Industrial overview

Discuss about the Principles of Super Market Industry In Australia.

The issue that has been presented in the question refers to the choosing of a particular industry in Australia and analyzing the economic factors that will affect the operations of the industry in the near future. Furthermore, two more companies have been chosen for the purpose of understanding the effect of the financial factors upon the workings of the corporate entities. Therefore, it can be evidently assumed here that the financial or the economic factors in Australia will have a significant effect on the chosen industry in Australia as business and economics of a particular region can influence each other in a significant way (Gitman et al. 2015).

The particular industry that has been chosen for the purpose of the study is the super market industry in Australia and the two corporate entities that have been identified for the purpose of further understanding the study are the corporate entities of Wesfarmers and Woolworths. These companies are the major players of the industry and the effect of the financial economic factors on these corporate will further clarify the objective of the study.

The overview of the industry that has been chosen for the purpose of the study is the supermarket industry in Australia. The industrial analysis that has been conducted for the purpose of the study can be acquired from the report that has been published by the IBIS World’s Supermarkets and Grocery Stores in Australia states the fact that the grocery and the supermarket industry in Australia has been very competitive in nature (Child 2015). The new market entrant of the name ALDI has been rapidly growing from the financial year of 2001 has resulted in the shaking up of the industry. The major reason behind the popularity of the corporate entity has been the marketing of the private-label products. The companies in the industry have been known for the implementation of aggressive discounting strategies in regards to the prices of the products. This is another notable factor that has been religiously maintained by the new entrants of the market. It must be noted here that this is the reason that the new players have been expected to result in a significant impact on the corporate entities of Woolworths and Wesfarmers on the market. An additional feature of the supermarket and the grocery industry has been that the nature of the industry has been highly concentrated (Sornette 2017). This means that four of the largest operators that have been dealing in the industry have accounted for almost 80 percent of the total revenue that has been pertaining from the industry. The corporate entities of Woolworths and Wesfarmers have accounted for 60 percent of the market. The figurative analysis that has been conducted on the basis of the supermarket industry in Australia has resulted in the reflection of the financial data. The financial information that has been reflected indicates the fact that the margins of profit that have been pertaining in the industry has been projected to grow by an annual rate of 4.2 percent in the next five financial years to come (O’Hara 2015). The newest trend that has been going on in the marker is the private label products. The private label products in the recent times account for a major portion of the product market. The goods that have been offered vary within a range of goods or products that are utilized in the household along with the products that fall within the category of the high-end organic products. It has been further estimated that the expansion of the private label products will certainly continue in the future and will effectively contribute to the increase in the profit margin. However, it has been further estimated that the industrial profit margin has been expected to fall in the next five years. It can be stated that the expansion of the private label products will certainly contribute to the deflation process of the price and constrain the growth of the industry in regards to its revenue. The renowned body of IBISWorld has predicted this. Furthermore, the quality of the private label products have also improved significantly resulting in the indication of the fact that the product will be accepted by the low and the middle income groups in the future years to come (Mankiw 2014).

Top Down analysis

The corporate entity of Woolworths is one of the major players of the supermarket industry in Australia. The corporate entity has been enjoying the position of a market leader and shares the mission statement that has been mentioned as follows:

• The primary focus of the corporate entity has been that the customers and the clients of the firms should be embedded within the team for the purpose of making him feel important. Moreover, the company aims to put the customer first (Henderson et al. 2015).
• The other goal is in regards to the safety of the employees who have been constantly performing for the employees of the firm. The particular commitment towards the improvement of the physical safety and the mental health of the employees is a primary mission that has been aimed to be fulfilled by the management of the firm (Friedman 2018).
• Another mission or goal that has been established by the management of the corporate entity is that the workforce of the company should be cultured enough to result in the spreading of the team spirit within the job environment (Cranston 2018). The engagement of the teams has also been enhanced by the financial components of short terms and long term incentive plans that have been aligned to the focus of the customers. The morale of the employees has also been uplifted for the purpose of ensuring the fact that the turnover of the team does not reduce.
• Next, the aspect of key appointments has also been another factor that has been one of the important goals of the corporate entity. The key appointments have been done much carefully in order to further enhance the profitability of the corporate entity (Cournède et al. 2015).

In case of the corporate entity of Wesfarmers it has been found out that the company had been established in the financial year of 1914. Since then the firm has grown in a rapid pace for the purpose of becoming one of the largest Australian entities. The corporate entity had been dealing in a number of products lime liquors, hotels, home improvement products and convenience stores (De la Torre et al. 2017). The corporate entity of Australia has been the largest employer in regards to the private sector in Australia and has employed around 223,000 employees. The primary objective of the business entity has been that the shareholders of the firm. Furthermore, it has been stated in the annual report of the corporate entity that the primary objective of the company is the satisfaction of the shareholders of the firm. 

The top down analysis is that method of analysis that utilizes the economy in which the corporate entity belongs. In this case, the economy of Australia should be analyzed for the purpose of understanding the effect of the financial factors on the chosen corporate entities. The economy of Australia has been improving at an accelerated rate. It must be noted here that the economic indicators had slightly dipped in the month of March due to the obvious reasons like the rise of the global protectionism (Grant 2016). However, the confidence of the business owners and other members of the economy resulted in the passing of the dip and the economy had again gained an accelerated pace, the consumer confidence had also dipped in the past which had affected the supermarket industry accounting statements well. This is the primary reason behind the entry of the new participants in the super market. To be more precise, the consumers have been losing interest in the products offered by the industry especially the major players of the industry have suffered a potential loss due to this factor. Moreover, this has been the reason behind the entry of the new companies in the industry whose products have resulted in the enhancing of the confidence of the customers of the particular industry. It must be further noted here that the economic growth had slowed down in the last quarter of the previous financial year. This is due to the negative contributions from the external sector and the investment in relation to the lower constructions like the mining projects and other related projects that require an optimum sum of money (Veil 2017).

Furthermore, the economy of Australia had been made stronger with the help of the liquefied natural gas exports. In addition to this, the non-mining investment will have increased at a rapid pace that has been supported by the monetary policy, growth of the population and the global economic activity that has been global in nature (Morden 2016). However, the growth of the wage has been meagre and the household debt has been increasing at a rapid pace. It has been further estimated that the GDP will expand to 2.7% in the financial year of 2018 and will remain constant in the financial year of 2019. Furthermore, a table has been provided in regards to the potential economic indicators that are very much important in estimating the economic conditions in Australia.

Balance (% of GDP)	2013	2014	2015	2016	2017
Population (million)	23.3	23.6	23.9	24.3	24.8
GDP per capita (USD)	64,857	61,362	51,363	51,878	–
GDP (USD bn)	1,510	1,449	1,230	1,260	–
Economic Growth (GDP, annual variation in %)	2.1	2.8	2.4	2.5	–
Consumption (annual variation in %)	1.7	2.8	2.7	2.6	–
Investment (annual variation in %)	-1.6	-1.6	-3	-2.6	–
Exports (G&S, annual variation in %)	5.8	6.9	6	7.9	–
Imports (G&S, annual variation in %)	-2.2	-1.1	2	0.2	–
Industrial Production (annual variation in %)	1.1	4	1.2	1	–
Retail Sales (annual variation in %)	3.2	5.5	4.5	3.7	–
Unemployment Rate	5.7	6.1	6.1	5.7	–
Fiscal Balance (% of GDP)	-1.9	-2.8	-2.2	-2.1	–
Public Debt (% of GDP)	30.8	34.2	37.6	41.1	–
Money (annual variation in %)	8.7	6.3	10.9	6.5	–
Inflation Rate (CPI, annual variation in %, eop)	2.8	1.7	1.7	1.5	–
Inflation Rate (CPI, annual variation in %)	2.5	2.5	1.5	1.3	–
Inflation (PPI, annual variation in %)	1.6	1.7	1.4	0.9	–
Policy Interest Rate (%)	2.5	2.5	2	1.5	–
Stock Market (annual variation in %)	14.8	0.7	-0.8	7	–
Exchange Rate (vs USD)	0.89	0.82	0.73	0.72	–
Exchange Rate (vs USD, aop)	0.97	0.9	0.75	0.74	–
Current Account (% of GDP)	-3.2	-3	-4.8	-2.6	–
Current Account Balance (USD bn)	-48.2	-43.7	-59.4	-33.4	–
Trade Balance (USD billion)	20.3	11.9	-13.1

The financial indicators that have been reflected in the above table show that the economy of Australia has been rising at a potential level. This means that the economic conditions in Australia has been rising at a potential level. Therefore, it can be concluded that the economic condition in Australia has supported the supermarket industry in Australia (Bailin 2017).

The bottom up analysis that has been conducted has been carried out by the comparison of the chosen corporate entities of Woolworths and Wesfarmers. This means that the financial performance of the corporate entities have been analyzed on the basis of the information that has been presented in the annual report of the companies for the financial year of 2017. A brief history of the corporate entities have been provided in the earlier part of the study (Goh et al. 2015). It must be noted here that the corporate entity of Woolworths has been carrying out the financial operations on a stable basis and there has been no such concern in regards to the financial particulars of the firm. The case has been the same with the corporate entity of Wesfarmers. The financial particulars of the business entity has been the same accounting statements the corporate entity of Woolworths. However, for the purpose of achieving the financial analysis in a more clarified way, the significant ratios have been calculated (Brown et al. 2014). The significant ratios that have been calculated can be carried out accounting statements follows:

The asset turnover ratio that has been calculated reflects the fact whether the corporate entities have been able to properly carry out the utilization of the assets of the company. This means that if the corporate firm is able to acquire optimum amount of returns from its assets then the asset turnover ratio will be high and if the assets have not been utilized optimally, then the asset turnover ratio will be low (Bolton et al. 2016). The asset turnover ratio that has been calculated can be regarded as follows:

	Woolworths	Wesfarmers
Asset turnover ratio	Sales	Total Assets	Ratios	Sales	Total Assets	Ratios
Sales/Total Assets	55475	22915.8	2.420819	68444	40115	1.706195

The ratio that has been computed reveals the fact that the corporate entity of Woolworths has been ensuring the optimum utilization of the assets in regards to the corporate entity of Wesfarmers.

The return on equity ratio refers to the fact that whether the corporate entities have been able to utilize the capital that have been acquired from the shareholders properly or not. This means that the optimum utilization of the equity has been ensured by this particular ratio (Kraakman and Hansmann 2017).

	Woolworths	Wesfarmers
Return on equity	Net Profit	Equity		Net Profit	Equity
Net Profit/ Equity	1593.4	9526	0.167269	4138	23941	0.172842

The return on equity that has been obtained reveals the fact that the corporate entity of Woolworths has been ensuring the optimum utilization of the equity in comparison to the corporate entity of Wesfarmers.

The current ratio reveals the liquidity position of the company. This means that the ability of the firm to make the payment for the current liabilities of the corporate entity with the help of the current assets is reflected by the current ratio of the firm.

	Woolworths	Wesfarmers
Current Ratio	Current assets	Current Liabilities		Current assets	Current Liabilities
Current Assets/ Current Liabilities	6994.2	8824.2	0.792616	9667	10417	0.928002

The result that has been obtained reveals the fact that the corporate entity of Wesfarmers has an improved financial position in regards to Woolworths.

The gross operating margin reflects the profitability of the firm without making any tax payments.

	Woolworths	Wesfarmers
Gross Operating Margin	Sales	Gross Profit		Sales	Gross Profit
Net Sales/Gross Profit	55475	12912.3	4.296291	68444	4402	15.54839

The gross operating margin refers to the corporate entity of Wesfarmers have been experiencing an improved rate of profitability in comparison to the corporate entity of Woolworths.

Debt ratio

            The debt ratio refers to the total amount of debt that has been utilized by the firms for the purpose of obtaining the required amount of profit (Véron and Wolff 2016).

	Woolworths	Wesfarmers
Debt ratio	Total Liabilities	Total assets		Total Liabilities	Total assets
total liabilities/total assets	11387.7	19549	0.582521	16174	40115	0.403191

The indication that has been obtained from the above computations reveals the fact that the corporate entity of Woolworths has been acquiring more debt in regards to the corporate entity of Wesfarmers.

The summary and recommendation refers to the fact that the both the corporate entities have been in all probabilities achieved the required financial performance. However, there has been optimum effect from the financial factors that have been operating in the economy of Australia. New firms due to the negative response that has been given by the consumers have invaded the supermarket industry in Australia. Therefore, the giant players of the industry should be vigilant enough and should incorporate strategies for the purpose of competing with the new firms of the industry.

References

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Bolton, P., Santos, T. and Scheinkman, J.A., 2016. Cream?skimming in financial markets. The Journal of Finance, 71(2), pp.709-736.

Brown, J.R., Dimmock, S.G., Kang, J.K. and Weisbenner, S.J., 2014. How university endowments respond to financial market shocks: Evidence and implications. American Economic Review, 104(3), pp.931-62.

Child, J., 2015. Organization: contemporary principles and practice. John Wiley & Sons.

Cournède, B., Denk, O. and Hoeller, P., 2015. Finance and inclusive growth.

Cranston, R., 2018. Principles of banking law. Oxford university press.

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Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

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Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.

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