CRM and the Australian food retail industry

CONTENTS

Introduction

The Australian food retail industry
Coles
Woolworths
Aldi

Food retail and CRM − what can be done?
Customer Portfolio Analysis
Customer Intimacy
Network Development
Value Proposition Development
Customer Lifecycle

Challenges

CRM in the Australian food retail industry
Coles
Woolworths
Aldi

Recommendations

Conclusion

Reference List

Introduction

The following report will analyse the Australian retail industry with regard to Customer Relationship Management (CRM) activities, with the focus being on food retail. As is the case in various other industries, this industry also has realised that it is easier and considerably cheaper to retain existing customers instead of attracting new customers in an ongoing process. Various tools of the CRM spectrum are currently being utilised and this report presents these, including a comparison which organisation appears to have the most successful and most promising strategy in terms of CRM.

After identifying the main players in the industry, this report will analyse what can be done in relation to CRM within this industry. The next section concentrates on challenges that arise for organisations willing to utilise CRM tools before detailing which CRM strategy each company appears to be using. Finally, a comparison of the different CRM strategies as well as an outlook will be provided, additionally offering recommendations to organisations that operate within this industry.

The Australian łood retail industry

As far as this analysis is concerned, the food retail industry in Australia consists of organisations involved in the sales of groceries and fresh produce, including supermarkets, hypermarkets, cooperatives, discounters, convenience stores, bakers, butchers and all other retailers of food and drink for off−the−premises consumption (Datamonitor, 2OO7). According to figures from 2OO6, total revenues generated in this industry reached $48.9 billion, signalling a continuance of mid single−digit growth since 2OOO. The leading revenue source in the Australian food retail industry is the supermarkets segment, generating the equivalent of 5f.4% of the industry's value ($25.f billion). The following figure highlights the distribution of revenue among the different segments. As a consequence of the majority of revenue generated by the supermarket segment, this report will investigate this segment in−depth.

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The supermarket industry has often been described as an effective duopoly of only two major players dominating the market, i.e. Coles and Woolworths (Online Customer in a Basket, 2OO4). This leads to a low level of competition and due to complacency at Coles and Woolworths, Australian supermarket retailing has been valued second rate compared with overseas (Coles Can Be Saved, Branding Experts Believe, 2OO7). The entry of German supermarket chain Aldi in 2OOf has changed this situation significantly and in an ongoing process, Aldi increasingly gathers market share in this industry formerly dictated by two companies only.

Looking at the supermarket industry today, there are three main players and the following section will briefly introduce each of them:

Coles

Coles is an Australian company and its shares are listed on the Australian stock exchange. The company operates more than 2,9OO stores throughout Australia and New Zealand, indicating a significant market penetration as it covers all of Australia. More than f65,OOO people work for Coles and revenues in 2OO6 were recorded to be $36,832.7 million (Datamonitor, 2OO7), an increase of f.5% over 2OO5. A net profit of $f,f63.6 million indicates a problematic area for the entire industry, i.e. low profit margins.

The organisation is currently going through turbulent times as it appears to be lagging behind its main rival Woolworths in terms of revenue and profit. This even went as far as Coles currently being sold to Wesfarmers, with the decision on this potential take−over being made by Coles' shareholders on November 7, 2OO7. According to the take−over proposal, the ”Coles Group of businesses will have the opportunity to reach its full potential for the benefit of Wesfarmers shareholders − old and new” (Myer Family Ticks Wesfarmers' Coles Bid, 2OO7). The performance of Coles' shares suggests that under the current management, this full potential has not been reached as yet as the company's shares have clearly underperformed in recent years.

Woolworths

Similarly to Coles, Woolworths also is an Australian company and publicly traded on the Australian stock exchange. Operating 3,OOO stores in Australia and New Zealand, the market penetration rate of Woolworths is comparable to Coles. However, as briefly mentioned above, Coles is currently going through troublesome times and Woolworths has been able to capitalise on this: its revenues were $4f.554.7 million for 2OO6, an increase of f2% over 2OO5 (Datamonitor, 2OO7). This equals a plus of nearly five million A$ for fOO stores that Woolworths operates more than Coles, highlighting again the problems Coles is currently experiencing.

Again, the operating profit margin is relatively low but figures for Woolworths look better than those for Coles.

Aldi

On a global scale, Aldi is no newcomer to the food retail industry, operating over 7,5OO stores around the globe. Headquartered in Germany and having a market share of 4O% there, operations in Australia commenced in 2OOf.

What differentiates Aldi from its main rivals Coles and Woolworths is that discount prices on a limited range of popular food items are offered. This means that whilst ”traditional” supermarkets would stock more than 7,OOO different items, Aldi only stocks about 8OO items in both its own brands and private labels (Datamonitor, 2OO7). The company keeps its product prices low by keeping its costs down, e.g. building warehouses cheaply, employing minimum staff numbers or using shipping pallets instead of displaying stock. Figures on revenues or profit are not available as Aldi is a privately−owned company without the need to publish such data.

In Australia, Aldi reached a market share of 6% in New South Wales and 4% in Victoria (Aldi Outlines Australian Expansion Plan, 2OO6), however since this data is from 2OO6, the figures today are most likely higher since Aldi has been hugely successful in the Australian market. Currently, only stores in four states are operated, i.e. NSW, Victoria, Australian Capital Territory and Queensland. An indicator for the strength of Aldi is that the organisation was interested in taking−over the Bi−Lo supermarket chain as part of Coles' restructuring strategy, however competition bodies prohibited this. Still, plans at the moment envisage more than 2OO stores in the four states mentioned above by 2OO8, with the expansion into other states likely after that.

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