Woolworth vs. Wal-Mart Woolworth's Has a Long

Woolworth vs. Wal-Mart Woolworth's has a long relationship with Wal-Mart, and in recent years has attempted to compete with Wal-Mart as a low-cost provider by adopting of some Wal-Mart's supply chain efficiencies and pricing practices. This paper will analyze strategic decision-making at Woolworth's and compare it to that at Wal-Mart in order to gain an understanding of how each of these companies is run. There will also be a section in this paper about the nature of decision-making at each of these companies.

According to Michael Porter's typology, Wal-Mart is a cost leader and this drives virtually everything that the company does in terms of its operations (QuickMBA.com, 2010). The company supports its strategy by leveraging its buying power over suppliers and by using economies of scale to win efficiencies throughout its supply chain (Alagse, 2011). Woolworth's has in recent years begun to compete using that same strategy, after finding itself somewhere in the middle between being a differentiated provider and a cost leader.

Greenhalgh (2007, 1) notes that Woolworth's has adopted the supply chain efficiency and intense negotiations to reduce the gross margin, both hallmarks of Wal-Mart's strategy. While Wal-Mart has long been an innovator in the field of cost reduction retail, Woolworth's in a relatively newcomer, mirroring the development of the retail business in Australia as well (Ibid). Wal-Mart undertook its strategy as a means of growing its market. The BCG Matrix (NetMBA.com, 2010) allows for businesses to be compared in terms of their characteristics.

Wal-Mart has always viewed its business as a star, characterized by high growth and high relative market share. Once Wal-Mart became a dominant player, it began to expand outside of the U.S. market, an expansion that may bring it to Australia soon. This expansion has allowed Wal-Mart -- despite its status as one of the world's largest companies -- to continue to grow rapidly. In most of its markets, however, Wal-Mart is a cash cow. This is the position in which Woolworth's finds itself in the Australian market.

As a cash cow, Woolworths has continued to experience steady growth in the past five years, primarily based on growth in the Australian food and liquor market (Woolworths, 2011). Woolworth's move to a strategy that is similar to that of Wal-Mart is indicative of the firm's desire to maintain its competitive positioning. The company faced threat from one of Wal-Mart's American competitors Costco, and began to adopt Wal-Mart's strategy in order to fend off that threat (Bloomberg, 2009).

Using the BCG Matrix, the Australian market is not growing rapidly, but gradually, which implies that as long as Woolworth's has a high market share it will continue to be a cash cow. Should it lose that high market share, it would be a dog. The entry of Costco was especially serious considering that it focuses on groceries and that category is the bulk of Woolworth's business and almost all of its growth.

As a result, the Costco market entry necessitated a shift in strategy in order for Woolworth to maintain its market share. Costco competes as a cost leader, so that is the direction Woolworth took with respect to its strategy as well. A SWOT analysis supports this strategy from Woolworths Limited. The company is a market leader, with a well-established name in Australia and a network of over 800 stores nationwide (Bloomberg, 2009).

The main weaknesses that Woolworths has is that it has not been experienced at American-style supply chain efficiency, the concept being relatively new to Australia (Greenhalgh, 2007, 1). In this case, Woolworths strategy was not driven by opportunity but by threat. The company's main opportunity comes from potential new markets and from expanded superstores that provide a wider variety of merchandise, and using lower pricing to capture share from discount players in the market. There are other competitive threats besides Costco -- including that from Wal-Mart or other successful overseas discounters.

Decision-making at Woolworths remains largely top-down. The company is run by Michael Luscombe, who has been with the company since 1978, giving him experience not only with the Australian retail environment but the firm as well (Greenhalgh, 2007, 2). The company builds its management from within, ensuring that the corporate culture remains stable (Woolworth.com.au, 2011). The use of consultants with Wal-Mart pedigree was unusual for the company in that outsiders had significant influence in decision-making. For its part, Wal-Mart has a similar decision-making process.

Decision-making is centralized at the firm's Arkansas headquarters and its managers tend to be long-term Wal-Mart executives. As a result, there is a consistency in the management that enables decisions to fit easily with the internal culture and the nature of the industry. Arguably, however, Wal-Mart is most effective. While both companies have thrived, Wal-Mart has done so under two adverse conditions that Woolworths has yet to face. The first is the intensity of the domestic market.

Wal-Mart has always faced intense competition, and in its case it faces a strong and diverse set of competitors in discount retailing, from Family Dollar at the low end to Target at the high end, and with different concepts like warehouse stores and category killers. Woolworths has not had to deal with this level of competition.

It has only now begun to focus its decision-making around a clear, definable strategy ("The Fresh Food People" does not point to any clear strategy) and only now undertaken steps to bring about that strategy.