Expanding Into the Australian Market Essay Sample
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Introduction of TOPIC
As chief Strategic Analyst for Kenyan based business, Nakumatt, we have been given he task to look beyond our home market as Nakumatt Supermarkets prepares to expand beyond the national market overseas into Australia. This report points out key details necessary for decision making on the ventures feasibility. Australia is known for financial stability amongst it’s population even through the global economic crisis and the mostly middle-class nation relies on big retail outlets for everyday needs. The retail supply chains have grown more common over the last quarter century and although Australia has two dominating supermarkets in place, Nakumatt (being a leading supermarket in Kenya) may stand a chance at being successful overseas. The cot-competitive market could prove to be an advantage for Nakumatt during market entry. This report outlines the legal obligations involved in tapping the Australian market as well as the policies in place, the skillset of the workforce, a brief look at the competition to be faced and a few strategies that may be of use to Nakumatt. The report should be able to conclude weather or not the move is best at this time.
Legal and Political Environment
“Under the Corporations Act 2001, every company in Australia has been issued with a unique, nine-digit number, an Australian Company Number (ACN), which must be shown on a range of documents. The purpose of the ACN is to ensure adequate identification of companies when transacting business. New companies are issued with numbers by the Australian Securities & Investments Commission (ASIC) upon registration.” The statement above can be found at the end of every Australian Business Registration Form, which is formally issued by the Australian Securities and Investment Commission. Australian Business owners have been quite happy with the service of the ASIC because they find that their information is often easily accessible and at any time (ASIC.2001). The system is effective and under constant monitoring therefore the likelihood of loss of documentation, fraud, and falsification of documents is never an issue. Business people in Australia have put complete trust in an effective system. As a leading supermarket in Kenya, Nakumatt has mounts of paperwork and sensitive documents, which require safekeeping. The charges for new documents are high and the processes are tedious and time-consuming. Another issue which can be worrying is the likelihood of private or implicating information falling into the wrong hands but this would not be an issue with the strict regulations and laws on privacy and with the quick easy access but highly secure system.
Australia and the global financial crisis
The existing financial crisis presents both challenges and opportunities for existing business and new ones trying to tap into the Australian market. One advantage for a new business is that the constant rise and fall of the Australian dollar has helped convert Australia into a cost competitive market… which was not the case only five or six years ago. As a Kenyan business looking for new opportunities to create a new target market, you can use low costs to lure your target market in and include this in your marketing message. New strategies, which are unable to take off in Kenya, can be an advantage in Australia. E-marketing and e-business are a big part of the Australian market so a shopping web-page is another way to increase sales for Nakumatt by heightening the ease of shopping for customers. The Australian Trade Commission advices that it is best to, “Minimize your risk with a balanced spread across a broad customer base, without stretching your resources too far.” (ATC Annual Report.2008) The ease of this for a supermarket is that the target market is clearly middle-class Australia, what we would call in Kenya “Wanainchi”
Managerial and Labour environment
Australia, being a developed country, has reliable systems in place for staff searching, job finding, and all the systems are readily available online. Sites such as Envirojobs and the Australian Government Department of Sustainability, Environment, Water and Community, allow companies and businesses of all sorts to advertise their vacancies. On the other end, agents link Australian job applicants (according to their qualifications) to job availabilities. This creates ease in finding a qualified task force and even senior management as opposed to the very common ‘poaching’ procedure used in Kenya. The sites also work vice versa… job seekers can open online profiles with the sites and business owners will simply narrow their search down to the specific qualifications necessary. Labour market policies in Australia have evolved in favour of the workforce (Miller 2003) and the government has done its best to ensure that there is fairness in employment in every organization… in terms of size of workforce, hours worked per week, minimum wages, and also the employment of a certain percentage of disabled employees per business.
Certain processes have encouraged the growth of supermarkets in Australia in the last quarter century. These processes include globalization and pro-corporate regulations among others (McMichael 2003). International expansions by supermarkets in foreign locations has allowed for substantial profit gains. Globalization has, in recent years become evident in the retail sector in Australia with Supermarkets from all over the world joining the market. This entails large supermarket chains breaking from the confinements of a national (limited) confinement base. As a consequence of having retail power in Australia, you will be a great determining factor in what is produces and in turn what people consume especially in the food sector(Bourlakis.2004). This will of course require you to be in close contact or rather agreement with the policy-makers, farmers, producers, consumers and manufactures in Australia’s ‘local’ market. ‘Own-brand’ (e.g. the Nakumatt ground nuts and Nakumatt bakery) products caused commotion in Australia among other countries, as they were providing higher returns than established products (also available in your stores in Kenya) such as Nestle, Heinz and Uniliver, and unfairly getting more shelf space (Burch.2007).
In Kenya the supermarket decides who gets shelf space, which in turn leads brands to pay higher costs for shelf space. This system is considered illegal in Australia and such policies and regulations have ensured fair trading practices. However, this makes the other brands competition of your brand and they retaliate through marketing campaigns and developing niche market products for health and wellness. The regulations and standards in supply chains of perishable goods use a ‘technologies of audit’ system, which defines the regulatory mode of governance for all retailers of any perishable in Australia (Burch 2007). This may affect how you package your ‘own brand’ products in Australia. The system is such that all products will have to have a detailed list of ingredients as well as a short description for some e.g. Goods containing any form of dairy or nuts will have to be clearly labelled ‘contains nuts’ or ‘contains dairy’. This is to ensure that consumers with health complications or allergies to those products are well aware of the dangers and cannot implicate you in the court of law as having been negligent.
Key aspects of the retail industry
Food production in Australia is characterized by a large number of relatively small firms. It is estimated that in 2001-02 there were approximately 120 000 commercial (predominantly family based) livestock, cropping and horticultural farms, and about 5000 commercial fishing firms in the food production industry
(DAFF 2005b). The food processing sector is made up of 3400 various sized firms (DAFF 2005b) or 7774
For example, in the poultry-meat processing sector there are three large processors accounting for most of the industry’s output, while in the red meat sector there are in excess of thirty processors. The Major supermarket chains dominate the grocery channel. AC Nielsen estimate in their 2006 Grocery Report (Food week 2006) that the major retail chains hold about 78 per cent of the market share of the grocery channel, excluding liquor sales. As food retail foreign retain chair we would have to consider adjust our business model and structures to take advantage of the growth opportunities in Australia. For each of the major chains in the Australian retain market represent different financial results in different ways, this makes comparisons of food and beverage sales very different. Food and liquor sales of the major chain retailer’s totaled $45 billion in 2005– 06, which amounts to 74.5 percent of the reported ABS total sales through the supermarket channel.
Coles and Woolworths Supermarkets
The food-retailing sector in Australia is dominated by two major supermarkets, which are estimated to have 62 per cent of total Australian food and liquor sales in 2003-04 (table 2; ABS 2004). Currently the Australian food retail market comprises five major supermarket chains, which are Coles, Woolworths, Foodland, IGA and ALDI. According to ACNielsen (2004) the largest two firms Coles and Woolworths had a market share of 62per cent of the total grocery sales in Australia. Coles and Woolworths push towards private label, or home-brand products, a trend, which industry experts say could spell trouble for the food manufacturing industry. They’re worried consumers will be left with less choice on the shelves, while an ever-increasing amount of suppliers being forced out of business will jack up prices. Being a new player in the Australia market we would have to consider Coles and Woolworths as our biggest competitors.
In other OECD countries, comparable market shares of 50–70 per cent are typically only reached when the sales of the five largest food retailers are aggregated. For example, the five largest food retailers account for 80 per cent of total retail food sales in France, 64 per cent in the United Kingdom, 62 per cent in Germany, 58 per cent in Spain and only 32 per cent in the United States (Soler 2005). Even though Coles and Woolworths have such a large market share, our company can still make a profitable impact due to the fact that there are no barriers to entry to the Australian food retail sector. New entrants like us can provide effective competition to the big supermarket chains, German based global food retail chain (ALDI ) is a good example of foreign supermarkets can survive and prosper in the Australian market. ALDI has been able to add competitive pressure on other Australian supermarket chains through a low cost, no frills business model, based around a limited range of basic food items. Costs of in-store staff, product storage, handling and presentation are minimized and the products, while not traditional household brand names, are generally of a high quality.
Key issues and challenges
Be an foreign Company we have to take an in-depth look into the key issues that affect supermarket, and the food processing and retail sectors in particular, we broke it down into well defined set emerges (AEGIS 2001; Allen Consulting Group 2004; DAFF 2002, 2005b; David Milstein and Associates 2004; Mellentin 2005; Sleep 2005). These include:
* The adequacy of investment in innovation and research and development (R&D); * The extent of competition within the food industry, and particularly in the provision of retail and wholesale services; * Concerns about rapid industry rationalization and integration across the supply chain and the impact that these developments might have on small producers and processors; * Concerns about the impact that ‘private labels’ may have on brand competition and the allocation of shelf space;
Challenges and Strategies
As an international retail firm entering into the Australian food industry, we have to evaluate the compaction form other emerging companies and local producers, processors and retailers, all these players exists within the global economic food market. The emergence of China over the past few years as a global competitor in the processed food markets, in Australia and elsewhere, has not changed the nature of the retail market; producers and processors still ultimately compete on delivered costs and quality. However, the emergence of China and other exporting countries like China has increased the intensity of competition. As an international retail firm we would have to achieve further improvements productivity and find a way to reduce cost to stay completive.
As an international retailer we will try and compete on many different planes, for consumer loyalty. Whilst ‘sales’, ‘specials’ and ‘lowest prices across the store’ are the usual marketing tools used, we will try and implement a non-price strategy based on a combination of service, quality goods and convenience. As a international retail chains we will offer the convenience of a one-stop shop for all our food and grocery lines, this will make us as Nakumatt to be more competitive as a retail chain.
Trade policy developments in Australia are a big factor to consider when investing in the retail market. In addition to pursuing multilateral trade reform through the auspices of the World Trade Organization, Australia is pursuing bilateral trade reform agendas with a number of key trading partners (McDonald, Nair, Rodriguez and Buetre 2005). Free trade arrangements have already been signed with Australian, Thailand and the United States, Malaysia and the ASEAN group as a whole. These agreements have the potential to deliver benefits to the Kenyan food exporters through preferential or expeditious trade arrangements. However, being a Kenyan company we can take advantage of these agreements and provide competition to domestic products in Australia.
Generic house branded
In Australia, the major supermarket chains tend to promote more home brand, which causes changes to the availability of shelf space for foreign brands. Shoebridge and Whyte (2005) reported that the supermarket chains are pushing to significantly increase the number of local branded products in their stores. Coles has plans to lift the proportion of house branded products from 13 per cent to 30 per cent by late 2007. Being an international retail we would greatly benefit for selling more of our local Kenyan products at a cheaper price. While generic brand products sell for 5–20 per cent less than foreign brands, the margin that a retailer makes on a local brand is estimated to be about 2 percent higher than what they earn on foreign brands (Shoebridge and Whyte 2005).
One key issue for us is if some of our local products will be may be the lack acceptance in the Australian market. From the information we have gathered Australian branded products have been successful when it comes to products limited to product differentiation, like sugar and flour.
Analysis of the Australian Market
To better understand If Nakumatt would be a successful business in Australia we obtained some fanatical information on how international retail chains are performing against the local retail chains.
Figure 1. Costs of doing business and gross profit, three years, % of sales
Our chains operate with higher costs and target margins than other majors due to the nature of this retail market.
Wmart Wal-Mart – a United States supermarket chain Wmart Int. Wal-Mart operations outside the United States
Kr Kroger – a United States supermarket chain Alb Albertsons – a United States supermarket chain Car Carrefour – a French hypermarket and supermarket chain CML Coles Myer
Figure 2. Days in stock
Coles do not report their investment in stocks but Woolworths is performing better than other majors in this indicator.
Figure 3. Earnings before interest and tax, last three years, % of sales Australian retailers operate on lower overall margins than most major European Union and United States retailers.
Australian retailers are operating competitively in terms of the productivity of floor space despite the lower population concentration. These numbers vary however due to relative currency values.
Figure 3. Sales per annum per square foot, US$’000
Sources: Whitehall Associates’ analysis of financial statements (Price Determination in the Australian Food Industry A Report)
From the above information we can see that the local retail chains perform much better than the international retail brand, but the international retail chains also make a very big profit. As an international retail this information shows that with the right marketing strategy and market position, us a Nakumatt can enter into the Australian retail market, however the amount of capital to invest in such a project would be too much.
DAFF (Department of Agriculture, Fisheries and Forestry) 2002, National Food Industry Strategy: An Action Agenda for the Australian Food Industry, Commonwealth of Australia, Canberra.
White, L. 2005, ‘Savagery on the shelves’, Food Week, no. 1775, 18 March, p. 1
ABS (Australian Bureau of Statistics) 2004, Retail Trade, cat no. 8501.0, Canberra
ACNielsen 2004, ACNielsen Grocery Report 2004, ACNielsen Australia, Macquarie Park, Sydney (www.acnielsen.com.au)
Bazoche, P., Giraud-Heraud, E. and Soler, L. G. 2005, ‘Premium private labels, supply contracts, market segregation, and spot prices’, Journal of Agricultural and Food Industrial Organisation, vol. 3, no. 2, article 7 (www.bpress.com/jafi o/vol3/iss2/art7)
AEGIS (Australian Expert Group in Industry Studies) 2001, The Processed Food Product System in Australia, University of Western Sydney.
Allen Consulting Group 2004, Environmental Sustainability in the Australian Food Industry: The Commercial Opportunities, Report to the National Food Industry Strategy Limited, Canberra.
David Milstein and Associates 2004, What’s Hot in Food? A Review of Trends
and Issues Affecting Food Consumption in Australia and Globally, Melbourne
Mellentin, J. 2005, A Tipping Point for Health and a Turning Point for Functional Foods: Ten Key Trends for 2005, New Nutrition Business, London.
Sleep, C. 2005, Key Food and Health Trends for 2005, Aroc Limited, Worcestershire, England.
McDonald, D., Nair, R., Rodriguez, G. and Buetre, B. 2005, Trade fl ows between Australian and China, ABARE paper presented at the 49th Conference of the Australian Agricultural and Resource Economics Society, Coffs Harbour, New South Wales, 9–11 February.
Shoebridge, N. and Whyte, J. 2005, ‘‘No names’ winning battle of the brands’, Australian Financial Review, 7 April, pp. 1, 60. Sleep, C. 2005, Key Food and Health Trends for 2005, Aroc Limited, Worcestershire, England.
Bourlakis, C. and M. Bourlakis(2004) the future of food supply chain management in M. Bourakis and P. Weightman (eds.) food supply chain management Oxford Blackwell: p 221-230
Miller, W.P. & Neo, M.L. (2003). Econimic Record: Vol.4 Issue 246, Labour Market Flexibility and Immigrant Adjustment p.336-358 Burch, D & Lawrence, G. (2007) Supermarkets and Agri-food Supply Chains: Tranformations in the production and consumption of foods Official site of Australian Securities & Investments Commission (ASIC)-Author unknown