Strategic Plan for Woolworths/Macro Wholefoods

1 Introduction

The overarching objective of this project is to develop a strategic plan for Woolworths Macro Wholefoods. This report illustrates the current resources and position of this company with strategic analysis of external and internal situation, followed by the proposed vision/mission and objectives. It demonstrates proposed strategies, both business-level and functional-level, and finally advances action plans clearing timeline and who is responsible for each execution.

2 Company overview

Woolworths Limited (Woolworths) is an ASX listed diversified food staple company which primarily operates in supermarkets (approximately 40% market share in the food retailing industry) but also has operations in a variety of areas, including petrol stations, liquor retailing, electronics retailing and upstream activities supporting some of its various operations. In order to continue its market leading growth over the past decade, Woolworths has recently moved into premium, differentiated retailers, such as Thomas Dux, which was launched in 1998 (IBISWorld, 2011).

Viewing the organic food and products space as a potential engine of future growth, Woolworths recently started an aggressive push into the sector. In 2009, it acquired Macro Wholefoods, integrating its existing store footprint as well as the Macro brand with its existing ‘Woolworths Organics’ range, which included organic fresh fruit and vegetables, poultry, and canned and dairy products (GAIN Report, 2007). With the high levels of expected growth in the industry, it is predicted that Woolworths will further develop its capabilities in the Organic Food space.

3 External environment analysis

3.1 Trend analysis

With an increased customer focus on health and social responsibility, organic foods have increasingly moved from the niche to the mainstream over the past decade. In fact, during the global

Strategic Plan for Woolworths/Macro Wholefoods

financial crisis, this growth, which amounted to 50% between 2008 and 2010 (Mitchell, Bez, Kristiansen, & Monk, 2010), has continued to the point that organic foods now account for approximately 1% of fresh produce sales (as high as 5% in certain areas) or $1 billion per year. This has resulted in a sustained push by major retailers for a share of the action. Woolworths, Coles, ALDI and IGA have all permanently positioned organic produce within their offerings which has largely been successful, with an increase of the market share held by the large retailers increasing from 8% in 2009 to 60% in 2011.

It is our view that there are presently two main inhibitors of the quantum of organic sales not being even higher. Firstly, while major retailers have moved into organic retailing, those lines are not yet as established as the non-organic offerings, dictating that customers are simply not presented with the range that we expect they will be in five years time. Secondly, presently the price point is simply too high for many customers, as the price is not set at a rate to provide a reasonable premium to farmers for the increased growing costs, but instead because existing demand simply outstrips supply. This is largely due to the fact that it can take as long as seven years for a farm to be certified organic (IBISWorld, 2011). As a consequence, as supply increases it will drive prices down, continuing to drive growth in the industry.

3.2 Industry analysis

As discussed in the previous section, one of the most fundamentally important elements of the organic food and products industry is not found downstream in distribution (where Woolworths primarily focuses) but upstream, where there is simply not sufficient quantities of organic produce being grown to allow for widespread distribution and to push the price point down sufficiently to really garner high level mass market approval. However, with major retailers increasingly pushing into the organic sector via footprint expansion and specific organic lines (approximately 500 exist already), we are likely to see this progressively change over the next five years.

As this happens, we will likely increasingly see decreased fragmentation in the organic food and

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Strategic Plan for Woolworths/Macro Wholefoods

products market. Indeed, in 2009, supermarkets only accounted for 8% of net organic food and products sales. In 2011, that had increased to 40%. As we see retailers moving to capture the “second band” of more price conscious customers as supply constraints are alleviated, it is likely that the organic food and products market will increasingly conform to the norms of the Australian food retailing sector (where Coles and Woolworths are the dominant players, but foreign entrants such as IGA are seeking to encroach on their market share).

Interestingly then, it is our expectation that the current target market for organic food and products (namely customers with low price sensitivity who are generally mid to high income earners with a high degree of both health consciousness and social awareness) may well not be the same as the market targeted in five years time, when the price point of organic products will be significantly below where it is today. At that point, social mindedness and health consciousness are expected to be the key drivers of purchase, due to the decreased price differential. This is a key strategic consideration for any new market participant.

3.3 Competitors analysis

Due to the currently fragmented nature of the Australian organic food and products market, it is practically impossible to definitively produce an analysis of the market landscape. Indeed, locational factors are a key determinant of how competitive the environment is for each individual store, due to factors such as the geographic biases of customers and the existence (or non-existence) of local fruit and vegetable stores (which are far more common in Sydney and Melbourne than in Queensland).

As stated previously, this is not a status quo that we expect to continue with the same strength that it does presently. It is, therefore, our expectations that entrants or potential entrants such as Coles Group, IGA, AUR, SPAR, Franklins, Flannery’s Wray and Farmers’ markets will evolve into the key competitors of Woolworths. It is also our expectation that those larger retails will try to establish themselves by offering a range of mainstream organic products.

As that occurs, it is predicted that the market shares presently seen in the food retail industry will

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