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  1. 6/23/2016 Business Capstone Project --HI 6008 Kai Zhu STUDENT ID: JZ3513 SUPERVISOR: CHRIS WRIGHT 2. 2 Table of Contents…
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  • 1. 6/23/2016 Business Capstone Project --HI 6008 Kai Zhu STUDENT ID: JZ3513 SUPERVISOR: CHRIS WRIGHT
  • 2. 2 Table of Contents Abstract.....................................................................................................................................3 1.0 Introduction........................................................................................................................4 1.1 Research topic ...............................................................................................................................4 1.2 Research background.....................................................................................................................4 1.3 Market trends.................................................................................................................................4 1.4 Data sources and collections .........................................................................................................5 1.5 Research methodology and techniques .........................................................................................6 1.6 Research process ...........................................................................................................................6 2.0 Literature review ...............................................................................................................7 2.1 Management summary..................................................................................................................7 2.2 Anti-combination and anti-trust law .............................................................................................7 2.3 The effect of market monopoly ....................................................................................................8 2.4 Risk analysis .................................................................................................................................9 3.0 Data collection and analysis............................................................................................16 3.1 Introduction to data collection and analysis................................................................................16 3.2 Data sampling methods...............................................................................................................16 3.3 Data analysis...............................................................................................................................17 3.4 Conclusion to data collection and analysis.................................................................................18 4.0 Hypothesis identification.................................................................................................19 3.3 Data analysis...............................................................................................................................19 3.3 Data analysis...............................................................................................................................19 5.0 Conclusion ........................................................................................................................21 5.1 Conclusion ..................................................................................................................................21 5.2 Future work.................................................................................................................................21 6.0 References.........................................................................................................................22 7.0 Gantt chart (Appendix)...................................................................................................24
  • 3. 3 Abstract In the Australia grocery market, Woolworth and Coles own most of market share, and the supply chain. Other competitors may not easy to enter into the market, and not be able to have enough ability to compete with their strategy. The objective of this research paper is to analysis whether it is a good optimal market situation for Australia grocery market and extend to forecast will other competitors become one of the major competitors in the market via analyzing some specific factors that is related to the grocery industry. Later, the conclusion identifies the hypothesis and confirm the monopoly may not be beneficial to Australia market and consumers with only two competitors. However, there still exist opportunities for new competitors to compete with them via appropriate strategies both in short term and long term.
  • 4. 4 1.0 Introduction 1.1 Research topic Woolworth and Coles occupies more than 60% market share of grocery shopping in Australia, this research report aims to analysis that is this an optimal market share allocation for Australia grocery market under governance? 1.2 Research background The grocery industry is one of the most significantly competitive in Australia. Until 2015, Australia grocery retailers are still dominated by conglomerated Woolworth and Westfarmers and hold about 80% of supermarket sales, 60% of alcohol retail. The strong position of supermarkets, such as Woolworth and Coles, might probably continue to occupy most of the market share in Australia. However, the competition within grocery industry is growing significantly. Other competitors, like discounter Aldi, the reject shop and Warehouse club Costco with similar offering commodities with lower competitive prices to curb and reduce the retail power of control from Woolworth and Coles (Petrina, 2016). Those competitors would further challenge the dominant position of supermarkets Woolworths and Coles in Australia. 1.3Market trends Regarding to the previous grocery industry performance, the research report would mainly focus on two aspects: the commodity price and the power of control to Australia grocery market. Although the market is still dominated by Woolworth and Coles, the grocery market prices dropped by 6% in the Jun quarter in a supermarket inflation survey (Euromonitor International, 2016), which shows the deepest decline in more than 18 months. According to Roy Morgan’s research, the market share of Woolworth and Coles has fallen to 37.3% and 32.5% respectively, and the market share of other
  • 5. 5 supermarkets, such as Aldi and IGA has significantly increased about 4-5% (Mike, 2016). Although those two major supermarkets might potential loss their clients, the combined market share is still about more than 70% of total market. This would prospectively lead to have huge effect on the market supplier and customer. Source: Roy Morgan Research 1.4Data sources and collections Regarding to the objective of this research report, there are two major data collection methods that may assist us to analysis the scenario more effectively. Financial reports from those companies are the most important guidance to be familiar with the sales revenue and liabilities within company. Moreover, the data in the financial reports would probably reflect the following business strategy in developing the market. Second-hand data issued by some organizations and auditing situations could provide a professional and accurate information or forecasting with regarding to
  • 6. 6 the development of grocery market in Australia. These various of information could be gathered from major website and journal academic papers via internet. 1.5Research methodology and techniques This research report may collect information and data for the purpose of analyzing the hypothesis, and identify whether it can be used to conclude and work out the objects based on qualitative and quantitative data. After that, the data would be allocated by specific aspects in order to find out the correlation among those data via Microsoft Excel or STATA software. Then, regression data analysis method for the purpose of forecasting can be collected from company’s financial annual report (Ullmann, 1995). We may gather the data from 2005 to 2015 so as to analysis the information more effective. Because some company’s data may not be easy to get, and some data might not be accurate. Therefore, 10-year data would be the best time period to reflect the scenario. The research report would also focus on the risk analysis to compare and forecast the future capacity of sample companies (Sample: The reject shop and Woolworth) based on their strategy risk, operational risk, management risk, political risk, financial risk, and exogenous risk. In this part, the report would list several risk factors, and potential mitigations would be provided as recommendations so as to assist the sample company to solve those kind of problems for the purpose of gathering more market share from local large supermarkets. 1.6Research process The first step of research report is to determine the problem and define the hypothesis. Then the process would be required to browse the general background related to each research companies. After that, the data allocation can be used to identify whether some data is misstatement or omitted. Meanwhile, the grant
  • 7. 7 chart is useful to allocate the time spending on each specific parts of the report. Later, the output data could identify whether research hypothesis is reasonable. Eventually, the conclusion could provide a brief summary of research purpose. 2.0 Literature review 2.1 Management summary Literature review would mainly focus on analyzing market legislation, effect of monopoly, and risk analysis respectively. Under the legislation part, the objective is to identify whether there exist some effective laws to protect the market and consumers, and are these effective in Australia? The Australia grocery market would probably be hurt when the legislation system is not effective. Secondly, this part would identify the is monopoly beneficial to Australia grocery market or not, and what would be the effect. Sometimes, the monopoly power would result in being involved in the market as new competitors rarely, which may not be beneficial to the price setting because the new competitor has not enough power to control the commodity price that have a direct effect on the net revenue. The third part of this section would identify the prospective risk to enter into market as powerful competitor (ALDI and The reject shop) and provide some solutions to cover those king of risks so as to be able to have more ability to compete with major supermarkets such as Woolworth and Coles.
  • 8. 8 2.2 Anti-combination and anti-trust law The anti-combination laws were approved by numerous states in the late 1880 in response to the use of stockholding trusts to create business monopolies. Meanwhile, the anti-trust las is used to promote fair competition for the benefit of consumers. Stevens (1961) argued that Australia has strongly legislation connection with England, and social trends and economics requirements as well. In later 1960, the monopoly situation of Australia began to close to United States. This could provide Australia government a fantastic opportunity to issue its own laws or regulations to control the market more effective so as to avoid the monopoly power that may hurt the market and customers. Anti-combination and anti-trust law were able to solve the monopoly problem effective via promoting fair competition for benefit of clients and market and preventing the market controlled by only one or several big enterprises. However, under the fast developing of century, these legislations may not still be useful (Eisenhardt & Martin, 2000). Some enterprise may become the monopolist in the market with being involved in some internal backwards that exists in the previous legislation system. It is necessary to discuss and issue new legislation to improve the whole system in order to prevent illegal activities that may hurt the market. 2.3 The effect of market monopoly Mussa and Rosen (1978) argue monopoly would induce the possibility of charging higher prices on commodities for consumers, which is not beneficial to the market. Meanwhile, Manuel also illustrates that monopoly may not allow free access to products with lower prices. He argues the higher prices is critical detriment to consumers because of less competition in the industry. Moreover, even under the high price, consumers may still not be able to substitute sustainable qualities and services. Furthermore, the whole market is controlled by the monopolist, it may control the product supply chain, which may indirectly
  • 9. 9 result in losing competitors in the market (other competitors will shut down their business because of not getting enough revenue to keep operating). Manuel emphasizes that monopoly also may not have intention to improve its business, because consumers still have huge amounts of needs for its current products and services. It seems to be that Australia grocery market should encourage more competitors to enter into the market in order to reduce the control power of Woolworth and Coles. 2.4 Risk analysis This research report would apply risk analysis to identify and compare the difference between major supermarkets and other competitors in Australia (Moore, 2001). The sample size would be two, The reject shop and Woolworth respectively. 2.4.1 Strategic risk The reject shop, as a retail business company, earned more than $756 million in last financial year mainly compatible with Woolworth and Coles under high competitiveness. Currently, the company has decided to issue a new strategy in order to solve recent shares down and dispose previous operating strategy. Risk Category Risk Factors Potential Mitigation Market Risk • The retail sectors are highly competitive. Coles and Woolworth are major competitors in local market. • Overseas retail competitors, such as Costco has occupied partial market shares from local retail • Selling fewer items enhances sales volume and help drive discounts, such as Costco. • Provide more valuable wholesale products instead of being involved in lower price strategy with other competitors
  • 10. 10 companies significantly. • The reject shop currently suffers lower price-match strategy from its competitors. • Clearly identify who its customer is, and provide suitable products precisely. • Pour value-oriented marketing advertisements on social media under specific timing (e.g.: provide premium oatmeal advertisement in the breakfast time) so that the company could avoid spending additional unnecessary cost on social marketing strategy. Decision Making • Failure to provide valuable product may result in losing high oriented value clients. • Lower sales revenue (almost no valuable products) compared with other competitors would lose shareholders confidence. • Prefer to import lower valued products from developing countries, such as Vietnam, China… • Employ more professional and highly experienced employees to work out current issues. • Acquire or merge with other same-level competitors in order to enhance market share and attract more investors. • Reduce inherent risk in turning around stories when new strategy was implemented without allowing competitors to gain market share and share of mind.
  • 11. 11 Industry Risk • The reject shop currently operates in retail sales industries under global recession economy, may result in potential adverse effect on company’s business, financial condition, and prospects. • Enter into long term contracts with third party and local suppliers for certain grades of acceptable price and fixed volumes for the entire recession period so that minimizing the adverse effect on revenue deduction under global recession. 2.4.2 Operational risk Operational risk affects the cost estimation, distribution system, and sourcing of retail business. Risk Category Risk Factors Potential Mitigation Cost Control Risk • The amount of cost of doing business has enhanced compared with previous financial year caused by a changed advertising mix • Deliver suitable advertisements that are subject to target clients in specific timing. • Hire professional cost control player to optimize inherent cost. Distribution Risk • Wide range of products would result in higher transportation and storage cost that enhance company’s expense and cause no further expenditure on developing new product range. • Work out target clients and reduce product ranges. • Apply FIFO strategy to minimize storage and transportation cost on less-welcome products.
  • 12. 12 Sourcing Risk • In a less globalized world, retail shop tended to source their business products from specific or same country. However, sudden location- specific risks (such as earthquake at Japan) would cause large impacts on costs and profitability under globally diverse market. • A program of importing similar products from different countries in order to ensure the availability of specific products during urgent situations . 2.4.3 Management risk The risk is mainly associated with company’s performance, and the adjustment of company’s executive team. Risk Category Risk Factors Potential Mitigation Management Risk • Ross and his team were appointed to manage the whole company as executive team recently undertaken in a manner which ensures the safety and wellbeing of company’s clients and customers. • Appoint current experienced employee to corporate with new CEO in order to make sure company’s new CEO could be familiar the business as soon as possible.
  • 13. 13 2.4.4 Political risk The reject shop operates business under Australia and New Zealand markets, and import its commodities from East Asian countries. Therefore, it is exposed to risks with local political and economic situations in those countries. Risk Category Risk Factors Potential Mitigation Local Government’s Policy Modifications • Government subsidies for employees undertaking traineeships currently. • Australia government applies around 10% GST under taxation system. • Exporting countries may issue higher tax rate regulations on company’s commodities • Establish relationship between exporting country’s government, and tried to be notified the change of regulations in time in order to minimize the importing cost. • Search for alternative appropriate importing suppliers to avoid monopolist control with specific commodities. 2.4.5 Financial risk The reject shop is facing significant pressure of overseas business that is mainly involved in foreign exchange rate, and the sensitivity of interest rate as well. Those factors would probably affect the revenue of current financial report. To mitigate those risks, the reject shop applies hedges to minimize the potential risks. Risk Category Risk Factors Potential Mitigation Exchange Rate Risk • Company imports its commodities from overseas processing with foreign currencies. • Enter into forward exchange contracts to purchase foreign currency for overseas
  • 14. 14 business for ensuing financial period. • Sensitivity analysis is used to clearly identify the consolidated entity as at balance date to movements in the value of different currencies. Interest Risk • Financial instrument’s value will fluctuates as a result of movements in market interest rates and the effective weighted average interest rate relating to company’s financial assets and liabilities • Sensitivity analysis is used to clearly identify the consolidated entity to movements in interest rates via applying changes in interest rate to the financial assets and liabilities in order to show the correlation of data under different financial periods. Credit Risk • Derivative financial instruments are potentially caused by failure by counterparties to the contract to meet their obligations both in short term and long term. • Company should assess the maximum amount of potential credit risk, and construct portfolio to minimize the risks and avoid fraud. • Issue mor
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