Executive Summary
The report represents New Zealand’s study of the retail grocery sector. From the report, it is evident that groceries are a vital part of household consumption. The report indicates that over $22 billion was spent in 2021 purchasing groceries from supermarkets. The study’s main outcome was that competition has not been effective among grocery retailers due to the prevalence of major grocery retailers. Leading retailers such as Foodstuffs and Woolworths operate as a duopoly. Therefore, the grocery retailer sector in New Zealand has great potential for new entrants. However, these new entrants should be aware of the challenges expected, which include difficulties in getting reliable suppliers for grocery products that are competitively priced and difficulties in finding areas for store development. New entrants should focus on having a convenient one-stop shopping capability for their clients to compete with Woolworths NZ and Foodstuffs to improve competition in the grocery market. Effective competition in the market will see grocery retailers compete to provide the consumers with quality and a range of products at the best prices that satisfy and meet the clients’ needs. The situational analysis is directed to the CEO of a new NZ grocery retailer focusing on the current status of the sector and the external environment of the retail sector in New Zealand.
Introduction
Situational analysis is important as it helps develop a comprehension of a business environment by a business entity or a company. This makes it easy for an entity to plan and prioritize actions. The situation analysis will be directed to the CEO of a new NZ grocery retailer focusing on the external environment of the grocery retail sector in New Zealand. The situational analysis will include:
- A SWOT analysis.
- Especially the opportunities and threats in the sector.
- A Porter’s Five analysis.
- A consumer analysis.
- The supplier analysis.
The analysis will lead to a synchronized situation analysis that will help the new business CEO understand the current opportunities and threats in the grocery retail sector.
Situational Analysis
The Porter’s Five Forces
Porter’s five forces are used by businesses to analyze and identify competitive forces that shape a given country. The business, in this case, will use Porter’s analysis to look into its competitive environment, the power of the rivals, potential entrants to the market, suppliers, consumers, and substitute products. This will guide the business towards the development of competitive advantage. As stated by Newman (2022) the bargaining power of the suppliers in the grocery retail sector in New Zealand is not a threat to the new company. The report indicates an imbalance in the bargaining power among the consumers, and thus competition among them is not working well (Muirhead, 2021). Therefore, the suppliers do not have collective bargaining, which has facilitated anticompetitive conduct. The fear of retribution has made the suppliers reluctant and thus has not raised any complaints (Newman, 2022). This means that the suppliers have difficulties trading with the grocery retailers, which has limited their ability to supply products, thus making it difficult for the grocery retailers to meet and satisfy the clients’ needs (Commerce Commission New Zealand, n/d). This risks suppliers exiting the market, and the outcome will be an increase in prices in the long term, thus making it difficult for new businesses in the sector to thrive.
The bargaining power of the customers is also low in the grocery retail sector mainly because most of the consumers are accustomed to shopping in Woolworths NZ and Foodstuffs. Shopping in these leading outlets limits their bargaining power as they are subjected to the pricing strategies considered by these outlets (Commerce Commission New Zealand, n/d).Additionally, consumers in the sector are not aware of how the data collected when joining loyalty programs is used. This means that the consumers are not in a position to make informed choices and thus are not in a bargaining power position. Two major grocery stores dominate the market, which means barriers to entry for new business. As established by (Newman, 2022) the entry of small-scale businesses in the sector is viable, but new entries appear to have minimal impact on the established grocery retailers. Considering the existing market conditions, there are minimal chances that future competition by new grocery retailers will offer strong competition to the major players in the sector (Commerce Commission New Zealand, n/d). Moreover, the sector remains highly concentrated; despite this, the market share of the leading retailers has remained stable and relatively high. This is a clear indicator that the leading grocery stores clearly understand each other’s competitive strategies and can thus use this to edge out new entrants.
The market is also experiencing the threat of substitutes. In recent years, New Zealand has experienced a growth in online shopping (Muirhead, 2021). This means that people are replacing brick-and-mortar stores with online stores; new businesses will be required to consider providing online services to their clients (Newman, 2022). However, the number of pure online grocery retailers is still low, and thus this is not a major threat to new entrants into the market. Also, tourists are not well exposed to online shopping in New Zealand, and thus most of them will prefer visiting the physical stores for their shopping activities.
Lastly, on Porter’s analysis is the competition among existing competitors in the sector; as mentioned earlier, the market is highly concentrated, with the leading stores having relatively high market shares. Also, the demand for groceries among consumers is relatively high and predictable. The leading grocery retailers understand each other’s competitive strategies and thus are the best place to respond to their main competitors (Newman, 2022). The high competition in the sector can be seen from the consumers’ perspective of cross-shopping, thus participating in more than a single shop. This can be seen as a response to strong competition in the sector. For this reason, the leading stores have created loyalty programs for the consumers. Therefore, there exist competition between the leading grocery stores in both non-price and price aspects of competition (Commerce Commission New Zealand, n/d). However, aspects such as a decline in the demand for groceries and relative stability of the market shares have weakened the incentives of major grocery retailers to participate in increased competition (Muirhead, 2021). For this reason, one can say that the competition among the major players is muted and is not a reflection of a workable competition.
SWOT Analysis
A SWOT analysis looks at the external and internal factors affecting a business. The internal factors to consider are the strengths and weaknesses, while the external factors include the threats and opportunities. The SWOT analysis will help the business respond to new trends and take advantage of new business opportunities. The SWOT analysis, in this case, will only consider the external analysis, that is, the opportunities and threats that exist in the market.
Opportunities
According to Muirhead (2021) the consumers’ preferences have been changing over time. In New Zealand, consumers have drastically changed towards healthy eating moving away from salty products, high calories, and high sugar diets. Offering such dietary products in a new business will attract health-conscious customers (Commerce Commission New Zealand, n/d). Therefore, offering the consumers an opportunity to shop for a vast range of healthy groceries will provide new businesses with an opportunity to grow (Newman, 2022). Considering demographics, Middle-class families are the major target of the grocery stores. The middle class in New Zealand is on the rise, and this is an indicator that the grocery retail sector will continue growing and thus a need to consider investing.
Threats
According to Muirhead (2021) the cost of food has continued to rise in New Zealand; the fact that the suppliers lack bargaining power means that the cost will continue to increase, which will threaten new entrants. A decline in the suppliers will trigger an increase in the prices of groceries, making it difficult for new businesses to thrive. Home brands are also a threat to the market since they can harm competition. The fact that the industry is highly competitive means that considering home brands (private label) over supplier branded products could affect competition and thus threaten new businesses in the sector (Commerce Commission New Zealand, n/d). An imbalance of the bargaining power can also lower the supplier’s incentives to innovate and invest. This would ultimately result in a decline in quality goods and lower the choices being availed to the consumers (Muirhead, 2021). Suppliers with limited abilities to resolve disputes can thus exit the market. Loyalty, promotional, and pricing practices are limiting the ability of consumers to make informed decisions. When consumers are not confident in decision-making, their buying power is expected to decline, which can greatly hurt new businesses.
Consumers Analysis
Consumer analysis is a vital part of any organizational strategy. Ergonul (2013) points out that consumer analysis entails finding out consumer needs, their demographic, an the retailer’s target market by conducting market research. Through consumer analysis the retailer will learn the process that consumers undertake when they buy their groceries and through his they can determine the consumer’s decision making process, the frequency in which the consumers purchase the groceries,and their preferred mode of payment. They will also get to figure out the key demographics in the market and use to identify the consumers that comprise of the primary target market. By obtaining this information, the retailer can then develop a business plan and a market strategy tailored specifically to what the consumers would prefer (Ozaki & Sevastyanova, 2014). Retailers that prioritize meeting the needs and wants of the consumer expect greater profits as consumers experience a personalized shopping experience in their business. Consumer analysis, in this case, will put into consideration:
- Identification of the target market.
The target market is the group of consumers with shared characteristics that the retailer would like to sell their groceries to. As per the draft report, every New Zealand purchases groceries since food is a necessity. This means that every working person is a potential customer for the grocery retailer. Kasanagottu et al (2018) affirm that Despite the high availability of potential consumers, the competition in the groceries market in New Zealand is fairly high. The report indicates that there is a diverse number of retailers who sell groceries in the country (Commerce Commission New Zealand, n/d). There are three main groceries retailers in the country who offer consumers the privilege to shop for all their groceries at one stop. In addition to this there are international food stores and specialist grocers who offer the sell the same goods. The retailers wok in conjunction with suppliers and wholesalers to bring the the groceries to the consumers.Suppliers are those who grow fresh produce as well as those involved in the processing. Wholesalers buy from the suppliers in bulk and they then supply the produce to the retailers who sell to the consumer(Commerce Commission New Zealand, n/d). The retailer, therefore, has to identify these factors and strategise based on them in order to establish a thriving business.
- Understanding consumer needs.
The New Zealand consumers comprise of a diverse group of people whose wants and need vary greatly. For many grocery shoppers in New Zealand, convenience when shopping and the prices of the produce that a retailer offers are what mainly determines the retail that a consumer prefers. The consumers prefer retailers that have a wide range of products to choose from as that they can conveniently shop for all their grocery needs in one place(Commerce Commission New Zealand, n/d). The quality of the customer service offered by a retailer also attracts consumers as they prefer retailers who value them. Consumers also have a preference for retailers who offer round the clock service as they can have access to groceries whenever they need them. New Zealand consumers shop for groceries in different types of retail stores depending on the shopping mission (Commerce Commission New Zealand, n/d). Consumers prefer grocery retail outlets that provide full price, quality, range, and service spectrum since these retailers are able to accommodate them despite their shopping mission. Consumers tend to prefer smaller retailers when they are on a top-up mission. Since the market for groceries in New Zealand is large, it is hard to pin point consumer needs as they vary from one person to the other.
Suppliers Analysis
Suppliers present themselves as an outstanding industry component that greatly impacts suppliers in an organization. According to Dutta et al., (2021), supplier analysis entails making qualitative and quantitative assessments of potential suppliers and approving the supplier that the retailer feels most comfortable with. For a retailer to choose a supplier, they have to have clear objectives of what they are to expect from a supplier. The retailer needs to know the quality they need from the supplier, the timeliness of the delivery, the cost and the environmental sustainability of the supplier. Conducting supplier analysis ensures that the retailer gets a supplier they can trust and one with whom they can tailor their transactions according to the requirements of the retailer (Rajesh & Ravi, 2015). This analysis is also crucial to making sure that the retailer maintains quality of groceries that they provide their consumers with.
In the New Zealand grocery market, the suppliers are the farmers who grow the produce as well as those who process the produce for consumption. The supply chain also includes the wholesalers who buy the produce from the farmers and processors in bulk and supply them to the retailers.The three major grocery retailers in the New Zealand Grocery market also act as wholesalers but they only supply to their retail stores across the country (Commerce Commission New Zealand, n/d). They have centralized distribution centers which hold the produce in bulk before it is shipped out to the retail stores.The primary suppliers can either deliver the product to the centralized distribution centers or they can go directly to the retail stores.
Supply to other smaller and expert retail outlets is mainly done by independent wholesalers. In the New Zealand grocery market, the suppliers are not large scale and they do not a variant range of grocery products (Commerce Commission New Zealand, n/d). This means that the retailer will have to rely on a number of suppliers depending on the range of products they would like to provide the consumer. However, there are wholesale suppliers of specialized goods such as fresh produce and meat. They include: Fresh Direct and MG Marketing for fresh produce and JR Wholesale Meats and Wholesale Meats Direct for meat.
The suppliers in the New Zealand grocery market conduct themselves in a manner that affects the pricing of their goods. Some suppliers in the market have set out a condition that they would only supply to a grocery retailer, if the retailer promises to sell the produce at the same price that it is being sold by other retailers that they supply to. Muirhead (2021) mentions that since the suppliers supply their product to a variety of retail stores, they provide provisions in their contracts that ensure that the retailer is at ease (Commerce Commission New Zealand, n/d). One of this provisions is the best priced clause that the supplier will provide the retailer with the same or a better price than that they give to their competitors.This ensures that the supply process is fair to all the retailers involved.
Conclusion
The report issued above represents an analysis of the New Zealand grocery market sector. Groceries are an integral part of every consumers life meaning that that the grocery market in New Zealand is very large. Due to the availability of consumers, the competition in this market is high, although the prevalence of the major grocery retailers makes it unbalanced. The analysis of the competition in this market has been done using Porter’s five forces. The report has analysed the bargaining power of the supplies, the bargaining power of the customers, the barriers that a retailer may face when entering the market, the threat of substitution and the competition among the existing retailers in the New Zealand grocery market. The report also analyses the threats and opportunities that can be found within the market with the use of a SWOT analysis. The analysis of consumers is also indicated as it is crucial to understand the consumer behavior so as to tailor the business based on their wants and needs. An analysis of the suppliers in the New Zealand retail market has also been conducted so as to ensure that the retailer knows what to expect when choosing a supplier of the goods that they will provide their consumers.
References
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Newman, M. (2022). Grocery market study recommends changes to improve competition and benefit consumers.
Commerce Commission New Zealand (n/d). Market study into the retail grocery sector Draft report – Executive summary. https://comcom.govt.nz/__data/assets/pdf_file/0024/260376/Market-study-into-the-retail-grocery-sector-Draft-report-Executive-summary-29-July-2021.pdf
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