The report provides an overview about Coles and Woolworths that accounts for around 75 percent of sales of packaged groceries in Australia. However, there market share is likely to fall if they includes fresh grocery items that includes meat, fruit as well as bread. Both Coles and Woolworths are considered as the largest supermarkets in Australia. In economics, market power is defined as the ability of the firm to increase the market price of a commodity or service profitably at the marginal cost. However, market participants do not have any market power under a perfectly competitive market (Morgan, 2014).
The report mostly underlines that supermarkets plays a rising role in the expansion of the agricultural sector of Australia. An increase in the market share for Coles and Woolworths has generated a demanding surrounding for several farmers as well as suppliers in Australia. A select group of retail units mostly dominates the supermarket industry in Australia, of which Coles and Woolworths are considered the largest in Australia.
The food markets in Australia
According to (Devin & Richards, 2016), Coles and Woolworths have experienced considerable expansion over the past four decades that in turn doubled their united market share to over 70 percent of the supermarket sector of the country. The marginal profit of Coles and Woolworths had augmented considerably by 40 percent and 24 percent respectively. The market power of both the conglomerates provides the ability to settle on prices, affect barriers to entry as well as ascertain a level of anticipation in the sector. This in turn exerts pressure on the remaining food chain in Australia. The decisions that are made by both Coles and Woolworths put the local farmers in a susceptible position.
Determined power in the food system of Australia
Market power mostly refers to a uneven impact over terms of trade. The position of the retailers with the food supply chains are consolidated with the gradual increase in their market share. This mostly includes expansion into the production, processing sectors as well as distribution. The customers of Coles and Woolworths had witnessed distinguished profits from the expansion of the two chains, mostly through enhanced access to more reasonably priced commodities (Howard, 2016). Woolworths had also announced that it would purchase milk directly from some of its suppliers that will save on the intermediary and farmers will be able earn more. Coles and Woolworths authorize about 70 percent of the grocery market in Australia. With this enormous market power, any abuse against the supermarkets will be directly reported to the Australian Competition and Consumer Commission.
Coles and Woolworths are operating in the monopolistic competitive type market structure, where the seller of one firm has a clear idea regarding the business strategy of the other sellers. More specifically, it can be mentioned that the producers under this type of market structure, have the degree of control over the pricing structure. The product differentiation strategy is also followed by these two companies. In this context, it can be stated that the brand of the product or the quality differ from the other.
The above figure depicted that the demand curve is downward sloping. This refers that with the reduction of price of the products, the quantity demanded for the goods will be increased. The producers are supposed to be price setter rather than the price taker. Moreover, it can be mentioned that under this type of market structure, the market power is depending upon the product differentiation or also on the price differentiation. This will in turn prove that the products under perfect competition are closely substituted to each other. Therefore, it can be inferred that these two retailing companies used to aim to the branding, which will increase the prices of the products without risking the customer base.
Both the conglomerates contribute significantly to the economic affluence of Australia. The two chains united hire just short of 300,000 Australians. With the given employment opportunities, the scale of the operation provide the chief markets for domestic farmers, thus granting them wider access to end-customers. Coles and Woolworths are able to meet the preferences of the customers with a range of commodities at diminished prices. They are able to dictate negotiating terms, given the size of their purchasing operation, in order to obtain suitable produce at low cost. This provides benefits to the public, as they are able to provide short-term affordability of food. According to reports, over the past three years, both the conglomerates have reduced their prices by 11 percent and six percent respectively (Pollard et al., 2014).
There are several problems that are associated with the widespread market power of Coles and Woolworths. The major problem is related with domestic suppliers in the Australian food systems, who are affected by their widespread market power. The dwindling market share of sovereign retailers leaves the greater number of suppliers with miniature choice to negotiate with the duopoly (d'Abbs, 2015). The market environment makes sure that the supermarket giants manipulate noteworthy persuade over price compromise and consistency demands.
The standards and specification for produce imposed by supermarkets have a noteworthy persuade on the food system. Retailer established principles on the methods of production, shape, size and color of manufacture have been applied to provide for wide customer market. The standardization of food generates augmented pressure on farmers in order to provide an ideal commodity. Most of the suppliers in Australia are also forced to act in accordance with these demands mostly due to the consequence of Coles and Woolworths to customer access (Davey, 2013).
Coles and Woolworths mostly present themselves as suppliers of fresh and domestic produce at low prices in their marketing policies. Both the conglomerates make the use of celebrity chefs in order to broadcast the marketing buzzwords to customers. Most of the growers have voiced apprehension about these levies, stating that they do not have an option in the matter (Rowe, 2014). The growers by now reimburse the chain a marketing levy of two and a half to 5 percent to promote their commodities.
Bargain Price Marketing
The advantages that the farmers get from augmented exposure to market, may not be adequate to overcome the costs faced by the farmers. The outcome may be managed in the short-run however; it can lead to sustained low profit margin for suppliers in the long-run. The anti-competitive behavior will have adverse impact on both the Supermarket giants.
Competition between Coles and Woolworths
According to (Armitage, 2013), a recent survey conducted shows that more than 72 percent of respondents believes that the grocery supermarket is too subjugated by Coles and Woolworths however; only 22 percent of the respondents believes that the level of competition is strong. The valuation of the grocery supermarket has been increased with the grocery operation of both Coles and Woolworths. The companies are also known to have imperative purchase power in the fresh produce market that in affects both suppliers as well as the quality of the finished product. Both the supermarkets have customarily approached grocery retailing from a demand-oriented point of view. This indicates that seasonal produce is kept at proscribed atmospheres. However, the distribution structure of both Coles and Woolworths are of low quality that in turn diminishes the obtainable range of fresh produce in these supermarkets. This indicates that the foods that are supplied by both the Supermarkets are nutritionally sacrificed by the time it reaches to the customers.
Most of the cultivators have also criticized about the quality specification of Woolworths, stating that appearance and shelf life are held to be more pleasing as compared to taste. It has also been reported by (Sutton-Brady et al., 2015), that most of the farmers face difficulty to cover the costs of accreditation requisite to supply Woolworths. Coles and Woolworths have also been criticized for their aggressive pricing strategy as well as market organize over fresh produce. This negative coverage requires competition to take place between Coles and Woolworths that will prove good for individuals in Australia. The high share of market and corporate structure of Coles and Woolworths have problematised various aspects for smaller produce growers. The increasing customer satisfaction level of Woolworths has been directly accredited to changing practices in fresh produce retail. Both Coles and Woolworths govern the food retail market industry of Australia mostly due to extremely developed population that fosters the development of large urban food retailers.
The purchasing, retail and administration practices of Coles and Woolworths have been unambiguously credited with having the number of sovereign fruit and vegetable retailers. A concern has been raised regarding the expansion of large chains of Supermarkets that in turn affect both rural and regional Australia. The following government evaluation of retailing sector of Australia concluded that statistics decisively disclose that the key chains have augmented their market share at the cost of the independents (Price, 2015). Both the supermarkets are already established and their supposed business practices have influenced the competitiveness of local retailers. Woolworths is believed to engage in rapacious pricing where its production is sold intentionally at a price below that of a nearby competitor as well as below cost price.
Woolworths holds a collection of retail brands across liquor, general discount retail, groceries, hospitality as well as electronics and hardware. Coles, on the other hand, extends even further in addition to retail brands in hardware, liquor, groceries and office materials. In recent years, the grocery operation of both companies had increased progressively. The diversification of Coles and Woolworths into other retail sectors as well as services makes sure that they are protected, as compared to independent groceries. This in turn had led to an irregular playing field in the grocery sector of Australia. The outlet of Coles and Woolworths propagates across metropolitan as well as regional centers of Australia (Mangru, 2015). The development of the duopoly drives out smaller trades, mostly in the rural areas that cannot compete with the key supermarkets. As a result, it leads to losses in employment as well as income of family-owned business enterprises. The limited number of retail players has augmented the reliability of suppliers on the supermarkets as a way to reach end-users.
As opined by (Lewis & Huber, 2015), anti-competitive practices have also been apparent with the help of propagation of secretly tagged goods materializing on supermarket shelves. Both Coles and Woolworths mostly increase the range of Home-brand items where these items are manufactured in combination with precise suppliers under severe production demands. These goods are mostly produced on a mass scale that is often sold at the minimal price as well as dominating prime shelf pace. These products are not merely reasonable as compared to ‘branded’ commodities but they are also making it hard as well as costly for small independent brands to acquire revelation within the key outlets and compete with home brands. The infiltration of these privately labeled commodities on supermarket shelves reduced the product variety that is offered by Coles and Woolworths. According to (Curtin, 2016), Coles reacted to the criticism stating that individuals ultimately decides what goods they desire to purchase and can hence simply shop elsewhere. Both the supermarkets also leads to high level wastage of food. In other words, when products fall short to meet the specification anticipated by Coles and Woolworths, it leads to high levels wastage of food. The unpreserved nature of fresh food indicates that any excess is likely to be wasted.
It is also imperative to have a competition between Coles and Woolworths as the distribution networks of both the Supermarkets and stock concentration expose the food system to risk. The retail grocery sector in Australia has been the topic of strong public inspection for years. According to (Dixon, 2014), Colesworths is an inevitable result due to the size of the Supermarkets. Proponents of the projected impacts test point to the movements of Coles and Woolworths to argue for the reform and others suggest the courts in Australia to have the power in order to break up strong corporations. With little competition as well as capability to lean on suppliers in an effort to reduce costs, the marginal profit of both the supermarkets are likely to increase. As per the reports, Coles and Woolworths requires to handle its competition in Australia as a good indicator. The competition between the two supermarkets will also reduce the threaten to the entire retail industry. There has been a key shift in the public feeling against the two supermarkets however; it also lacks coherence. The competition will also avoid copyright rip-off of packaging with private label brands thus imitating independents (Lewis & Phillipov, 2016). Most of the operators of the Supermarket also do not take on Coles and Woolworths as it will cost them literally hundreds of millions of dollars. The comfortable duopoly of both the supermarkets did not last long as the lower cost of shopping at ALDI opened the eyes of the individuals in Australia.
It can be concluded that market power in the food system is a key concern in Australia. The strong duopoly of Coles and Woolworths evidently indicates challenges to small trades as well as local farmers who are struggling to co-exist with the giants of the Supermarkets. However, this market circumstance will benefit customers continually however; on short-term basis. The long-term food security of Australia relies on maintaining diversification of both manufacturers and produce. It is imperative to have a partnership and clearness between suppliers and the supermarkets in order to make sure that the approaches are not employed at the cost of a competitive food system. It can also be concluded that being large in a business sense does not essentially translate into market power. Power in a market is not only considered as a function of concentration that may be transitory however; it is ultimately determined by the circumstance of entry. The high share of market and corporate organization of Coles and Woolworths have problematised various aspects for smaller produce growers. The increasing customer satisfaction level of Woolworths has been directly accredited to changing practices in fresh produce retail.
Armitage, P.., 2013. Informal clearance or authorisation for mergers-two paths with possibly similar results.. Keeping Good Companies, , 65(3), p. p.159.
Curtin, D.., 2016. Abuse of Market Power: The End of'Make-Believe'Analysis? Browser Download This Paper.
d'Abbs, P.., 2015. Widening the gap: The gulf between policy rhetoric and implementation reality in addressing alcohol problems among Indigenous Australians. Drug and alcohol review, 34(5), , pp.pp.461-466.
Davey, S.S.a.R.C.., 2013. Supermarkets and private standards: unintended consequences of the audit ritual. Agriculture and human values. 30(2), pp.pp.271-281.
Devin, B. & Richards, C.., 2016. Food Waste, Power, and Corporate Social Responsibility in the Australian Food Supply Chain. Journal of Business Ethics, pp.pp.1-12.
Dixon, J..H.L.a.I.B.., 2014. Transgressing retail: supermarkets, liminoid power and the metabolic rift. Food Transgressions: Making Sense of Contemporary Food Politics.
Howard, P.H.., 2016. Concentration and Power in the Food System: Who Controls what We Eat? (Vol. 3).. Bloomsbury Publishing.
Lewis, T. & Huber, A.., 2015. A Revolution in an Eggcup? Supermarket Wars, Celebrity Chefs and Ethical Consumption. Food, Culture & Society. 18(2), pp.pp.289-307.
Lewis, T. & Phillipov, M.., 2016. A pinch of ethics and a soup?on of home cooking: Soft-selling supermarkets on food television. In Food, Media and Contemporary Culture. Palgrave Macmillan UK. pp.(pp. 105-124).
Mangru, S.., 2015. A reflexive discourse of the local place: urban food gardeners in Brisbane. Australia.
Morgan, R.., 2014. Market share narrows between Coles and Woolworths, while ALDI makes important gains.. p.p.2015.
Pollard, C.M..L.T.J. et al., 2014. Geographic factors as determinants of food security: a Western Australian food pricing and quality study.. Asia Pac J Clin Nutr, , 23(4), pp. pp.703-713.
Price, R.., 2015. Controlling routine front line service workers: an Australian retail supermarket case. Work, Employment & Society, p. p.0950017015601778.
Rowe, M.L.a.A.E.R.., 2014. Re: ERA Draft Report Findings on the Regulated System.
Sutton-Brady, C., Kamvounias, P. & Taylor, T.., 2015. A model of supplier–retailer power asymmetry in the Australian retail industry. Industrial Marketing Management, 51, pp.pp.122-130.