Impacts of Macro Environmental Factors on Business Performance of Woolworths
BIZ202 The Business Environment
Environmental Scan Report – Part B
The purpose of this assessment is to develop an analysis of how macro environmental factors create adverse impacts on business performance in the competitive market environment. The researcher has selected an Australian supermarket, Woolworths, to discuss the significant impacts of macro environmental factors, including political, unemployment, income levels, economic growth and international trade policies, on the performance of the business. Some of the possible impacts made by the macro environmental factors on the business include changes in the business structure, performance, growth and profitability. Besides discussing the impact of macro environmental factors on the business performance, the researcher has also analyzed the frameworks that can be applied to overcome challenges faced by Woolworths in recent time due to the external business environmental factors.
(Source: Woolworths.com.au. 2018)
Macro-environmental factors and their impacts on the business:
Diverse political factors certainly influence the performance of Woolworths supermarket in the domestic and international market. Despite conducting business in a stable political situation, Woolworths encounters challenges related to the political situation of the country. The Australian government has developed some legal frameworks related to tax, tariffs, equality at the workplace, fair benefits for employees, consumer protection, and food quality (Bailey et al., 2015). These regulations have created difficulties for Woolworths to conduct business effortlessly and achieve organizational objectives. The organization also requires to focus on environmental issues concerning waste reduction, carbon emission, store development, water usage etc. Woolworths requires spending a huge amount of financial resources in order to carry out the business operations within the regulations. Consequently, it creates an adverse impact on the profitability of the business. The low profitable outcome in the business can lead the business towards the decreased market shares.
Some of the economic factors that largely influence the business performance of Woolworths include interest rate, savings rate, inflation rate, GDP growth rate, foreign exchange rate and unemployment rate. Australia’s GDP growth rate has declined from 1.1% in January 2018 to 0.9% in July 2018 (Tradingeconomics.com, 2018).
Figure: Australia GDP growth rate
(Source: Tradingeconomics.com, 2018)
In the domestic market environment, Woolworths encounters challenges to retain a high level of business performance due to the declining GDP growth rate. Woolworths had to close its business operations in the UK during the major financial crisis. The inflation rate in Australia has also increased from 1.9% in July 2017 to 2.1% in July 2018 (Tradingeconomics.com, 2018). Due to the inclining inflation rate, the prices of food and non-alcoholic beverages have increased 1.6%. Consequently, it largely affects the profitability of the business in the domestic market. The unemployment rate in Australia has suddenly decreased from 5.3% in July 2018 to 5% in September 2018.
Figure: Unemployment rate in Australia
(Source: Tradingeconomics.com, 2018)
Due to the improvement in the unemployment rate, the large-scale businesses like Woolworths has been able to maintain a huge workforce that certainly plays an imperative role to achieve targeted growth in the business. With the strong and effective workforce, Woolworths also maintains the high level of performance in the business.
The constantly changing social demand creates huge barriers for the company to attain its business objectives (Kennedy, 2016). Even though a large section of the people in society prefers staple food, the demand of the staple food is decreasing due to the fact that people are becoming health conscious. Woolworths encounters challenges to engage those people who are health conscious and like to avoid staple food. Another significant factor that affects the business performance of Woolworths is that the changing needs and demands of the customers (Grougiou, Moschis & Kapoutsis, 2015). It has been seen that people often change their food habit, which increases the challenges for food retailers, including Woolworths to uphold an unwavering sales performance. Recently, Woolworths faces barriers to maintaining a stable economic performance because of poor relationships with a number of suppliers. Consequently, it changes the culture of the business to a large extent.
With the implementation of advanced technology, Woolworths increases its business opportunities in the competitive market environment. Large-scale retailers use advanced and emerging technologies to execute their major functions, such as promotion, performance management, feedback collection, and customer relationship management (Narayan & Chandra, 2015). The cost of technology has been mounting over the years, which appears to be a major concern for Woolworths since it largely affects the profitability of the business. Recently, Woolworths has increased its investment into technology to manage business functions effortlessly. Although the company has implemented advanced technology in the business, it still faces difficulties in improving customer engagement since a large section of the consumers does not have the knowledge or information about the usage of the advanced technology (Pantano, 2015). For instance, a huge number of people do not possess knowledge of how to use the self-service checkout facility, which was introduced in the business a few years back.
Carrying out all operations of the business within the legal frameworks developed by the government becomes difficult for Woolworths. The company needs to abide by the wage regulation that says employees must be given a certain amount of wage. Another legal framework that Woolworths need to consider is that the food quality related regulation. Food retailers in Australia have to maintain the quality of the food items as per food safety regulation (Balaji & Roy, 2017). The food licensing, which is a major step involved in the food items development process, is often becoming time-consuming. The Australian government has developed a fair trade policy in order to break the monopoly market created by mostly large-scale organizations, such as Woolworths. It can be identified that the regulations developed by the government play an imperative role in influencing the business performance of Woolworths largely.
In recent time, the Australian government has started promoting the environment-friendly business practice. One of the major corporate objectives of Woolworths is to reduce the carbon footprint and depletion of natural resources, such as water (Woolworths Group, 2018). It has been seen that suppliers of the organizations are not committed towards the business guideline. For example, some suppliers of Woolworths do not play their role effectively towards reducing carbon footprint. During the transit of the raw materials, a huge amount of carbon is emitted. For maintaining a good image in the market, Woolworths needs to follow regulations developed by the government.
Strategies to overcome challenges:
Restructure of the organization and cost-cutting: It is important for the organization to restructure its business during the financial crisis to overcome such critical situation effectively. The organization must restructure its business in line with the business strategies and objectives. Another significant strategy that Woolworths can use to overcome financial barriers is to focus on cutting down the cost of production (Laudon & Laudon, 2015). With the implementation of the lean manufacturing process, Woolworths would be able to cut down the costs of the product largely.
Alteration of the Business strategy: In order to conquer the challenges related to the legal frameworks developed and implemented by the Australian government, Woolworths need to shape its business environment in accordance with the regulations. When developing business strategies for the purpose of growth in the competitive market, the strategy development team of the organization should take into account the political situation of the country (Pearlson, Saunders & Galletta, 2016). Maintaining food quality as per food safety regulation is important for Woolworths to increase customer engagement in the business.
Development of healthy food items: As discussed in the macro environment analysis, the popularity of healthy food items has been increasing over the past few years, as the large section of people in the society has become health conscious. For engaging a large number of customers in the business, Woolworths needs to develop healthy food categories. They can work in partnership with the suppliers to maintain a wide range of healthy food items in the business. By including organic food items in the product categories, Woolworths would be able to engage health-conscious customers.
Market research and customer feedback analysis: The needs and demands of the customers are changing in a frequent manner, which creates challenges for the supermarket retailers, such as Woolworths, to maintain and develop product categories. It is significant for the sales and marketing team to focus on conducting market analysis to identify the changing demands of customers (Mortimer & Ingersoll, 2015). Without analyzing customer feedback, it would not be possible for Woolworths to evaluate the changing needs and preferences of the customers. Woolworths needs to communicate with customers on social media platforms so that the product updates can be sent to the customers in real time regardless of any geographical barrier.
From the analysis conducted throughout this assessment, it can be assessed that the macro environmental factors largely influence the performance of Woolworths in the domestic and international market. Some of the economic factors, including interest rate, savings rate, inflation rate, and GDP growth rate, create huge impacts on the business performance of Woolworths. In order to overcome challenges caused by macro-environmental factors, Woolworths needs to develop effective business strategies in accordance with the regulatory frameworks developed by the Australian government.