Coles Myer, the largest retailer in Australia and New Zealand with over 1,800 stores, aims to be the leading retailer in all its markets and offer advantages to all stakeholders. As the biggest non-government employer in Australia, Coles Myer has a workforce of over 160,000 individuals. Annually, the company invests approximately $19 billion on procuring goods and services from more than 61,000 suppliers. Various internal and external factors are causing Coles Myer’s performance and shareholder value to decline.
This report will examine Coles Myer and the key factors affecting the company’s shareholder value, specifically in terms of finance, marketing, and organization. We will use the value driver framework to analyze these factors. As Coles Myer is a large organization, we will focus only on the most significant aspects that we have determined. The final section of the report will discuss the main challenges of modifying these drivers to enhance Coles Myer’s shareholder value in the future. 2. Financial Value Drivers
According to Doyle (2000), a marketing strategy should focus on increasing the value of a business. Instead of sacrificing long-term goals for short-term gains, it is important to estimate and consider long-term cash flow in overall valuation to determine the effectiveness of a strategy. The objectives of a business include shareholder values and financial value drivers, with marketing strategy playing a crucial role in creating value. Marketing value drivers shape the process and strategy used to achieve and maximize shareholder and financial values. J. Fletcher set a goal in 2001 to achieve $800 million in annual net profit by July 2006, with sales growth being one of the key factors.
Coles Myer has faced difficulties in meeting analysts’ expectations for profit and sales growth. According to Solomon Lew, the food business, which is the star business, struggled to grow more than 2-3% by 2005. To achieve its growth target, Coles Myer will heavily rely on cost cutting measures known as Operation Right Now. 1. 2 Operating Margins (Higher Prices and Decreases in Cost) To establish a sustainable competitive advantage, a company must either charge higher prices or reduce costs, or ideally, both. As stated by Porter (2001), cost and price advantages can be attained through operational effectiveness or strategic positioning. In the retail industry, consumers are highly price-sensitive, making it difficult to charge premium prices unless there is added value provided.
The retail branches, Myers-Grace Bros and Target, have heavily relied on discounting their inventory after Christmas in order to sell their products. This has resulted in a price war between retailers in the industry, leading to a shift in bargaining power to the buyers. According to Porter (2001), when there are many competitors selling similar products, competition becomes primarily based on price. Overall, this has had a negative impact on the structure of the industry.
Coles Myers focused on “Operation Right Now” to cut costs and boost their operating margin, possibly due to the realization of the mentioned possibilities. One of the investments they made was a fully integrated supply chain system to improve asset turn. It was estimated that a one-third increase in asset turn could improve net profit by 265 to 38%. However, the investment community believes that this larger than expected investment will take a while to see a return. The business aims to target the “right” customers who generate value for shareholders.
Clear market positioning is crucial for the retail industry. However, Coles Myer faces challenges due to its size, which makes it difficult to efficiently manage its divisions. Additionally, Coles Myer employs a combined strategy, operating both high-volume, low-margin retailers (such as Kmart and Target) and retail specialists focusing on specific categories (such as Officeworks, Megamart, and Myer-Grace Bros). Mead (2003, as cited in the Reading Pack) stated that these two types of retailing require different skills, corporate and marketing strategies, and separate organizational structures. Moreover, the diverse interests in Coles-Grace Bros, Target, and Kmart can lead to cannibalistic effects. Offering product discounts without aligning with the business strategies of the other two brands can negatively impact sales across all three brands.
According to Hannen (2001: cited in Reading Pack), it is more cost-effective to keep existing customers rather than acquire new ones. However, in the retailing industry, which is a competitive market, it requires a lot of effort to develop meaningful relationships with consumers. Coles Myer has performed poorly in retaining its existing customers in two ways. Firstly, the loyalty program known as “Fly Buys” fails to attract consumers as it necessitates a significant amount of spending to receive rewards. The saturation of membership numbers highlights this issue in the loyalty program. Additionally, there are no plans to incorporate “Fly Buys” into the Coles Myer credit card.
Secondly, Coles Myer is losing customers to Woolworth due to the lack of a petrol discount scheme. Woolworth utilizes this scheme to gain a larger market share in the food industry. In an effort to compete with Woolworth, Coles Myer is attempting to introduce its own petrol discount program. However, for this competitive tool to be successful, Coles Myer needs to establish and maintain strategic relationships with Shell and MasterCard. The offering must provide value to these partners, or else it will fall short. Additionally, Coles Myer is currently rebranding its retail businesses. Myer-Grace Bros is being moved more upmarket, while Target focuses on offering affordable, trendy, and high-quality merchandise. K-Mart, on the other hand, positions itself as a low-cost discount department store for the entire household. In an attempt to target the top 40% of households by income, particularly women aged between 25 and 49, Myer-Grace Bros has launched a new advertising campaign under the “My Store” banner.
The closure of two Grace Bros stores and the expected closure or conversion of ten more stores into Target or K-Mart stores is in line with Coles Myer’s refocused branding strategy. Coles Myer is facing challenges due to its large size, as they have tried to combine two strategies – ‘low cost, high volume basic need’ and ‘speciality retailing’. This lack of focus has led to overlaps in market positions. The board lacks retailing experience, with Patty Akopiantz being the only director with such experience. Constant bickering and politicking among board members have caused instability among investors. It is important for Coles Myer to lift staff morale and dismantle the culture of competition between its businesses. Each Coles Myer store operates independently and often competes for the same market share.
This resulted in an internal rivalry culture that significantly demoralized the staff. Meanwhile, altering the drivers for shareholder value poses major challenges for organizations. Doyle (2000) argued that the ability to implement a strategy depends more on the resources, capabilities, and culture of the organization than the strategy itself. Additionally, the culture and attitude of individuals within the organization play a crucial role in effectively utilizing these competencies.
Continuing from the previous section, we will now address staff and leadership concerns and explore additional viewpoints on the challenges that greatly affect Coles Myer shareholder value. One notable matter is the question of whether Coles Myer should persist in pursuing a ‘growth strategy’ in order to reach the ambitious objective of $800 million net profit by 2006. Nonetheless, attaining this goal is highly improbable due to restricted growth possibilities within an intensely competitive retail sector.
Despite the decline in non-food businesses, it seems that the food business is doing well. Myer Grace Bros is considered a profitable enterprise with no room for growth. Due to the Gulf War’s impact, shoppers may find it difficult to find affordable items while shopping. This could lead to sales growth for Target and K-mart. If all other factors remain constant, we expect both brands to experience positive sales growth. However, it is unclear how much cannibalization will occur.
Currently, there is no clear distinction between Target, K-mart, and Myer-Grace Bros. The lack of any additional value means that Coles-Myer’s non-food business will not experience an overall sales growth. This commitment to the non-food business raises concerns for their food and liquor businesses. It is important to address how much attention Coles Myer will divert from their food business competitors while attempting to revitalize their struggling enterprises. The implementation of a fully integrated supply chain system should align with their current competitive strategy.
Despite the lack of understanding by investors and shareholders, implementing new technology necessitates a restructuring of business strategies. The significant hurdle we identify is the large and diverse nature of the organization. Attaining complete integration throughout the company entails risks. However, having unrestricted flow of information offers a competitive edge in supply-chain management. Therefore, we recommend that Coles Myer contemplate using separate systems for each of the three brands. This approach would provide Coles Myer with greater flexibility in the event they choose to divest any of the brands.
Furthermore, Coles Myer will benefit from using different systems or vendors as it allows them to assess, compare, and contrast what works best for them in the future. Additionally, one of the challenges that Coles Myer faces is catching up to Woolworth in the petrol discount competition. Woolworth’s petrol discount scheme has been established for a long time, so Coles Myer will need to offer a compelling package to regain lost market share. However, this task won’t be easy since customers may be hesitant to switch if Woolworth’s service, location, value, and customer loyalty are superior.
