Preview

Economies of Scale

Good Essays
Open Document
Open Document
708 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Economies of Scale
Tucker (2009,178) believes that the most significant barrier to entry in an oligopoly is economies of scale. Economies of scale generally refer to the cost advantages that will be associated with large organizations. Margaretta (2012,26) suggests that companies pursue economies of scale in the belief that this will be decisive in determining a competitive advantage and increased profitability. Woolworths enjoys significant economies of scale in relation to its competitors. In the supermarket industry, benefits of economies of scale is usually achieved by buying products in bulk and reducing the average costs. As the largest player in the industry, Woolworth's can negotiate significantly lower costs with suppliers due to the large quantities they purchase in relation to their smaller competitors.In an effort to secure market share Woolworth's have engaged in an ongoing price war with its biggest rival, Coles(Whalley and Lemay,2012). In the process, this price war is squeezing out the smaller competitors who can not negotiate the same discounts as these industry giants so can not pass the same benefits onto consumers, thus reducing their competitiveness and giving industry giants such as Woolworth's a clear competitive advantage. However, to maintain this competitive advantage, Woolworth's must regularly price monitor its supermarket rivals and other retailers selling grocery products and respond through price matching.Millar and Fyfe,(2012) report that Woolworth's have been accused of using its retails power to open oversized, unprofitable stores in growth areas and rural centres in a bid to kill off its smaller competitors and also local small businesses and suggest that these oversized stores are being cross-subsidized by the supermarkets giants' vast operations, which include liquor, hardware, office supplies and gaming.Rivalry with existing competitors is an obvious threat to Woolworth's but identifying new entrants is also important because they can threaten

You May Also Find These Documents Helpful

  • Powerful Essays

    Fsa Midterm Ratio

    • 11623 Words
    • 39 Pages

    Industry and Company Background Kroger is the largest grocery store chain in the United States with 2424 supermarkets located in 31 states. It focuses on high quality products and has a wide range of selection. Each supermarket carries almost 50,000 items to satisfy its ever growing diversified customer base. Safeway is the second largest superstore chain in the country. It operates 1641 stores across western and central region of North America. Safeway emphasizes customer shopping experience and superior customer service. Both companies are in the retail industry and compete heavily across several states in the country. In addition to competing with a number of other grocery chains, Wal-Mart is identified as a major competitor for both firms. (Exhibit 1-1) Besides competition, Kroger and Safeway are concerned with key macroeconomic and internal factors. GDP is highly correlated with sales in the retail industry hence personal disposable income is the most critical macroeconomic factor for retail firms’ operating performance. When individuals have more disposable income, they spend more money in the retail industry. As for internal factors, critical success factors for both Safeway and Kroger include focusing on profitability via cost control and focusing on value creation due to the competitiveness of the industry, customer’s budget concerns, and low switching cost. Kroger is able to offer competitive costs for its private label products by backwards integrating and manufacturing 40% of its corporate brand product. Additionally, Kroger is aiming to reduce the costs of energy by pursuing green initiatives. This program includes the installation of wind turbines for the Turkey Hill Dairy that has allowed Kroger to save over 25% on its electricity bill over the last two years. (Smith and Sweet, 2013) As a result, the energy saving initiative adds up to cost savings of $160 million a year on electricity alone. Safeway, on the other…

    • 11623 Words
    • 39 Pages
    Powerful Essays
  • Powerful Essays

    In addition the UK government created an attractive environment for Multi National Companies like Wal-Mart to invest in. This environment was created by offering a number of cost reducing and financial incentives. The effect of these incentives was designed to reduce investment risk and so encourage investment and create jobs. But consequentially, Asda’s acquisition by Wal-Mart signalled a change in food retailing in the UK. In response its competitors intensified the price and cost pressures they exerted on their suppliers. Responses from a Competition Commission survey indicated that since the Wal-Mart take over relationships between suppliers and supermarkets had largely worsened. (Competition Commission).…

    • 1898 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Customers demand cheaper products so local and national stores such as Tesco will try to have the cheapest products for customers to buy which then encourages competition between the stores, whichever store has the cheapest price for a particular product then they would be attracting all the customers.…

    • 936 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Customers demand cheaper products so local and national stores such as Tesco will try to have the cheapest products for customers to buy which then encourages competition between the stores, whichever store has the cheapest price for a particular product then they would be attracting all the customers.…

    • 1456 Words
    • 6 Pages
    Good Essays
  • Powerful Essays

    Target Strategic Audit

    • 15483 Words
    • 83 Pages

    Porter’s five forces suggest that overall the discount-variety store is not a very attractive industry for newcomers, due to prohibitive forces like access to distribution channels, threat of substitutes and rivalry…

    • 15483 Words
    • 83 Pages
    Powerful Essays
  • Satisfactory Essays

    John Smith

    • 6007 Words
    • 51 Pages

    Food fight: Fierce price competition has benefited consumers but eaten into profit IBISWorld Industry Report G4111 Supermarkets and Grocery Stores in Australia June 2014 Brooke Tonkin 2 About this Industry 14 Demand Determinants 29 Operating Conditions 2 Industry Definition 15 Major Markets 29 Capital Intensity 2 Main Activities 16 International Trade 30 Technology & Systems 2 Similar Industries 17 Business Locations 30 Revenue Volatility 2 Additional Resources 31 Regulation & Policy 19 Competitive Landscape 3 Industry at a Glance 32 Industry Assistance 19 Market Share Concentration 19 Key Success Factors 34 Key Statistics 4 Industry Performance 19 Cost Structure Benchmarks 34 Industry Data 4 Executive Summary 21 Basis of Competition 34 Annual Change 4 Key External Drivers 22 Barriers to Entry 34 Key Ratios 5 Current Performance 22 Industry Globalisation 8 Industry Outlook 10 Industry Life Cycle 35 Jargon & Glossary 24 Major Companies 24 Woolworths Ltd 12 Products & Markets 25 Wesfarmers Limited 12 Supply Chain 26 ALDI Stores Supermarkets Pty Ltd 12 Products & Services 26 Metcash Limited www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com WWW.IBISWORLD.COM.AU Supermarkets and Grocery Stores in Australia June 2014 About this Industry Industry Definition Supermarkets and grocery stores retail a range of groceries and food lines, including fruit and vegetables, bread, cigarettes, canned goods, toiletries, dairy Main Activities The primary activities of this industry are goods, delicatessen items and cleaning goods.…

    • 6007 Words
    • 51 Pages
    Satisfactory Essays
  • Satisfactory Essays

    In conclusion, Coles and Woolworths both have their individual advantages, Coles reacts more quickly to its competitors and Woolworth has an integrity supply chain. These advantages help them catch more market share from their competitors and also give support to the price war. This is a clever use of the market pricing theory which can give loyalty clients sentiment freshness and attract new…

    • 414 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    How, according to “The Functions of the HQ Unit in the Multi-Business Firm,” do economies of scale and economies of scope provide cost advantage opportunities to firms? · What considerations would be relevant to a firm’s deciding which strategy (scale or scope) to adopt? · How does the choice of executive focus – strategic planning, strategic control, financial control – influence HQ functions and approaches in a multi-business firm?…

    • 443 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Morrisons Pest Analysis

    • 2268 Words
    • 10 Pages

    Acquisition of competing players would be beneficial as this was the case with takeover of Safeway, which eventually helped Morrisons to become the fourth out of Big Four grocers of UK. Morrisons could consider acquisition of grocers who trail behind Big Four grocers, namely Iceland, Co-operative, Lidl etc. Takeover will allow Morrisons to exercise greater power in competing with Asda, Tesco, and Sainsbury’s. However, chances of failing are high, therefore the grocer should carefully choose among these strategic decisions. The least risky options would be acquisitions of small manufacturing companies specialized in packaging, processing of food and non-food products which are not considered yet by the grocer, but are relevant to its core business. For instance, Morrisons could acquire farms specialized in cultivating some sorts of cereals which are in scarcity in UK. These acquisitions could be also made in EU countries when the grocer’s suppliers will start to weaken its bargaining…

    • 2268 Words
    • 10 Pages
    Good Essays
  • Powerful Essays

    Loblaw Companies Limited

    • 1361 Words
    • 6 Pages

    The Canadian grocery industry is highly competitive and has high barriers for new entrants. Canadians pay the lowest prices for food in the world. Furthermore, Loblaw, Sobeys, Safeway, Metro, and A&P take up nearly 70% of Canadian grocers’ market share. With so many dominant players in the industry, the grocery store suppliers’ bargaining powers are relatively low, depending on the scale of the stores. Furthermore, the customers’ bargaining powers are very high since…

    • 1361 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Aldi was identified as a competitive force by the ACCC in 2008 and it has continued to grow. But its market share is still small. Costco has expanded, but is also a minor player. According to the ACCC, Metcash supplied stores had little ability to compete on price with Coles and Woolworths in 2008. This does not appear to have changed. And innovative competitors, like the specialist organic supermarkets and ‘high end’ gourmet outlets that have opened in the US, are almost non-existent in Australia.…

    • 577 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Swot Task 1

    • 2025 Words
    • 9 Pages

    The two major grocery chains – Woolworths and Coles – dominate with almost 70% market share of an industry valued at A$80+ billion. Over the past 5 years the sector has been witness of some significant developments.…

    • 2025 Words
    • 9 Pages
    Powerful Essays
  • Satisfactory Essays

    Economies of Scale

    • 382 Words
    • 2 Pages

    Detroit and some of its surrounding areas as Windsor and Ontario, represent a huge factor in the economy of the United States by being one of the major cities where trade takes place. General Motors, Ford and Chrysler also known as Americas ‘Big Three’ automobile companies are located in this city.…

    • 382 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Competition can represent many benefits for consumers; through it, consumers can obtain products with higher quality and better prices. The competition, in the case of businesses, accounts for a continue developing of strategies, and the ability of put resources behind their efforts. The retail industry is very competitive, this competition includes department stores, discount stores, outlets, online retailers, and mail order catalogs, among others. Macy’s principal and direct competitors are mid-priced to high-priced department stores; such as J. C. Penney, Dillard’s and Saks. Indirect competitors are those who have similar products, but at a lower price, as the case of Amazon, Target, and Wal-Mart (Macys Inc's Competitiveness, 2017).…

    • 108 Words
    • 1 Page
    Satisfactory Essays
  • Satisfactory Essays

    Loblaws Business Strategy

    • 550 Words
    • 3 Pages

    The grocery industry is a commoditized industry, which makes it difficult for grocers to sustain through differentiation. Buyer power is high and thus, cost leadership and operational efficiencies are critical. There is fierce competition amongst various grocery stores, with the main players such as Loblaw and A&P holding multi-banner stores in various market segments. Traditional grocery stores also lose some of their market share to drug stores, convenience stores and other retailers who have entered the industry. Threat of substitutes from fast-food and take- away outlets is not as prevalent, since many grocery stores have started stocking ready-to-eat meals and have deli services available for consumers. Competitive pressures are increasing in the industry with the potential entry of Wal-Mart and new delivery methods such as the internet.…

    • 550 Words
    • 3 Pages
    Satisfactory Essays