Sam McKeown ID: 216044078
The Supermarket Wars
Australia’s supermarket industry is a very hard-fought battle ground. Coles and Woolworths are certainly the heavyweights and for years have tussled over market share, but there is now a very real threat from German rival ALDI. Nevertheless the Woolworths Group continues to hold the largest market share within the Australian supermarket grocery market, currently standing at 37.3%, however that news is not as good as it may first appear….
Where does Woolworths REALLY stand?
The Woolworths market share is declining and bitter rival Coles is narrowing the gap with a current market share standing at 32.5%. Even more worrying is the outstanding performance of ALDI. In the last 10 years, ALDI’s market share has skyrocketed from 3.1% to 12.1% and this upward trajectory does not appear to be abating, infact there isn’t even a plateau in sight. For the full research finding click here.
Source: Roy Morgan Single Source (Australia), January 2007–December 2015, average 12-month sample = 14,793. Base: Australian grocery buyers 14+, weighted to households
For 25 years Woolworths told shoppers that they were ‘the fresh food people’, and this was their point of difference from their competitors. In recent years however they seem to have lost their way, losing sight of this competitive advantage as instead they raced to compete with deep discounting strategies employed by ALDI and Coles.
Mortimer (2015) notes this as an error of judgement. Their “cheap, cheap” campaign confused loyal shoppers and this played into the hands of Coles who, following a recent restructure, were better placed to deliver on price. Shoppers also started trailing German discounter ALDI. For the full article click here.
At the moment, the only person winning is the customer. Roy Morgan data to Dec 2015 reveals that customer loyalty is in short supply, with cross visitation a regular occurrence. Although ALDI’s dollar share of the market may be just under one third of Woolworths, when looking at customer volume ALDI actually holds 36.8% share of total grocery buyers (half of Woolworth’s 72.5%). For the full research finding click here.
So what’s the damage…..?
One thing is clear, what they are currently doing isn’t working. As recently as two weeks ago Woolworths revealed that 30 stores will close, including 17 supermarkets in Australia, 6 supermarkets in New Zealand and 4 metro stores. A further 15 supermarkets in Australia and five metro stores are rated as under-performing and surrounded by uncertainty.
Its time to re-think…
Woolworths cannot continue as they are. It’s just not sensible to chase the same price driven market share as Coles and ALDI (and even IGA are doing the same), they need to find their point of difference again. They cannot be all things to all people, and they can’t target the same market as everyone else. It’s time to make some choices.
Segmentation allows a clear focus on a group/or groups of customers who are more favorable to the brand (Iacobucci 2013). A company can divide their market into consumers with distinct needs and wants , and then identify which segment they can serve effectively (Kotler and Kellar 2012). Information can be derived from geographic, demographic, psychographic and behavioral data.
Identifying segments optimally occurs when there is an iteration between two approaches, a managerial ideation, and a customer based, bottom up customer needs assessment (Iacobucci 2013). The price discount strategy utilized by the other supermarkets may look desirable in terms of market segment size and even growth potential, but a competitive analysis tells us that this segment it is currently saturated.
Woolworths management could consider a quality and convenience proposition, providing customers with higher quality products at great value prices at convenient locations. Removing the focus on price comparison to quality, Woolworth’s differentiation is also back and ‘The fresh food people’ would also remain relevant in a quality context.
From a consumer perspective would shoppers pay more for their groceries if it meant better quality and convenience? Retail analyst Geoff Dart suggests the strongest growing demographic is singles and couples without children (SWOCs) , who have the highest disposable incomes. This group will represent approximately 55 per cent of households by 2031 Many of these upwardly mobile demographic are in city areas and looking for convenience (Reynolds 2016). An additional segment is those with high incomes, and potentially empty nesters, again with a higher disposable income.
VALS segmenting tells us that Woolworth’s higher quality products would also appeal to Achievement Consumers – those buying products and services that demonstrate success to others. For more on VALS types click here.
Therefore Woolworths would be looking at targeting multiple segments with a higher disposable income, and in terms of segmentation strategy, could tailor different products to the different segments at each location. For example high quality convenience meals in the city and high quality staples and specialized ranges in the larger stores.
A proven example of this segmentation is Waitrose in the UK. Whilst Tesco and ASDA battled with price, extra values and promotions, Waitrose announced a quality proposition which was not about lowest price, rather a quality product that was great value. The “Waitrose Essential Range” attracted much media attention, with some products deemed ‘essential’ somewhat questionable. However regardless, it continues to send the message that Waitrose provides quality value products targeting the more ‘discernible’ customer. Click here to view some of the non essential, essential range.
From a marketing position perspective Woolworths would be setting itself apart from the competition and marketing itself on quality over price. Cross visitation may continue across the supermarkets, but Woolworths would be synonymous with quality. Whereas shoppers may head to ALDI for a bargain, shoppers would head to Woolworths for quality. Woolworths existing metro stores in the city are even more relevant, however the key is ensuring the limited range on offer in these stores meets the needs of the local market.
Iacobucci, D 2013, Marketing Management (MM4) Student Edition, South-Western Cengage Learning, Mason.
Kotler, P, Keller, K 2012, Marketing Management 14E, Prentice Hall, New Jersey.
Reynolds, E 2016, Will smallest store save Woolies? What Metro concept says about Australia, News.com.au, retrieved 7 August 2016 <http://www.news.com.au/finance/business/retail/will-smallest-store-save-woolies-what-metro-concept-tells-us-about-ourselves/news-story/ed61214c31b0faec086edcf512a6ec22>;.