COmm1100 case study

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Jan 9, 2024

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Case study 1) Key Stakeholders Customers are a stakeholder that are directly impacted by and impact Woolworths’ decision. Woolworth’s wide customer base as an oligopoly, forces them to consider the lifestyle needs, spending ability, interests, and rights of various customer groups. This consideration of the customer influences the products Woolworths provides, the price it sets and whom it sells to. From Woolworths’s perspective, capping the price of essential products can ensure that rising prices for other products does not allow for an increased loss of customers. External competition also has an impact on Woolworths actions, but conversely are also impacted by Woolworths’s actions due to their competitive relationship. Ultimately competitors such as Coles are aware of the practices and products of their rivals and intend on responding accordingly to stay competitive, since this competition goes both ways. Through Woolworths’s decision, Coles responded accordingly by offering an alternative measure to mitigate, rise in cost-of-living pressures faced by consumers, through offering a discount 10% on gift cards to spend at Coles (Birot, 2022). Suppliers are also directly impacted by Woolworths’s actions as they ultimately must be able to supply the increased demand faced by Woolworths for price-capped products. Woolworths is also impacted by this relationship with suppliers as they are dependent on them to operate and service its own customers. For example, in this context of rising cost of living, coupled with strains on supply chains, Woolworths is forced to increase its prices while also implementing price-caps on certain products which may force suppliers of those capped price goods from increasing their prices or taking on those increased costs, despite rising inflation. Investors are also a major internal stakeholder as they influence the direction of Woolworths and have an expectation of returns for their investments. Stakeholders of Woolworths may be impacted by Woolworths decision through lower returns on investments due to the contextual constraints on customer spending. Stakeholders’ expectations for the future regarding their investments may have also pushed Woolworths to implement price-caps, which can increase market share. 1b) Utilitarian perspective The utilitarian perspective explains how the ‘morally correct action’ is the one that produces the most for the greatest amount of people, it also involves “impartiality and agent- neutrality”, which counts everyone’s happiness equally (Driver 2014). Looking at Woolworths decision in a utilitarian perspective, we must value all stakeholders and their interests as equal regardless of the level of impact and closeness of stakeholders to the business (Driver 2014). The decision made does address the needs of each stakeholder party to the greatest attempt, for example Woolworths fulfills the needs of communities and customers who are under the strain of rising cost of living by ensuring some groceries are at a fixed cost. While these fixed costs can limit Woolworth’s revenue and thus investors return on their investments it does allow for a greater market share, as more customers may be attracted to the fixed costs which may lead to increased loyalty in future. Suppliers however may be adversely impacted by Woolworths’s decision due to the expectation to meet the higher demand in those price-capped goods. However, in terms of competition, while it does put pressure on other competitors to aid customers in grocery affordability, it provides an advantage for Woolworths in terms of customer retention. Woolworths’s decision can be seen, when examining the stakeholders to be providing a solution that benefits the most, by the greatest extents possible.

2) losses and gains A) Considering the context surrounding Woolworths’s decision of their competition being non- reactive and inflation continuing to increase at 5% per year for the next two years, Woolworths will experience various losses and gains. These losses include decreased revenue due to rising prices, higher cost of living for consumers and constraints on grocery supply chains, making existing supplies of groceries increasingly more expensive (LaFrenz 2022). This notion of increasing costs is further explained by the Australian Food and Grocery Council (AFGC) media release of how cost pressures from food and grocery manufacturers are having a “flow through” effect on supermarkets (Scott, 2022). However, gains that Woolworths can expect from this decision is an increased market share, especially since competing supermarket oligopolies are unresponsive in price, in relation to the needs – rising cost of living – of consumers. This greater market share can lead an increased customer base, past the next two years into normal conditions. B) Since Woolworths can be considered an oligopoly and has a great level of market power, it can have a varied impact on different stakeholders, depending on their proximity to the business and their interests. A stakeholder that will face the adverse implications of Woolworths decision includes competitors, such as other Oligopolistic supermarkets such as Coles and Aldi. This stakeholder group may see a decreased market share over the two years, due to unresponsiveness to the economic climate. As well as unresponsiveness to normative considerations, such as the needs of their customer base, as well as what price a large percentage of their customers can afford. Suppliers of the goods included under the price-caps, may also feel adverse pressure to increase prices, due to cost pressures from other areas of the supply chain, and may not be able “to continue to absorb those increased costs” (Scott, 2022). However other shareholder groups such as customers may benefit from Woolworths decision as this decision is considerate of the economic climate and the impact it has on income and cost living. Also ensuring that the business is socially responsible regarding the communities it operates within. C) Despite the Inflation period, which may present Woolworths with short term losses, this decision can be greatly beneficial to them in the long run considering the unresponsiveness of competitors. Woolworths can expect an increasing market share over the next two years, assuming other competing supermarkets price their products in accordance with inflation. This increased market share can lead to increased customer loyalty even after the two years of economic constraints on consumers. This is ultimately beneficial as it can lead to increased sales and profits, which can compensate for the short-term losses encountered by Woolworths and its investors. 3) Legal considerations While Woolworths decision to price-freeze some household items until the end of 2022, does not include fresh produce, a supplier of fresh produce must consider various legalities when entering an agreement with Woolworths. Legalities that must be ensured surround the contract between the two parties, while the second involves how the two parties of the business intend on doing business – competition law. A supplier of fresh produce would need to ensure that their supply agreement with Woolworths is legally sound, which involves ensuring that Woolworths and the supplier can

both meet obligations. A fresh produce supplier would need to address the goods they would be providing as well as the price and payment terms for Woolworths, while also ensuring that this price can increase, and supply can fluctuate due to environmental constraints such as natural disasters ( Suppliers | business.gov.au , 2021). Including a price variation clause, the supplier would be protecting themselves from rising costs of producing vegetables, that may be incurred from a shortage in supply. Essentially, if vegetables were capped, an agreement surrounding price within a contract would protect the supplier from absorbing costs pressures from the supply chain (Scott, 2022). Instead, these costs would be absorbed by Woolworths due to the price-caps. An external supplier would also need to ensure their business conduct with buyers was not anti- competitive. For example, if the vegetable supplier happens to have “a substantial degree of power in a market”, they are prohibited from conducting business that reduces the competition, fixes prices, or restricts the level of supply under the Competition and Consumer Act 2010 ( ACCC, 2012).Abiding by these legalities will not only ensure that their business relationship is legally binding/compliant, but also ensures that the businesses don’t abuse their respective market powers to influence the market in a non-competitive way. REFERENCE LIST

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Birot, M 2022, Woolworths’ Price Caps On Essential Grocery Items To Help Ease Cost Of Living | Canstar Blue , Canstar Blue, viewed 9 July 2022, <https://www.canstarblue.com.au/groceries/woolworths-price-cap-groceries/ #:~:text=Woolworths%20introduces%20price%20caps%20on%20essential%20groceries %20to%20help%20ease%20cost%20of%20living,-Posted%20by %20Megan&text=Woolworths%20has%20announced%20a%20price,pressures%20for %20millions%20of%20Aussies.>. Driver, J 2014, The History of Utilitarianism (Stanford Encyclopedia of Philosophy) , Stanford.edu, viewed 9 July 2022, <https://plato.stanford.edu/entries/utilitarianism-history/#ClaApp>. LaFrenz, C 2022, Coles, Woolworths to gain as food inflation accelerates: UBS , Australian Financial Review, Australian Financial Review, viewed 12 July 2022, <https://www.afr.com/companies/retail/coles-woolworths-to-gain-as-food-inflation- accelerates-ubs-20220418-p5ae8p>. Andrea Luquesi Scott 2022, Cost pressures affecting Australian food and grocery manufacturers - Australian Food and Grocery Council , Australian Food and Grocery Council, viewed 12 July 2022, <https://www.afgc.org.au/news-and-media/2022/04/cost-pressures- affecting-australian-food-and-grocery-manufacturers>. Suppliers | business.gov.au (2021). Available at: https://business.gov.au/people/suppliers (Accessed: 13 July 2022). ACCC (2012) Anti-competitive behaviour . Available at: https://www.accc.gov.au/business/anti-competitive-behaviour (Accessed: 15 July 2022).

COmm1100 case study

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