Australian Business Environment A Duopolistic Market Structure: Who Wins? For most of us its Just part of everyday life decisions. Where to shop for the week, Coles or Woolworths? Should I drink Pepsi or Coke today? Do I go to MYER or David Jones to buy new make up from? We take in consideration a few prices, how convenient it will be to get there, what would we rather do, and that’s it. But there’s something bigger behind this. What is the impact on such big rivals, for us and the economy? It’s not Just about personal choices.
Living and studying in Australia for the ast 11 months, going to do my grocery shopping at Coles or at Woolworths has become part of my routine. And because it is such an ordinary thing to do, we tend to forget that we make part of a much bigger picture, and are contributing to several factors regarding the Australian economy. However, this race for the best has its advantages and disadvantages, and of course, this is affecting us as well. The Price War One of the advantages of this never ending battle for us customers, are the low prices.
Because there is such a big competition for prices, each of the supermarket rands will try to make it as affordable as possible to the consumer, as a reaction to get competitive advantage. One big example of this war is the milk price. Both supermarkets can sell milk for $1 . It is very difficult to make any profit if you’re selling products at such a low price, as Rob Murray, the chiet executive tor the t beverage group Lion stated. However this issue does not affect us consumers on a day-to-day basis, and the low prices keep us happy and of course, keep us shopping at these big supermarkets.
Everyone wins with the Rewards Programs Another good thing for the shoppers at these two big chains is the rewards systems hey have. And we win again. Despite the cheaper price war having been leaded by Coles the majority of times, Woolworths seems to have another way of fghting. Their CEO Grant O’Brien came out with a new strategy: the Everyday Rewards. The more the customer shops, the more discount they get. Users of the cards get exclusive offers, discount on fuel and can even earn Qantas flyer points.
And not only in Woolworths, they have retail partners like Big W, Dick Smith and Cellarmasters that will also benefit the customer. Coles also has their rewards system, the Flybuys. With his card, apart from the exclusive offers on Coles and affiliated firms products, the customer collects points at every purchase, which can later be changed by different prizes. But this is not only good for the consumers. Its basically the company saying that they will give us prizes, in exchange for our information.
A Rewards system allows the firm to collect data about their customers, which they can use in their favour, to create loyalty and promote trust. With the Everyday Rewards, Woolworths has been able to collect a good amount of information, while Flybuys is still in the process of build its strength. Easy and Simple Another very good thing for the customer about these two big brands is the convenience. Everywhere we go, every big shopping center and busy area in a suburb will have at least one of the two, if not both.
Coles and Woolworths have very strong analysts that will know where to place their shops, and if there is an area lacking one, it’s probably not because they are still to build one, but because that are would not be so profitable yet. So for us, wherever we want to shop, we can always find one of these, and do not have to travel any long distance to get to one of these tores, as they are located almost everywhere too. Even for the most loyal customer from the small shops, sometimes it’s a lot more convenient to visit one of the big supermarkets, and they will end up buying something from there.
Someone might be losing Unfortunately it’s not all flowers. For us to be paying such low prices, someone is losing money somewhere, and it’s not the big supermarkets. Because they are such big brands, suppliers need to have their products in their shelf. Coles and Woolworths claim they have built very strong relationships with their suppliers, and it ight be true, but a lot of the smaller suppliers are getting ripped off. They “bully’ the suppliers to sell their products at really low prices, and they know they have this power, otherwise they won’t sell enough.
They will also charge more to have the products placed in good positions on their shelves. A lot of the times the prices suppliers are charging are so small, that they are struggling to survive with these sales, and it generates another whole big problem. Creating Enemies The ones losing with the big duopoly from Coles and Woolworths are the smaller suppliers, and the smaller shops too. But not every customer is Just happy in paying small prices, they want to make sure everyone involved is protected.
For this reason, there is a big pressure on ACCC from suppliers and the smaller businesses which don’t nave a chance to compete. There is a party called Australian Green, and they fght strong against the practices these two supermarkets have againg farmers and small suppliers. Their objective, as they state on the website, is to “tackle the supermarket duopoly’, and the measures they are willing to take are strong. For example, put a temporary ban on expansion from Coles and Woolworths, or stopping his duopoly to purchase agricultural land, so they can’t control the whole supply chain.
The ACCC is also holding an investigation about the bullying of suppliers. While most of us will not care that much about the situation these suppliers are in, or will not have option to shop somewhere else, there is a big group who does care. These are customers who are willing to pay more, but do their groceries in a small shop so they can help that business, and also do not buy the products from exploited suppliers. No more competition Unfortunately, the group of very unhappy customers mentioned before is not large nough to make sure the small businesses will survive.
With such low prices and big chains, the two major supermarkets will not give a chance for a smaller business to survive in the middle of this war. It is Just impossible to compete with the two major supermarkets prices and their powerful middlemen, and the small shops start disappearing. Without competition, a lot of the products that do not have space on Coles or Woolworths shelves may also disappear, and this will also have a big impact on the economy as there is unemployment rising. This process will damage Australia ood’s industry, and with the lack of new firms it might mean a lack of new products, and the whole market can go stale.
Tricking the customers To have products at such low prices, as it was mentioned before, the suppliers will end up losing. But the customers might also lose sometimes. For example, the free range eggs case. Both Coles and Woolworths claim that they want to help customers switch from industrialised to free range eggs, by cutting the prices on the second one. However, the suppliers pay for the price that we are not, as it is impossible to have a free range egg production at such low prices.
The customer will end up buying free range eggs thinking they are contributing to improve the animal welfare standards from the supermarkets, however, they do not know that they are still purchasing the “industrialised” free range eggs, the free range version of these two big supermarkets. Even though it seems there are more disadvantages to small businesses and suppliers than there are advantages for us customers, it is not the number, but the quality of these advantages that count. This battle is far from the end, because it is not likely that the masses will stop shopping at Coles or Woolworths anytime soon.
However, the ones that are more conscious about it can only expect that it will make a difference in the future, when the ACCC take strong measures or the political inaction ends, and someone who genuinely cares and is strong enough to change this is put in charge. In the meanwhile, we will keep enjoying the convenience to Just walk for 10 minutes and find a shop, or receive rewards and discount on products and even fuel, and keep ignoring all the ones losing from this. In the end, it is a battle and someone will lose. If not the big duopolistic market, a part of the population will pay.