Free Essay About Coles

Cover Letter to CEO

The CEO, Coles
I am an independent consultant. I have been assigned with the task of looking at the present state of affairs in Coles and suggest some new future goals for the company based on the internal strengths of Coles and external macroeconomic opportunities that the market offers. As you might be well aware of that Coles, after years of poor performance in the supermarket and Kmart divisions during the first 7 years of the century, came up with some good tactical actions. Actions like online and mobile sales have really been driving the growth of the company. Also, renewed focus to reinvigorate the supply chain and establish firm ties with the farmers have improved the cost margins of Coles substantially. Coles in the last few years has been able to capture some market share from its main rival Woolworths.
Even though the market is growing because of an expanding population growth and more disposable income in the hands of middle class, Coles’ growth is slower than the market growth. This is because new entrants such as Aldi and Metcash have grabbed the market share from Coles and Woolworths (LaFrenz, 2014). Everyday value still drives the average customer to buy a product, but that market is not growing. It seems the major growth drivers in the supermarket business in Australia are liquor business, fresh foods, and organic foods. Also, many South-East Asian markets close to Australia are witnessing a huge market growth. Coles should have a goal to regain its number one position in the Australian supermarket business. To achieve that, it should follow a three-pronged strategy, drive strong fresh food and organic food growth, transform liquor offering and simplify supply chain to improve in-store and logistics operation. If Coles can refocus on those strategies, then with its more than 100 years of experience, it will be able to increase its volume of sales and improve the profit margin in both short and long term.

Thanks for the opportunity.

Introduction
Coles is one of the two largest supermarket companies in Australia. Coles has been in business for over 100 years. It started as a small company way back in 1914. It has transformed the shopping landscape of Australia in the 20th century. However, after years of underperforming, Coles finally was sold to Wesfarmers. Coles is the biggest subsidiary of Wesfarmers. The brand name ‘Coles’ is one of the most recognized in Australia. Therefore, it is important for Wesfarmers to invent a strategy to revive the company operations so that it restores the former profitability and also grows at a rate better than current market rate. Wesfarmers also wants that the operating margin of Coles must improve so that profitability of the company improves.
This report is going to look at the present state of business in Coles and how it matches up against the main players in the market. It will look into the Australian market to find out growth prospects and probable future market behavior. Based on the external market prospects and internal strengths of Coles, finally the report will propose the goal for Coles in the future and the strategies Coles should employ to achieve the Goal.

Internal Analysis

Coles is the second largest multi brand retail chain in Australia. The major focus of Coles is food retailing business. Its slogan “Fresh Foods cost less at Coles” depicts the philosophy of Coles’ operation (Coles, 2015). Most of the Australians still perceive Coles as the most advanced yet economic brand (PWC-Australia, 2014). Coles’ products mainly cater to the needs of the growing Australian Middle class and also the premium households. Coles remains the best option among customers as a retail store that can fulfill all the daily needs of its customers in a cost effective way. The main strength of Coles is its food and liquor business (Coles, 2015). Coles brand is also extremely well-recognized. However, the recent negative publicity of Coles for hardline negotiation with the suppliers has affected the brand image. A detailed SWOT analysis of the company is attached in the appendix 1 of this report.

Situational Analysis

Coles is mainly operating in grocery and liquor industry, but it also has a huge presence in other retail segments. The overall demand for products is increasing. The retail market is slated to grow at a rate of approximately 5% annually for the next 5-7 years (PWC-Australia, 2014). Among all the segments, fresh food is slated to witness a double digit growth rate in the coming years. In fact, products like organic food and local produce sold from the grocery supermarkets are expected to see a growth rate well over 20% year on year (YOY) for the next few years. Overall, the liquor market is growing at a moderate rate to 5-7% (Savills, 2014). Especially, the wine market is seeing a double digit growth. However, the sales of liquor from the specialty liquor stores are not growing at the same rate, but consumers are buying liquor more increasingly from multi brand retail stores (PWC-Australia, 2014). The growth of liquor business in the supermarkets is growing at fast rate.
There is little to no political threat in Australia as both the political parties in Australia believe in social democracy and open market policy. Therefore, it is unlikely that there will be a huge change in law that will affect Coles adversely. However, the Australian government continues to invite new players to enter the retail market as it wants more healthy competition in the retail segment. This puts more pressure on Coles and Woolworths and they may be losing their grips on market share (Savills, 2014).
Low oil prices, moderate house prices and decreasing unemployment rate means that there will be more disposable income in the hands of people. More disposable income means a higher chance of growth in retail as well as luxury segments (Savills, 2014). Low levels of inflation also boost the confidence of investors as well as customers. The Australian population is growing at a moderate rate, and from 20 million in 2011, it is slated to reach a level of 25 million by 2030 (Savills, 2014). The number of people living alone is increasing. This will create more demand for the readymade food, furniture, kitchenware, and gardening items. A more detailed industry analysis using porters 5 forces model is available in the appendix 2.
Lower value is still one of the major drivers for the customers. However, the margin of operating profit for major retailers is reaching a dangerously low level (Savills, 2014). Negotiation with the farmers and other suppliers has reached a stage where it is affecting long term supplier-customer relationships and Coles is not an exception there as well. In fact, it faced severe criticism from many corners for hard negotiation with its suppliers.
Coles, historically, has focused more on price negotiations and long term contracts to reduce price, but the focus on supply chain has been less. The distribution cost of Coles is approximately 8%, which is higher than the leading companies in that category (Walmart -2%) and the Australian competitors (Woolworths- 4.5%) (PWC-Australia, 2014).

Conclusion and Recommendations

Coles’ Future Goal
Coles dominated the retail market of Australia like no other over many decades. However, since the 1990s, it has started to falter in its strategy, and in the early half of the 21st century lost its number one position to Woolworths. Coles ($19 billion) is now a distant second to Woolworths ($32 billion revenue). Coles should have a goal to regain the number one position among all the retailers in the Australian market within the next 10 years. However, this is only possible when Coles can post double digit growth in most part of the current and next decade.

Coles’ Future Strategy

Those three strategies can be achieved through short term as well as long term tactical actions that are given below:
1) Drive Fresh Foods

Crete a marketing campaign around the availability of fresh produce and local produce in Coles’ stores in immediate short term.

Introduce a branding campaign for Coles that positions Coles not as a low cost retailer but as the best value for money retailer (This is essential for attracting the fresh food buyers as they are less price sensitive)
Offer special Coles membership benefits on fresh foods purchase to convert some of the existing buyers of low margin inorganic food to high margin fresh and organic food.
Re-launch the Coles Organic brand. It will attract customers who like fresh produce and are health conscious buyers.
2) Transform Liquor Business

Visibility of the liquor shelf to be increased within each superstore (This is a major problem in current store layouts).

Focus more on beer as it is the volume drive and wine as it will be the main growth driver for the liquor business.

Introduce top wine brands in Coles’ flagship stores.

The availability of the liquor should be done based on customer demographic profiling of the store and should not be random.
3) Increase Supply Chain partnerships (Supply chain partnerships will complement the above two strategies).
Collaborate with local farmers for fresh produce. This will not only reduce the cost of delivery, but will also improve the image of the Coles stores in the local market.
Develop nationwide organic farming partners who will exclusively supply to Coles. Developing such supplying partner will help reduce the cost and will be mutually beneficial.
Focus on supply chain delivery and try to minimize the total miles covered by Coles’ delivery trucks by 7% every year. This will directly improve the operating margin of the company.

Work Cited

Langley, S. 2014. Wesfarmers reveals strategies to grow Coles and other businesses. Australia Food News. [Online] Available at: <http://ausfoodnews.com.au/2014/05/28/wesfarmers-reveals-strategies-to-grow-coles-and-other-businesses.html> [Accessed 22 April 2015]
LaFrenz, C. 2014. The supermarket duopoly is starting to fray. Financial News. [Online] Available at: <http://www.afr.com/personal-finance/shares/the-supermarket-duopoly-is-starting-to-fray-20141115-11n8m4> [Accessed 22 April 2015]
Coles. About Us. 2015. [Online] Available at: <http://www.coles.com.au/about-coles> [Accessed 22 April 2015]
Savills. Insight: Australian Retail Market. 2014. [Online] Available at: <http://www.savills.com.au/publications-pdf/savillsresearch-insight-australian-retail-market-february-2014.pdf> [Accessed 22 April 2015]
Fare. The Liquor Industry. 2012. [Online] Available at: <http://www.fare.org.au/wp-content/uploads/2011/07/Australia-Institute-Report-The-Liquor-Industry.pdf> [Accessed 22 April 2015]
PWC-Australia. The Future of Retail. 2014. [Online] Available at: http://www.pwc.com.au/industry/retail-consumer/assets/Digital-Media-Paper-Jul12.pdf> [Accessed 22 April 2015]
Appendix 1: SWOT Analysis of Coles
Appendix 2: Porter’s Five Forces Analysis of Coles
Threat of New Entrants- High
The retail industry has historically been dominated by Coles and Woolworth. In fact, in 2011, these two players together accounted for 80% of the total market share (PWC-Australia, 2014). To increase competition in the market, the Australian government is encouraging small players as well as international players to enter the market. In the last 10 years, Aldi and Metcash were able to take away some market share (20%) from the big two retailers of Australia, including Coles. Small players can easily enter the market with a few specialty products, which will affect the market share of Coles immediately (LaFrenz, 2014). Entering in the market in a small way is not difficult. However, for larger operation, a huge investment is required.
Bargaining Power of Buyers- High
Buyers have a high bargaining power. For this industry, almost everyone is a buyer. Grocery and food products are low involvement products, and therefore, switching of product and shops is not uncommon among the buyers in case they do not find value in buying a product from a particular store. Value in this industry can be offered through low cost, differentiated product features (like organic food) or high quality (PWC-Australia, 2014).
Bargaining Power of Suppliers – Low
The bargaining power for suppliers in this industry is low. Especially, big retailers have a huge advantage while bargaining as they are the main buyers for many suppliers. Bargaining is used by Coles and others to improve efficiency and offer products at lower prices (PWC-Australia, 2014).
Threat of Substitutes- High
The threat of substitutes is considerably high. The products offered are very standard in most of the cases and are available through many different stores (PWC-Australia, 2014). In fact, similar products can be launched easily with a cheaper price or slightly different features. With technological advancements, substitutes are easier to introduce. For grocery products, there are many producers, which make it even easier to introduce substitutes.
Industry Rivalry- High
Although in Australia there are only four major players; Coles, Woolworths, Aldi, and Metcash, but there are thousands of small retailers competing on many product segments in different geographic locations (LaFrenz, 2014). It is not difficult to enter the market as many players enter the market for certain small geographic locations with specialized products thereby intensifying the competition.