (Woolies records bumper rise in profit, 2021). Hence, the supermarket industry in Australia has been able to sustain itself and recover quickly from losses by focusing more on essential products, at-home entertainment, and pick-up or contactless delivery options.

The following PESTLE analysis of Woolworths gives a more refined picture of the impact of various external factors on the supermarket industry in Australia and the prospects for Woolworths.

PESTLE ANALYSIS OF WOOLWORTHSDETAIL
POLITICAL FACTORS

Scott Morrison is the incumbent Prime Minister of Australia who assumed office in 2018. Ever since then, there has been a decline in the volume of the Australia-China trade. China continues to be Australia’s largest trading partner even when the diplomatic relations between the two nations are at an all-time low and trade is shrinking. Between March 2020 and March 2021, Australia exported goods worth USD 116 million to China. Australia is also a part of the quadrilateral dialogue that includes India, the US, and Japan to confront China on the South China Sea conflict. The declining Australia-China relations can impact retail industries involved in bilateral trade.

In the context of the supermarket industry, the federal government is bringing new regulations to protect small and medium grocery suppliers from supermarket giants like Woolworths, Coles, and Aldi. The government aims for retailers with significant market capitalization to sign up to voluntary codes to bring industry regulations relevant to supplier dealings with Woolworths and other big supermarket retailers in Australia. The government is keen on addressing the issue of price negotiations between supermarkets and suppliers. The government may also bring a code arbiter for the supermarket industry. All these factors will directly affect the business and autonomy of supermarket retailers in Australia (Government agrees to tougher rules for Woolworths, Coles, Aldi supplier dealings - SmartCompany, 2021).

ECONOMIC FACTORS

Like any other country, Australia too had to bear the brunt of the COVID-19 pandemic. As per the statistics bureau, the GDP of Australia plunged to record levels in the second quarter of 2020 as it fell by 7 percent from the first quarter. This accounted for the largest ever fall in the country’s GDP since 1959. However, the economy showed great momentum in the last quarter of 2020 and expanded much faster than expected ensuring a sound start to 2021. The economy accelerated at the rate of 3.1 percent in the last quarter of 2020. In terms of COVID-19 recovery, Australia has outperformed other nations. A GDP growth of 4.5 percent is anticipated for the year 2021 by economic experts. (Pandey, 2021)

The 2020-2021 budget announced by the Federal government of Australia pledged $ 98 billion to direct and indirect COVID-19 response measures. This is in addition to the already committed $ 257 billion in direct support for the economy to undo the pandemic losses and fast-track the recovery (Australia, 2021). Hence, the industries have received timely bail-out packages from the government in addition to other benefits in taxation and other verticals. However, it is projected that the inflation rate in Australia will rise to 2.42 percent by 2026 against 1.73 in 2021 (Australian inflation rate 2026 | Statista, 2021). Higher inflation will mean a hike in prices and the purchasing power of consumers will decline.

SOCIAL FACTORS

The consumer preferences of people all over the world including Australia are witnessing paradigm shifts. These changes are both related and unrelated to the COVID-19. As mentioned above, consumers have become particular about their safety to ensure they do not contract the virus. Hence, more consumers in Australia are now preferring ‘Pick Up’ facilities offered by supermarkets that ensure contactless orders. This innovative facility allows consumers to place their grocery orders online using the application and on reaching the store, the bags will directly be put in the boots of their car without the customer having to get out of the car. Woolworths is already offering this facility to customers at selected locations. In fact, Woolworths claims to offer the first-ever direct to boot or pickup shop.

Besides the safety concerns related to the pandemic, there are other driving forces affecting consumer behavior as well. The first change being witnessed is greater patronization for local businesses. Other changes include quicker adaptation to digitalization, more support for businesses incorporating sustainable practices, and more value to customer experience than pricing and product. All these changes in consumer preferences are part of a revamped social structure and supermarket retailers will have to make the relevant modifications for client retention and attracting new customers.

TECHNOLOGICAL FACTORS

There is a great scope for Australia to improve its technological infrastructure. Australia’s expenditure on research and development accounts for around 1.8 percent of its GDP. This is way below the average R&D expenditure of 2.37 percent of the GDP of the OCED nations. On the other hand, world leaders like Israel and Korea are spending around 4.5 percent of their GDPs on research and development. However, Australia and the United Kingdom have agreed to Free Trade Agreements (FTAs) to share innovation, technological services, telecommunications infrastructure, digital trade, intellectual property, and other technological aspects (UK-Australia FTA negotiations: an agreement in principle, 2021). Australia will be hoping to bolster its technological infrastructure through such bilateral trade agreements. It is also working closely with its other allies for strategic and technical cooperation.

Talking of the technological verticals shaping the future of the grocery industry or supermarkets, there are various new incorporations that can play a key role in growth and advancement. The futuristic technologies that can transform the supermarket industry for the better include Artificial Intelligence, checkout-free conceptualizations, voice ordering, and so on. Grocery stores that are cashier-less will redefine the future of supermarkets. For instance, Amazon has already rolled out its first cashier-less store in Seattle, USA. There are cameras, sensors, and computer algorithms that track what consumers take away and they are directly charged from their credit cards. There is no need to have checkout counters in such a futuristic store. To survive competition in the longer run, supermarkets in Australia too will have to work on the incorporation of such technologies and concepts that will attract more customers.

LEGAL FACTORS

Consumer rights in Australia are protected by the Australian Competition and Consumer Commission. The ACCC mandates large supermarket chains and online stores to display unit prices for facilitating customers to compare products. Besides, the Australian consumer law safeguards the interests of consumers against businesses making malicious claims about groceries and other items. In addition to that, there is a Food Standards Code that the industry has to adhere to. Also, there are specific goods and services tax measures for retail and wholesale traders. A duty fee is applicable on imported goods worth more than $1000. Moreover, there are national workplace laws and work health and safety norms set by the Federal government for the retail wholesale industry. To add, misleading representations or claims even on the packaging and plastic bags by supermarkets are held in violation of laws.

In addition to the above, the federal government of Australia is trying to bring new measures to regulate the supermarket industry better and neutralize the autonomy that supermarket giants in Australia relish. The objective is to regulate the supermarket industry, counter the price negotiation powers of larger supermarket chains, and protect smaller grocery suppliers.

ENVIRONMENTAL FACTORS

The greatest environmental issues in Australia include deforestation, overgrazing, extensive pollution, carbon emissions and so. Besides, Australia is equally exposed to the global environmental challenges of climate change and global warming. An Australian citizen uses 130 kg of plastic each year on average of which only 9 percent is recyclable (Don't Let Nature Go To Waste, 2021). Supermarkets are major contributors to plastic pollution because of their packaging and bags.

The Department of Agriculture, Water, and Environment has created a timeline under a National Plastics Plan. The major objective of this plan is to bring significant reductions in plastic waste, enhance recycling rates and find alternatives to plastics. The timeline was created in 2019 with objectives to meet by 2030. To add, Australia is also a party to the Paris Agreement, a multilateral agreement to address climate change. The main objectives of the Paris Agreement are centered around reducing the carbon footprint to ensure that the world can limit global warming and keeping the rise in global temperatures well below 2 degrees Celcius. Australia has pledged to cut its carbon emissions by 28 percent at the end of 2030.

For the retail industry in Australia, there are strict environmental norms in place. These laws govern the ban of plastic bags in the country, recycling, sustainable practices, waste management, and reduction, and other fundamentals related to environmental conservation. Woolworths, Coles, and Aldi have joined hands to initiate a pact to significantly reduce the use of plastic by the Australian supermarkets. Under this pact, known as Australia, Newzealand, and Pacific Islands Plastic Pact, supermarket retailers have set the goal of having 100 percent reusable, recyclable, and compostable plastic packaging by 2025.

SWOT analysis:

SWOT analysis refers to the strategic planning and analysis techniques helps in identifying various strengths, opportunities, threats and weaknesses of business firm. Thus, the main aim of conducting SWOT analysis is to evaluate various internal and external factors of business firm by evaluating various favorable and unfavorable factors for business organization ("How to Do a SWOT Analysis)", 2017).

  • Strengths and weakness

    Factors of business firm are internal to business organization that provides advantage or disadvantage to organization over its competitors.

  • Opportunities and threats

    Opportunities and threatsare external to business organization. Business organization can take measures to exploit various business opportunities to take advantage over competitors. However, various threats or uncertainties may create trouble for successful running of business.

Thus, it has been identified that SWOT analysis helps in evaluating both favorable and unfavorable situations for business which further helps in designing various strategies to achieve business goals and objectives.

Strengths of Woolworths:

Woolworths has achieved huge competitive advantage in the industry as a result of various strengthening factors. Following is the detailed review of various strengths of business organization:

  • Market leadership:

    Woolworths and Coles have achieved leading position in retail industry and holds around 80 % of market share in the industry and thus creating a monopoly in the Australian retail sector. Woolworths also has established its online portal to gain larger customer base in the industry. In addition to this, Woolworths is one of the oldest retail company that has established huge market share and reputation in the industry.

  • Market segmentation:

    Woolworths has effectively segmented its target markets. Initially, the company targeted only the wealthier sections of society. However, in the current times, Woolworths has adopted various low pricing strategies to provide its products to lower value segments as well. Thus, Woolworths is currently targeting both upper and lower classes of people. Woolworth's marketing strategy in detail can be studied here

  • Employee policies and training plans:

    Woolworths is a people savvy employer that has hired diverse group of people. Woolworths also has developed various training programs for its employees to ensure that all employees are well trained to provide effective services to customers.

  • Brand reputation:

    Woolworths also has developed significant brand reputation in the industry through adoption of various brand loyalty schemes and through provision of best quality of products to customers. Woolworths also is supplying its products to consumers through green tags to gain green customers.

  • Marketing strategies:

    Marketing strategies of Woolworths also have helped in gaining huge market share in the industry. Woolworths follows aggressive strategies to promote its products and services in the industry where customers are informed about various offers every week.

Weaknesses of Woolworths:

Despite various strengthening factors, Woolworths lacks in various aspects which are discussed as follows:

  • Limited global presence:

    Woolworths has its retail stores only in Australia and New Zealand which provides that Woolworths has limited presence in global market. Also, competitors of Woolworths have higher reputation in global market which is one of the major weakness of Woolworths.

  • Lack of brand awareness:

    Woolworths has achieved huge brand reputation in Australia and New Zealand but still, there is lack of brand awareness among various customers.

  • Lower price of products:

    Woolworths has adopted low pricing strategies to gain larger share of market in the industry which has resulted in huge losses to the company.

Opportunities for Woolworths:

Woolworths has achieved success in various strengthening factors which provides that Woolworths can increase its competitive advantage in industry by exploiting various opportunities. Following is the list of opportunities that can be exploited by Woolworths:

  • Promoting brand:

    Woolworths has the opportunity to increase brand awareness among the customers about various products of company by promoting various products through advertising and sponsorship plans.

  • Growth of the business:

    Woolworths can also achieve growth of its business by acquiring other firms In emerging economies. Woolworths can also merge with various firms to gain market share in other developing economies.

  • Opening up new stores:

    Woolworths can also open up new stores in rural areas to create brand awareness about products of Woolworths and to meet the needs of rural people.

  • Increase organic produce:

    There is growing demand for various organic goods in the industry which further is a good opportunity for Woolworths. Woolworths can increase its profitability in the market by increasing its product base and by selling various organic produce.

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Threats of Woolworths:

Woolworths can face various threats in the industry. some of the threats that can be faced by Woolworths are listed as follows:

  • Competition:

    Although, Woolworths has achieved lot of competitive advantage in the industry but still, Woolworths is facing various competitive threats in industry due to higher demand of Amazon products in the retail market. Also, competition from international players in retail market may further impact the operations of business organization.

  • Economic recession:

    Economic recession is also one of the major threats to Woolworths as economic recession may lower down demand for various products of Woolworths due to a reduction in the purchasing power of customers.

Success factors for Woolworths:

Various factors influence the success of business firm in the industry. Despite various external environment factors, various internal factors also affect the organizational operations. Internal competencies of Woolworths have helped in gaining huge market share in the industry.

Following are some of the success factors of Woolworths:

  • Human resources::

    Success of Woolworths depends on the efficiency and competency of various employees working at various retail stores. Woolworths has adopted various effective HRM policies to keep its employees satisfied. Also, Woolworths ensures that employees are selected on the basis of merit and skills bases. In addition to this, Woolworths ensures that employees are engaged in various activities and decision making of the organization to increase their job satisfaction. Woolworth provides training to its employees for skill enhancement and along with this, effective performance management strategies developed by the HR department of Woolworths helps in maintaining effectiveness and efficiency in various actions of employees. Also, the quality staff hired by Woolworths helps in providing quality services to customers.

  • Financial capabilities:

    Financial resources helps in successful running up of business firm by providing funds for various innovations. Financial capability refers to the ability of business organization to invest funds in various activities and operations of business. Woolworths has strong financial capabilities. Woolworths earned by revenue of more than $59,000 million in 2017. Also, the company has earned a return of around 24 % on funds employed in business which provides that huge financial capability exist with Woolworths (Woolworths, 2019). Financial capabilities have helped in successful running of the business over the past number of years. Also, the achievement of the leading position in retail industry is the result of various financial capabilities of business.

  • Innovation capabilities:

    Huge innovation capability exists with Woolworths. Woolworths has adopted a number of innovations in current times to provide convenient and best quality of services to its customers. Woolworths has adopted a number of technological innovations in its in-store operations to provide customers with readily available information. also, various innovations have been taken by Woolworths to detect various flaws in operational activities. In addition to this, the technical team of Woolworths helps in taking various initiatives at regular pace. This also helps Woolworths to succeed in the industry through the provision of a better quality of services to customers.

  • Woolworth subsidiaries:

    The number of subsidiaries of Woolworths has helped in achieving success in the industry. it also has helped in gaining larger market share in the industry. The various subsidiaries of Woolworths include a list of divisions and brands of Woolworths. The main divisions of Woolworths include liquor, supermarkets, hotels, merchandise and everyday services. Woolworths offers a diverse range of products to consumers at its retail stores and a number of subsidiaries which further have helped in gaining huge market share in the industry.

  • Competitive advantage:

    Competitive advantages enjoyed by Woolworths in Australia and New Zealand are important success factors of company. Woolworths has gained large market share for retail products in industry. Also, Woolworths has established strong brand reputation for its products and services in the industry which further has increased the competitive advantage enjoyed by Woolworths. Various sustainable actions taken by Woolworths also are key base for achieving competitive advantage. the competitive advantage also has helped in gaining huge profitability. The sustainable actions of company aim at gaining large number of green customers. Also, Woolworths had won the International Responsible Retailer award in 2008.

Thus, it has been identified that various success factors exist in the working of Woolworths that have helped in gaining a competitive advantage in the industry. Woolworths should take various initiatives to use its strengths and exploit available opportunities. Detailed Woolworths SWOT analysis and ANSOFF Analysis can be read further for more elaboration on Woolworth's capabilities.

Further readings

Here is a list that will help you know more about the topic. With this you can easily gather maximum information about Woolworth's organisational culture. This can further help you write your college assignments with high proficiency. These details can iad you in the form of Assignment Help Australia or Assignment Help Sydney. On the basis of your requirement, you can contact our city team and get your assignments deliverred at your mailbox.

References

  • 2019 SUSTAINABILIT Y REPORT. (2019). 2019 SUSTAINABILIT Y REPORT. Retrieved 26 December 2019, from https://wow2019.qreports.com.au/xresources/pdf/WOW_SR19.pdf
  • Academy, P. (2019). Marketing Theories - PESTEL Analysis. Retrieved 26 December 2019, from https://www.professionalacademy.com/blogs-and-advice/marketing-theories---pestel-analysis
  • Alkemi, R. (2018). Technological factors that affect business environment - RedAlkemi. Retrieved 26 December 2019, from https://www.redalkemi.com/blog/post/impact-of-technology-on-business-environment
  • Australian business and environment laws - Austrade. (2019). Retrieved 26 December 2019, from https://www.austrade.gov.au/International/Invest/Guide-to-investing/Running-a-business/ Understanding-Australian-business-regulation/Australian-business-and-environment-laws
  • Economic Factors. (2019). Economic Factors (Definition, Examples) | Top Factors Affecting Business. Retrieved 26 December 2019, from https://corporatefinanceinstitute.com/resources/knowledge/strategy/industry-analysis-methods/
  • How to Do a SWOT Analysis for Your Small Business (with Examples). (2017). Retrieved 26 December 2019, from https://www.wordstream.com/blog/ws/2017/12/20/swot-analysis
  • Legal Factors. (2019). Legal Factors - an overview | ScienceDirect Topics. Retrieved 26 December 2019, from https://www.sciencedirect.com/topics/social-sciences/legal-factors
Article By:

John Jues

Holds a management degree from the University of California and has even served the university as a faculty for 5 years. Additionally, he disseminates his knowledge among students by ensuring the appropriate drafting process of their


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FAQ


What is pestle analysis?


Q

A PESTLE Analysis is a framework that is developed to conduct an audit of the external factors affecting an organisation. These include Political, economic, sociological, technological, legal and environmental. It helps the company to plan its future course of actions.


How to do a pestle analysis?


Q

PESTLE analysis involves a process which begins with planning and thinking. The process goes as the identification of the scop, deciding the sources of information, gathering the information, analysing it, listing the important issues, preparing a discussion document, dissemination of the discussion sheets and at the end deciding upon the actions to be taken.