Market Auditing Wesfarmers Limited

Question: Discuss about the Market Auditing for Wesfarmers Limited. Answer Introduction: In the year 1914 a group of farmers started functioning as a group. The group was later named Wesfarmers. In its initial functioning years it mostly dealt with coal mining. The business grew over time rapidly. The companys early expansion strategies incorporated acquisition. The business now has expanded to sell hardware and home furnishing equipments. It started by operating in the retail industry, now it is a conglomerate. At present, Wesfarmers is the largest company of Australia by revenue. Last year the company earned revenue of AU$62.7 billion. Wesfarmers is also the largest private employer in the country. Approximately 205,000 workers are now currently employed in this organization. The organization has spread its branches in Bangladesh, Ireland, and the United Kingdom. The report briefly describes the industry market where the Wesfarmers operate and evaluates the current trends regarding the growth, profitability, and the macro environment of the market where the organization operates. It also looks into the nature of completion in the market and the market segments. The target markets and the decision making of the company are also included in this report. The report evaluates the macro environment as a whole where the organization operates with the help of a PESTLE analysis of the market. The strengths and weaknesses of Wesfarmers to its main competitor are also discussed here. The main purpose of this report is to provide a market audit for the Wesfarmers. Market description: The market in which Wesfarmers operates in is the retail market. It is a public company. Wesfarmers generates most of its income from the supermarkets and the grocery stores operating in the markets of Australia. The Wesfarmers Limited has a portfolio which is diverse in nature. The conglomerate is currently working in several industries like supermarket, departmental and hardware stores, distribution of energy, processing gas, coal mining, chemical industry, fertilizers industry, and other product industries. It also provided insurance broking and underwriting services for a brief period of time. Out of two thousand companies operating in Australia, Wesfarmers Limited stands at the top position. The competitors of Wesfarmers Limited are Woolworths Limited, Metcash Limited, Caltex Australia Limited, and others (Abdullah Khalidfvlehmood, 2013). Among these competitors, Woolworths Limited stands as the top competitor of Wesfarmers Limited. Growth: The industry where the Wesfarmers Limited is operating has shown rapid growth recently. The Global Financial Crisis of 2007 did not hit the Australian market immediately, although the after effects were felt by the businesses during the year 2009. Since then, the market grew heavily due to proper government interventions and policy measurements. The unemployment rate in the country has gone down in the recent years. It created increasing demand pattern which was backed by a reduction in the unemployment rate. Along with this increasing demand, there are several issues which are affecting the growth of the industry. The digital generation of the country has increased recently. According to Fleming and Measham (2015), consumer based forces like diversified customer segments along with the digital markets have put pressure in the industry where the Wesfarmers Limited operates. Despite the negative traits witnessed in the retail industry of the country, the industry grew rapidly for the last few years. The retail sector of the country has shown an increase in the turnover by 3.7 percent last year. The following figure shows the increase in turnover of the retail industry of Australia in different states. As the figure above shows, the country has witnessed an overall yearly growth in the retail sector market. Most of the states have shown a yearly growth rate above three percent (given in the colour grey). Some states like Queensland and Western Australia has shown a little rate of growth. The monthly growth rate is comparatively less for all the states (given in blue). Profitability: The increasing growth rate advocates increasing profitability through maximizing sales or capturing a better market share in the country. The competition in the industry has risen after the aftershocks of the Global Financial Crisis hit the Australian economy over time. The number of competitors increased marginally as the big stake holders of the market have acquired some of the medium and small sized companies and the new entrants in the market are still waiting to get recognition. A huge portion of the market is divided among the top large conglomerates. These organizations mainly decide the profitability in the market. The profitability of the industry depends on various attributes like cost base of speciality retailers, speciality retail rent, cost base of department stores, and others. The economy of the country is an example of a developed country with mixed economy. The retailers of Australia spend more on staffs and rents than most of the other developed countries. But this does not make the profitability of the countrys retail industry any less than the other developed countries like the United Kingdom and the United States of America. The speciality retailers profitability in Australia is 9.4 percent currently whereas the department stores have witnessed a profitability of 9.9 percent. The situation is shown in the figure below. As shown in the figure above, the value of the profitability for the department stores of Australia is higher than that of the United Kingdom and the United States of America. On the other hand, speciality retailers of Australia earn less profit percentage than the same of the United Kingdom and the United States of America. Macro environment: To understand the macro environment of Australian retail sector, a PESTEL analysis is done (appendix). It is clear from the analysis that the federal government of the country has the authority of improvising the rules and regulations in order to keep the market from exploitation free. This incorporates creating barriers for cartel forming tendency. There are also other political factors which are targeted towards the social welfare. The purpose of the government is to reduce the cost to the society. The carbon tax law is there for barring the organizations from producing waste and emission of green house gases beyond a certain manageable point. The energy division of the Wesfarmers Limited and its business resources are heavily affected by these regulations (Jones, Hillier, Comfort, 2014). Being a mining company as well, the organization concerns the government agreements regarding market failure, negative externalities, efficient production, and carbon tax. The economy has recovered after the aftershock of the Global Financial Crisis of 2007. The unemployment rate increased for a short period of time. The government initiatives have drove the rate down presently. The cost of supplies and insurance are still yet to come down. Being a mixed economy, the Australian retail industry offers the Wesfarmers Limited several opportunities to increase the profits. The culture of Australia is such that people are more likely to spend in supermarkets and departmental stores. This possesses the potential for the Wesfarmers Limited to increase their profit from operating in this industry. The common people of Australia like one-stop shopping, which will benefit the organization. Wesfarmers Limited provides that service. Being worlds one of the best mining nations, the industry is better in Australia than many other developed countries. The production technology incorporates advanced technology and equipments. This is supported by various research and development facilities situated all over the country. The technological improvement of the country also made the economic processes of the country efficient. Australias sound legal system protects the consumers and employees rights. The environmental and business laws work as the strategic guidelines for the Wesfarmers Limited (Taylor Hoyle, 2014). The management of the company functions depending on these laws and regulations. The laws of the country always protect the environmental traits of the country. The pollution control department can help the Wesfarmers Limited to be a sustaining organization. Industry competition: According to Akbar and Ahsan (2014), the completion in the industry is unbiased but is affected by the decisions made some of the top operating companies like Wesfarmers Limited, Woolworths Limited, Metcash Limited, Caltex Australia Limited, and others. These companies own most of the shares of the market, making it easier for these companies to affect the market. The government laws help the companies in staying competitive and works as barrier from creating a cartel. It increases the overall efficiency in the industry. Hence, it can be said that the organizations have somewhat control over the prices of the commodities they are selling. The economy presents a monopolistically competitive market for this sector. The main competitor of the organization is Woolworths Limited. These two companies together hold total seventy percent of the total market share (Biddle, 2016). The Woolworths get 28.4 million customers per week while the Wesfarmers get 20 million customers. The Wesfarmers have near about three thousand shop-fronts over the country, whereas, Woolworths has 961 operational shop-fronts. In the terms of employees Wesfarmers employ workers more than any other companies in Australia. Wesfarmers have total 210,000 employees in Australia and 225,000 employees over the whole world. On the other hand, the Woolworths has the second highest number of employees with 190,000 workers operating in Australia. The strengths of Wesfarmers are reduced labour costs, assistance, barriers of market entry, global experience, and global resources. The threats that are faced by the Wesfarmers Limited are government regulations, change in prices, increasing cost of production, tax rate instability, technological issues, increasing rate of interest. On the other hand, Woolworths has the strength of being one of the oldest and pioneer organizations of introducing the retail trade model of the modern era. It has many subsidiaries and more number of customers visiting the companys outlets than Wesfarmers. The own store brands of Woolworths are also numerous. Woolworths posses a strong brand name. The upper hand the Wesfarmers has over Woolworths is high global presence. The Woolworths also failed to create a sustaining strategy for the company. The company entered the online market later which increased the organizations price and reduced its profitability. With more number of employees the Wesfarmers Limited has the opportunity of adding more values to the products. Both the companies operate at the same sector of the country. This ensures that most of the strengths and weaknesses of the two companies are more or less the same. The differences between the companies lie in the organizational goals, strategies, and other factors. Market segments and target markets: The market segments faced by the Wesfarmers Limited can be categorized into four major parts namely geographic, demographic, behavioural, and psychographic. Wesfarmers market segmentation can be presented in the following manner: Geographic Location Region Urban Rural Classification Demographic Age Gender Occupation Socio-economic Behavioural Readiness to purchase Loyalty status Usage rate Benefits sought Psychographic Lifestyle Personality Attitudes Class Table 1: Market segments of Wesfarmers Limited. Source: As created by the author. As the table above shows, the geographic market segment shows the location wise market behaviour for the Wesfarmers. The markets in the rural areas show less demand than those in the urban areas. The hilly areas show demand for wooden products while the market in the plain lands show demand for products made by metal objects. As the location changes, the demand pattern also changes. The demographic segment incorporates age, gender, occupation, and socio-economic structures. The main customer group of Wesfarmers belong to the age group of twenty to fifty-five. According to Kenny (2013), people with higher income are used to buying goods more from the supermarkets. These traits depend a lot on the taste and preferences of the consumers. The socio-economic structures play a huge role in demand determination (Church, 2014). People who are engaged in jobs which are more time taking usually buys stuffs from a place where most of the needful are present. Judging by the behavioural traits, i t gets easier to predict demand from a market. During winter people tend to buy more products at one go. On the other hand, the opposite happens in the summer. Demand for the goods sold by Wesfarmers also depends like psychographic traits like lifestyle and personality. High end goods are demanded more by the people from higher classes. Identification of the primary and secondary target markets: According to Lee (2014), the primary target market is that part of the market from where the majority of the revenue comes from. The secondary target market incorporates those who will move to the future primary target. Wesfarmers primary target market incorporates people from the age group of eighteen to forty-five who buy several household products. The secondary target market is the buyers of the home improvement tools. Both these groups incorporate both male and female buyers from all the locations where the organization has shop-fronts. Decision making process: The decision making process about the goods sold by Wesfarmers largely depend on the target markets of the organization. The primary target market decides what will be on display in most of the outlets of Wesfarmers. The demand pattern of the primary group is followed by the organization for all the outlets all over the country. The organization commits surveys all round the year. The data shows what the primary target group demands. The supply will follow that demand pattern from the forecasts of the surveyors. The primary target group can change with time, which will affect the organizations decision making process significantly. Positioning map for the marketplace: As the figure above shows, the Wesfarmers Limited lies in the bottom right corner of the positioning map, closely followed by the Woolworths Limited, lying in the same segment of low price and high quality. Conclusion: Wesfarmers Limited operating as a conglomerate in the retail sector has earned its position at top of the list. The organization has powered through the hostile economy after the Global Financial Crisis of 2007 and became the rank one. The main competitor of the organization is the Woolworths Limited who belongs to the same market segment in the positioning map. The companys primary target market consists of both men and women from the age group of eighteen to forty-five who buy household products from Wesfarmers. Their demand pattern helps the company in the decision making process. The growth rate of the industry and the profitability shows promise for the present and future as well. The mining boom of Australia is the reason of this sustaining growth. The macroeconomic environment of the country is hospitable for the organization. It has also helped the company in increasing is supply for the last few years. The experience the organization gains from the international market helps it to operate alongside the domestic rules and regulations. References Abdullah, H. H., Khalidfvlehmood, K. (2013). Corporate Parent Value Addition and Challenges. Middle-East Journal of Scientific Research, 15(11), 1606-1617. Akbar, S., Ahsan, K. (2014). Analysis of corporate social disclosure practices of Australian retail firms. 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Retail sales growth is trending down in Australia -- and there's a sign the housing boom has peaked. . . Retrieved from Business Insider Australia: https://www.businessinsider.com.au/australian-retail-sales-may-2016-7 Taylor, R., Hoyle, R. (2014). Australia becomes first developed nation to repeal carbon tax. Retrieved from Wall Street Journal: https://online. wsj. com/articles/australia-repeals-carbon-tax-1405560964.