Economics for Managers 

Table of Contents

Introduction.

Main Body.

Analysis of the industry.

Agree or disagree with the statement

Four market structures along with the rationale of selection.

Analysing the economics and pricing policies in the industry.

Conclusion.

References.

Introduction to Australian Supermarket and Grocery Store Industry Analysis

The focus of microeconomics is on supplies as well as demands and other factors that decide the economy's market prices. It requires what is known as a bottom-up approach to economic research. Microeconomics, in several terms, seeks to explain individual preferences, actions, and resource distribution. Grocery stores as well as supermarkets are among the Australia's most highly competitive sectors. The aim of this essay is to evaluate the supermarket and grocery store industry in Australia and present different market structure that describes the industry in the best manner. Along with it, the essay will also assess the pricing and economic policies for the industry.

Main Body of Australian Supermarket and Grocery Store Industry Analysis

Analysis of the Industry

A variety of supermarkets as well as nutritional items, including vegetables and fruit, milk, tobacco, baked goods, cleaning supplies, dairy products, and patisserie as well as washing supplies, are retailed by supermarkets but also specialty stores. Exempted from the market are specialty supermarkets, niche shops and grocery stores.

In the Australian supermarket and grocery store industry four major players are Woolworths Group Limited, Coles Group Limited, Aldi Stroes, and Metcash Limited. In the context of Australian industry of supermarket there are a range of external factors that influence the demand of supply of the products such as real household disposable income, consumer sentiment index, population, and demand from cafes, restaurants and takeaway food services (IBISWorld, 2020). The volume as well as area of supermarkets and convenience stores was influenced by population increase.

The age range of the populace, in fact, determines the form of goods processed. Rise in the populace often usually boosts demand for new homes. New suburban projects in existing grocery sites raise the amount of foot traffic which will stimulate demand for new supermarkets. The populace of Australia is projected to rise in 2019-2020, widening the possible pool of buyers from supermarkets and grocery stores, and creating an impetus for business expansion.

The competitive landscape of the industry has sifted over past 5 years. The adverse economic consequences of the COVID-19 epidemic are expected to reduce the short-term success of the sector. It is also evaluated that as a consequence of the COVID-19 crisis, demand in the sector for groceries and super markets is expected to increase. In 2019-20, sales are expected to rise by 4.6 percent, updated upwards towards 2.3 percent growth.

In terms of market concentration, it is being identified that the sector of supermarkets and convenience stores is strongly concentrated, from over 80 percent of sector sales in 2019-2020 reserved for the four main players. The sector is among Australia's most focused businesses, with Woolworths and Coles responsible for more than 65% of company sales in the present period (Van Kampen Kirkham, 2020).

Combined, such two main operators' market shares have decreased marginally throughout the last 5 years, mainly attributable to ALDI & Costco's rise. The solid sales growth of ALDI, nevertheless, led to a small rise in business concentration for over period. The reduction in sales and profit of Metcash had partly offset the increase in concentration owing to the increase of ALDI.

The market concentration of Australian supermarket and grocery store industry is on the high level and has likely disruption. A ranked indicator of the largest core marketplace for the sector. For innovative technology to win share of the market, fragmented main market offer a low-end segment or emerging consumer point of entry.

Agree or Disagree with The Statement

I agree with the above statement that the market concentration is relatively high and for the justified explanation it can be stated that two huge, regional corporations control the Australian retail industry; the Coles Company as well as the Woolworths Company. In either scenario, both gain about 30 percent of share of the market worth about $90 bn per fiscal year Australian dollars (Grimmer, 2018). The heavy production of ALDI has intensified concentration on the eastern coast. The latest growth of ALDI throughout South Australia as well as Western Australia, nevertheless, has also improved involvement in these nations.

For this sector, the major sector is highly focused, that also indicates that the market focuses on main group of customers. This provides an incentive for technologies to embark on a transformative path for competitive penetration into lower-end sectors or underserved industries. A measure of the domination of an industry's top 4 operators. Concentration is valued highly if over 70 percent of market income is accounted for by the top firms. The level is 40 - 70 percent of business sales. The poor percentage is less than 40 percent.

I agreed with the statement because of the market share covered by the 4 major players within Australia. For example; as of 2020 the market share of Woolworths is projected around 32.9% that is equivalent to $34 billion, on the other hand, During the fiscal 2019 year, Aldi acknowledged a share of the market of about 11%, the 3rd biggest shares in the nation (Dzhabarova and et al., 2020). In comparison, the third highest share of regional market spending was drawn in the similar year, with Australian shoppers investing a sum of Australian dollars 12.8 m on the supermarket. Although Woolworths has expanded its share of the market, the recently autonomous Coles still accounts for 27.6% of the overall grocery industry.

This suggests that top corporations in the Australian retail and grocery sector are claimed to be oligopoly or monopoly in controlling the development or services offered in the region. Therefore, there are different factors that trigger concentration, besides technological innovation. This involves the scale of the market, development / age, variance in scale and ads. The underlying concept behind technical development impacting the concentration of the industry is that inventions placed their creators at the very edge of the marketplace.

In the sector, technical development is gradual. Supermarkets are gradually implementing in their facilities self-scanning equipment (Pulker and et al., 2018). Moreover, for business leaders, internet purchases have become increasingly relevant, with the grocery stores all spending extensively in online ordering services over the past 5 years. In the next few years, global companies are projected to concentrate increasingly on enhancing back-end operating efficiencies. Most importantly, it is predicted that automated delivery facilities would minimise labour dependence among key players.

Four Market Structures Along with The Rationale of Selection

The four market structures that best describes the Australian Supermarket and Grocery Store Industry are as follows; Oligopoly market, perfect competition, monopoly, and monopolistic competition.

A corporate system where a few companies rule is an oligopoly. It is claimed to be heavily concentrated where a competition is divided by a few companies. While only several other businesses dominate, it is likely that many other companies will be able to survive in the industry as well.

On the other hand, perfect competition defines the nature of the market where rivalry is at the highest level possible (Grimmer, 2018). A marketplace that manifests the following features in its framework is shown to demonstrate perfect competitiveness to make it clearer: Huge numbers of sellers and buyers, any industry produces homogeneous goods, freedom of entry and exit of businesses, zero advertisement expense; customers have great business awareness and are very well informed of any market changes.

Customers engage in sound decision-making, all development variables, Labour, money, etc., have perfectly competitive stability and therefore are not impeded by any consumer conditions or political powers, each business receives regular profits as well as no business is able to gain positive economic profits. Each business is a price - maker. As determined by the powers of production and consumption, the cost is taken. The cost of the item will not be influenced by any company.

The third market structure is monopoly in which the Australian supermarket and grocery industry best describes (Pulker and et al., 2018). A monopoly is a corporation that is the only provider of a commodity, and therefore there are no immediate alternatives. An unchecked monopoly has control over the market which can affect prices. A market system can be characterised by the distribution of a single commodity on the retail by a single vendor. The retailer experiences no competitiveness in a monopoly market, since they are the only seller of commodities without a similar substitution.

The fourth and last market structure is monopolistic competition can be defined by the four main attributes: huge numbers of sellers and buyers; ideal data; lower barriers to entry and exit; products identical but distinguished.

From the above four market structure Oligopoly is being selected the best describable market structure for Australian food retailing sector. There are several explanations to understand why it is a more rational oligopoly market. A few major sellers describe the demand for the retail and retail industry in Australia (Jie Gengatharen, 2019). Secondly, the level of rivalry is intense. In order to stay so, by leveraging economies of scale, firms need to reduce prices. In order to maximise their resources, companies have turned to acquisitions and mergers.

A third explanation is a shift in customer purchasing patterns. Today customers are really no longer able to purchases through small as well as inexperienced businesses. Due to the extreme incentives and improved after sales facilities, they tend to purchase from a broad and well-recognised company, even though the cost is greater.

Oligopolistic in essence is the Australian food retailing sector. That is, a limited number of companies, each of which has a substantial level of economic control or market strength, describe the business system. Those companies, Woolworths, Coles as well as Franklins, are generally referred to as the main chains.

Analysing the Economics and Pricing Policies in The Industry

Based on the oligopoly market structure, I would expect optimal pricing policy in the Australian supermarket and grocery store industry.

Companies within this industry are heavily dependent on one another for price setting throughout this business system. A corporation can have an impact on market rates with only several other vendors in an oligopoly, but could not run the entire market. Consequently, position is based on differentiation strategy, and not on price fixing (Cloutman, 2018). In particular, throughout the long term, an optimal pricing policy combines the responses of competing businesses to price adjustments through rivals. The availability of numerous goods in the economy is influenced by the price system. There seems to be a high availability of goods as the rivalry is high when various firms attempt to dominate the marketplace and it also causes obstacles to entering for the firms that aim to enter the market.

On the other hand, I would expect the policies should be collectively comparable for every firm in the Australian supermarket industry. A highly competitive approach can be implemented by oligopolies, where in they can produce comparable advantages over more efficient business systems, such as lower costs. And if there are a few businesses, their actions may be extremely competitive, leaving the industry unproductive.

In terms of economics, both sellers and buyers would imply by a flawless market, all goods offered by all businesses should be equal, and there are no obstacles to business entry. Several rivals are unable to negotiate on pricing due to the market supremacy of Coles and Woolworths. Although the relationship between demand and supply of every rival or customer inside this industry creates reasonably competitive competition, there would be no detrimental impact on the market value as they would have to agree and consider the market value (Schultz and et al., 2020).

Conclusion on Australian Supermarket and Grocery Store Industry Analysis

As a summary, it can be stated that I gained a brief understanding of the Australian supermarket and grocery store industry and what is the market structure of the industry. It has been evaluated that, Woolworths, Coles, and Aldi are the key players within the specific industry that operates under oligopoly market structure. From this assessment task I gained understanding about four kind of market structure that is best describable for the industry. Along with it, the essay also enhanced understanding of market concentration and it has been evaluated that Australian supermarket industry is highly concentrated.

References for Australian Supermarket and Grocery Store Industry Analysis

Cloutman, N., 2018. Supermarkets and Grocery Stores in Australia; IBISWorld Industry Report G4111. IBIS World: Melbourne, Australia.

Dzhabarova, Y., Kabaivanov, S., Ruseva, M. and Zlatanov, B., 2020. Existence, Uniqueness and Stability of Market Equilibrium in Oligopoly Markets. Administrative Sciences, 10(3), p.70.

Grimmer, L., 2018. The diminished stakeholder: Examining the relationship between suppliers and supermarkets in the Australian grocery industry. Journal of Consumer Behaviour, 17(1), pp.e13-e20.

Grimmer, L., 2018. The diminished stakeholder: Examining the relationship between suppliers and supermarkets in the Australian grocery industry. Journal of Consumer Behaviour, 17(1), pp.e13-e20.

IBISWorld, 2020. Supermarkets and Grocery Stores in Australia - Market Research Report. [Online]. Accessed through <https://www.ibisworld.com.au/industry-trends/market-researchreports/retail-trade/food-retailing/supermarkets-grocery-stores.html>. [Accessed on 25th September 2020].

Jie, F. and Gengatharen, D., 2019. Australian food retail supply chain analysis. Business Process Management Journal.

Pulker, C.E., Trapp, G.S., Foulkes-Taylor, F., Scott, J.A. and Pollard, C.M., 2018. The extent and nature of supermarket own brand foods in Australia: study protocol for describing the contribution of selected products to the healthfulness of food environments. Nutrition journal, 17(1), p.95.

Pulker, C.E., Trapp, G.S., Scott, J.A. and Pollard, C.M., 2018. Alignment of supermarket own brand foods’ front-of-pack nutrition labelling with measures of nutritional quality: An Australian perspective. Nutrients, 10(10), p.1465.

Schultz, S., Cameron, A.J., Grigsby-Duffy, L., Robinson, E., Marshall, J., Orellana, L. and Sacks, G., 2020. Availability and placement of healthy and discretionary food in Australian supermarkets by chain and level of socio-economic disadvantage. Public Health Nutrition, pp.1-12.

Van Kampen, T. and Kirkham, R., 2020. Assessment of the Supermarkets and Grocery Stores Sector in Australia: A Case Study of Woolworths and Coles using DEA and VAIC™. Journal of New Business Ideas & Trends, 18(1).

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