Overview of Competitive Strategy

The report gives an overview of competitive strategy in relation to the acquisition and structure of Australian supermarkets. The supermarkets chosen here are Coles, Aldi and Woolworths. Coles represents a supermarket chain of Australia with headquarters in Melbourne and owned by the parent company Wesfarmers (coles.com.au 2018). George Coles found the company in the year 1914 that presently operates close to 801 supermarkets across Australia. The company boasts of close to 100,000 employees. Aldi represents a German low cost brand that entered the Australian market and brought in challenges for Coles and Woolworths with its low cost structure (aldi.com.au 2018). Woolworths on the other hand represents compilation of divisions, brands and chain of Woolworths Group and is the largest food retailers in Australia (woolworths.com.au 2018). The report however focuses on the Woolworths Supermarkets that represents a grocery chain store owned by the Woolworths Limited. The company together with its rival company Coles forms a duopoly and captures close to 80 percent of the Australian market. The profit of Woolworth rose to 37.6 percent in the year 2017. The supermarket also holds a second position in the Australian market in terms of the revenue. The report provides an insight into Woolworths proposed acquisition of Renaissance Super ICA St Kilda analyzed by the Australian Competition and Consumer Commission (ACCC) in presence of other competitors like Coles and Aldi.

The Australian Competition and Consumer Commission (ACCC) put forward guidelines based on which market inquires undertaken for a proposed acquisition thereby leading to the anticipation of the final decision (King 2013). Any proposed acquisition undergoes scrutiny by the ACCC before implementation of the final decision. ACCC puts forward a statement of the issues that put forwards an opportunity for all the interested parties that includes the competitors, customers, stakeholders and shareholders for ascertaining and considering the preliminary issues recognized by the commission. The commission also helps to provide a platform for merger and other parties with provisions of the more submission if considered necessary.  

Acquirer:  Woolworths Limited 

Woolworths represents the largest retailer of grocery in Australia. Its operation also includes merchandize stores, supermarket, liquor, petrol, home improvement and hardware. 

Target: Renaissance Supa IGA St Kilda

Renaissance Supa IGA St Kilda represents a supermarket that offers complete range of the fresh produce and the groceries (iga.com.au 2018). The supermarket also has a huge section for liquor that offers both non-chilled and chilled products. Renaissance Supa IGA is located at 64 Fitzroy Street and spread over an approximate area of 1,259 square metres along with facilities availability of sixty-three car parking spots. The supermarket also offers the customers with free parking facility for one hour through a redemption scheme. However, Nero Tadeo Nominees Pty Ltd owns the liquor licences of the company controlled by Mr George Altman. He also holds the responsibility of running and owning two supermarkets under the brand of Renaissance Supa IGA.

Introduction to Coles, Aldi, and Woolworths

Coles:

Coles represent the leading liquor, food and convenience retailer owned by the Wesfarmers Limited, a public listed company (coles.com.au 2018). Wesfarmers has varied operations in insurance, chemicals, retail, energy, resources, industrial sectors and fertilizers.

Aldi Australia:

Aldi represents privately owned supermarket operator that entered the Australian market in the year 2001. The company has more than 300 stores spread across New South Wales, Queensland and Victoria (aldi.com.au 2018). In the year 2013, the company further allowed plans for the expansion of its operation in Western and Southern Australia. This particular supermarket characterized as a discounter with limited assortment. These type of discounters emphasizes primarily on the products with the private level and does not provide a range as massive as the full line supermarket and have small stores. Aldi is the only assorted discounter operating in Australia and having major interstate network.

Woolworths puts forward propositions of acquiring not only the business but also the business assets and the liquor licence of Renaissance Supa IGA St Kilda from the Nero Tadeo and thereby convert the retail space into one of the branded supermarket of Woolworth in addition to (Beer Wine and Spirits) BWS liquor outlet(Huby and Cameron 2013). The Supermarket brand also went into commercial negotiations with its property owner for owning the property.

The ACCC undertook the market inquiries based on the proposed acquisition. The ACCC also put forward provisions of submissions from other interested parties. The commission also welcomes further information from the interested parties for providing investigation assistance. 

The preliminary view of ACCC in respect to the proposed acquisition might result in the lessening of the competition in local retail market of the supermarkets adjacent to the target. This includes the neighbouring suburbs of Windsor, Middle Park and St Kilda West in addition to the suburbs surrounding St Kilda. The ACCC also expressed concern regarding the fact that the proposed acquisition would also ensure in removing the full line independent supermarket that represented closest competitor to the Woolworths and Coles in local market. In addition, the Renaissance Supa IGA, not only had differentiated promotion, service offering and product range that provided competitive response to rival chain of supermarkets thereby bringing in an additional choice for the customers(Arup et al. 2017). The acquisition would enable in replacing the differentiated offers put forward in comparison to the offers of the Woolworths that already has a presence in local market.

Woolworths’ Proposed Acquisition of Renaissance Supa IGA St Kilda

While accessing the proposed acquisition, the ACCC takes into consideration the impacts of the acquisition by undertaking a comparison of the future  competitive environment provided the acquisition proceeds to a situation when the acquisition do not proceed that ensures determining whether the acquisition helps in substantially lessening the competition in the relevant market. In this particular case, the target represents profitable business and therefore in the absence of the acquisition continues to operate as independent supermarket for next couple of years. The ACCC put forward a final assessment that ensured the likelihood of Renaissance Supa IGA St Kilda to exit the market by the year 2017. However, the merger reviews put forward by the commission takes into consideration the influence of the acquisition in near future. The Commission however considers that the closing down of Renaissance Supa IGA St Kilda supermarket on a long term basis holds relevance to the extent that it influences the incentive, strategic direction or the businesses competitiveness in the future(Cartwright and Cooper 2014).

According to the preliminary view put forward by the ACCC, the competitive impact of proposed acquisition is accessed through markets mentioned below (Radice and Rafter 2014):

• Market for local supermarket retail revolving the target that precisely includes suburb of the St Kilda and the neighbouring suburbs of St Kilda
• State wide market of the retail supermarket
• State wide supply and wholesale procurement markets

The commission also took into consideration the acquisition based on retail liquor market however; in the absence of the concern, such markets not considered any further. The liquor outlets of the local markets where target operates also faces necessary competition from the liquor sales of Woolworths, Coles and the other independent supermarkets and the bottle shops. Thus, the influence of the proposed acquisition is not substantial.

According to the commission, in retail markets involving the buying groups or chains, competition occurs not only at the state or the national level but also at the geographic level (Bruwer et al. 2014). While all the retailers competes for attracting the customer from similar retailers located in the same area. There is also competition amongst the large brands based on the standardized retail offers across all the stores within the broader area. 

While assessing the localized retail markets, the ACCC aims at identification of the competitive constraints on the retail offers at the store level of target store and the stores operated by acquiring firm. Market inquires have however has put forward that the shoppers most likely makes a switch between target supermarket and the other supermarkets located  in suburb areas  of Windsor, St Kilda West and Middle Park for similar shopping experiences(Singh and Lawrence 2015). Thus, according to ACCC the acquisition in context of local retail supermarket encompass the suburbs. The commission took into account the dimensions of local market, distances between the supermarkets, drive and work time analysis and the routes of the public transport. In addition, the commission also examined the distribution of the catalogue areas of Renaissance Supa IGA St Kilda only to find that the catalogues were distributed to the households that were only at a distance of 2 km from the supermarket. Based on the considerations, the commission ended in a preliminary view that the supermarkets located within suburbs of the St Kilda provided close substitutes.

1. Full line supermarkets such as the primary supermarket chain that retails range of goods including fresh meat, bakery, packaged groceries, deli products, vegetables, fresh fruit and the frozen items
2. Smaller but convenient supermarkets with limited product range and used mostly as top up supermarket
3. Discounters with limited assortment like the Aldi
4. Special food retailers that includes the bakers, butchers and the green groceries
5. Markets belonging to South Melbourne that puts together a collection of  not only food retailers but also the retailers of the other products

The Australian Competition and Consumer Commission (ACCC) Guidelines and Market Inquiries

ACCC in addition to considering the local market also consider the competition on broader retail market that puts forward a competitive constraint based on the retail offer by Woolworth standardized across the various local markets. Woolworth presently standardizes the element on the retail offer through pricing and state wide marketing campaigns across all the stores (Corones 2015). The standardization can however undergo change in a response to the competitive conditions.

The ACCC considered proposed acquisition in context of the state wide market for wholesale supply and the procurement of the product sold in the supermarkets(Khojasteh and Jadid 2015). This is done consistently through the considerations of the past acquisitions of the supermarket. 

These include:

The local market mentioned above includes:

The target

1. Presence of one Woolworth supermarket at the precinct of St Kilda in the Acland Street Shopping
2. Presence of one Cole supermarket at the precinct of St Kilda in Acland Street Shopping
3. Presence of one Aldi supermarket located at 135 Inkerman Street, St Kilda
4. Presence of two small format independent supermarkets within the nearby strips in the locality

Coles and Woolworth is closest competitor of each other and market inquiries indicate that targeted supermarket represents another full line supermarket operating in local market (Parker, Cox and Thompson 2014) .This implies that Renaissance Supa IGA St Kilda remains the only option for the shoppers of the local market for weekly shopping in addition to Coles and Woolworth. Aldo might provide a price competition on being a discounter with limited assortment. Aldi also does ensure the same depth as full line supermarket. The convenience-oriented supermarkets in the surrounding areas of Renaissance Supa IGA St Kilda are smaller and do not offer the complete product range as offered by the full line supermarkets.

Thus, no supermarkets produce closer substitutes. However, the closest constraint of the supermarket at target site comes from other supermarket in the locality rather than the convenience orientated and limited assortment supermarkets.

Enquiries have indicated that Renaissance Supa IGA St Kilda gets into competition with other local supermarkets through non-price and price offering unique to local market. Instead of providing a match to the competitor, the target supermarket put forward a unique and differentiated order (Williamson et al. 2013). Renaissance Supa IGA St Kilda represents the only independent supermarket in local market. Being full line, the target market offers wider product range including deli, fresh produce and the groceries. Thus as an independent supermarket Renaissance Supa IGA have varied offers in terms of the price, product range, promotions and service. Therefore, this indicates that the closest competitors of Renaissance Supa IGA are the Woolworths and the Coles supermarkets.

As put forward in the previous reviews of ACCC, the barriers to the entry are higher in the supermarket retailing (Nleya 2014). There involves a considerable sunk cost and lead times in the establishment of a newer supermarket that can lead to the creation of a barrier already when the market is served by multiple supermarkets especially if it includes scaled incumbent. Since St Kilda represents a developed area, therefore it becomes difficult in finding the appropriate sites for establishment of full time supermarket or space for expansion of the existing small format supermarket to full scale. Therefore, the entry of independent full line supermarkets for replacing the offering of Renaissance Supa IGA is not likely in near future.

Competitive Impact of Proposed Acquisition

Conclusion 

Thus, to conclude one can say that based on the preliminary view of ACCC that the acquisition put forward by Woolworths would help in replacing differentiated offer of target supermarket through Woolworth has standardized offers that already form a part of the local market. However, in the absence of proposed acquisition it is likely that the present Renaissance Supa IGA in St Kilda will continue as an independent supermarket for a considerable number of years. In addition, the entry of independent fully operated supermarket or the expansion carried by the existing independently operated structures for replacing the offers of target supermarket seems a bit impossible. Further,  market inquiries also indicates a general perception related to the higher quality and the personal service provided by target supermarket which is not only valued by the shoppers for the distinct features compared to the standardized offerings of the major chains of supermarket 

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