Wesfarmers Business and Competitive Environment

Executive Summary

This report provides a deep analysis of Wesfarmers. It gives a general idea about the conglomerate and a brief history about the organisation and where it started then how the organisation has evolved over the years to become one of Australia’s giant company. The Company Involved in not only one industry but several industries mainly retail but also in chemicals, insurance, home products, mining and fertilisers. Being an organisation that operates in many industries Wesfarmers is growing and getting bigger day by day. The report has focused on three key areas of Wesfarmers which are its financial performance, its marketing strategy and its human resources management. It starts with a brief idea about the main competitors of Wesfarmers, then go more into depth by stating the financial strategies of Wesfarmers in order to expand into international markets. The report also has addressed the sources and the applications of funds of the major company revealing. What are the main sources of revenue of the organisation and how these sources rank. To have a better understanding of the financial situation of Wesfarmers the report offer a deep analysis of the financial performance of the company in the last three years and shows how the numbers are changing during the time with both ups and downs switching places. The report then moves into the other major area of the company’s operations which is its marketing activities. First starting with the market characteristics in which Wesfarmers operates and what are the primary objectives that the company wants to reach. In more details the report talk about the 5C’s of Wesfarmers which are the different areas in which the company operates and focuses on. Starting with the company itself and what is the strengths, primary objectives, and the current position of the company and also the weaknesses of Wesfarmers and the keys areas for improvement. The report then talks about the other C which is Wesfarmers Customers and its market segmentation and what the main behavioural aspects of the Australian customers are in general. Then discussed about the collaborators or in other words the suppliers and partners of Wesfarmers which supply and support Wesfarmers in its different operations in the different sectors. Second Last C is about the competitors, it shows the importance of knowing who the competitors are, not only the current competitors but also the new coming competitors into the market. Last C is about the context which are what are the weakness and threats that faces Wesfarmers in its daily operations such as natural disasters or economic changes and how the company should put more focus into its strategic decision policies. In regards to the Coles being Wesfarmers biggest revenue source the report has discussed some details about the Coles marketing Strategy and then moved into marketing recommendations for Wesfarmers as a whole specifically about its product, prices, places, promotions and people. At the end of the report in case of the human resources, which has explained about the fact that Wesfarmers is the largest employer in the private sector of Australia and how its 220,000 employees are very diverse and get the right training and skills and put hands on great opportunities by working for a big company like Wesfarmers.

Wesfarmers Ltd.

Wesfarmers group is operating some segments that are managed and organised separately based on the products and services nature. The board and executive management team is responsible for monitoring the operating results and making the decisions about the performance assessment and resources allocation. The management team is evaluating the segments performance based on their operating profit or loss. When the company’s finance costs are incurred, they are recognised as expenses. At the time that the effect of the time value of money is significant, the provisions and some other payables are deducted to their present value. This deductions are known as the discount rate adjustment in finance costs (Omics International 2014).

Wesfarmers employees in Australia and New Zealand receive fixed benefits from the company and they are part of a defined contribution scheme. The employees emoluments are recognised as expenses when they become payable and the prepaid emoluments are recognised as assets to the level that a cash refund in the future payment is available. Wesfarmers also operates the superannuation benefits for the employees. The group’s international operations are according to the agreement with the host countries regulations. In terms of international financial instruments, Wesfarmers presents its derived assets and liabilities on the gross basis. The derived financial instruments are matter to applicable master netting arrangements such as (ISDA) the International Swaps and Derivatives Association (Wesfarmers 2018).

In regard to the Company’s international operations, its primary currency exposure is to US dollar and Euro. It is generated from sales and purchases by a division in currencies instead of the division’s functional currency. In case of the company’s operation with New Zealand, it uses the exchange rate between Australia and NZ. It means the company mitigates the effect of its conversion currency exposure by borrowing in New Zealand dollars (Hill et Al. 2017). In some cases the Wesfarmers decided to disposal some of its resources such as disposal of Curragh Pty Ltd on December 2017 that the company entered into an agreement to sell it. The Curragh coal mine business has presented as the discontinued operation on March 2018 for FY2018. Wesfarmers entered to another agreement contract to dispose the Bunnings Warehouse in United Kingdom and Ireland on 25 May 2018. Wesfarmers has divested the assets of the BUKI operation to a company that is attached with Hilco Capital for a nominal amount. This agreement contract included a value share system that Wesfarmers can participate in any of profitable divestment of the business in the long-term (Wesfarmers 2018).

Type of Industry and Business Environment

Western Australian farmers’ cooperative, which is known as Wesfarmers has found in 1914 and has grown to one of the largest companies in Australia. Its managing director is Rob Scott and company’s annual revenue is $68.4 B. Wesfarmers Limited is a Public Company and most of its income is generated from grocery stores and supermarkets. The company operates the largest retail stores and departments in the Australia. Its operation includes: supermarkets, liquor, hotels, department stores, office supplies, home improvement, and convenience stores. The company also operates in industrials division such as energy, chemical, and fertilisers, coal, and safety product. Wesfarmers is also known as one of Australia’s major private sector employers that has almost 220,000 stuff and employees. The company has a shareholder base around 530,000 and the business’s first objective is to produce sufficient return to the shareholders (Wesfarmers Ltd 2016).

Major Competitors

According to the IBIS WORLD Australia’s top ten companies are indicated in the table below. Wesfarmers as the first top company has some major competitors that Woolworths Limited is the main competitor by $55.9 B revenue. Common Wealth Bank of Australia is the second main competitor by $44.9 B revenue. The third competitor of Wesfarmers is BHP by $39.2 B revenue. The other main competitors of Wesfarmers Limited are Westpac Banking Corporation, Rio Tinto, ANZ Banking Group, Nab, Telstra, and NSW Health (Arvanis 2018).

(Arvanis 2018).

Financial Strategies to expand to International Markets

Expanding to international markets and taking the brands overseas is difficult. To expand to global markets every company needs sufficient financial strategies to follow. Wesfarmers has expanded its home improvement business through the Bunnings store overseas (United Kingdom and Ireland) and in Australia. On February 2016 Wesfarmers bought the UK based hardware chain and by April 2017 the company has launched 24 Bunnings store in different cities in UK and Ireland. Unfortunately, the company sold some of the Bunnings stores on 25 May 2018 due to underperforming (Blake 2018).

The Wesfarmers Company has employed some financial strategies to follow in its expansion to international markets. In regard to customer’s convenience the stores were open for long hours 7 am to 9 pm, 7 days a week. The lowest prices has guaranteed with the good quality and they targeted broad market. The company has followed global strategies but unfortunately it has underestimated the UK customer’s expectations due to their different life style from Australians (Wesfarmers 2018).

The Wesfarmers primary objective is to provide a satisfactory return to the shareholders. The company is following its four overarching strategies consistently which are as following:

These strategies are underpinned by the company’s strong strategic planning framework. The main aspect of these strategies is to maintain a long term focus and sustainable action in creating values and building the business (Moug 2015).

Sources and Applications of Funds

Assessing the Wesfarmers wide portfolio is very complicated and difficult. Identifying the segments that commit the most to the Wesfarmers portfolio is the first step to start assessing the company’s fund providing parts (Boha 2018).

The chart below shows the Wesfarmers’ major revenue contributor. Coles is the main fund provider for the Wesfarmers by having almost 57% of its revenue. The Coles earnings includes the revenue from the supermarket, liquor, and hotel operations. Home improvement is the second fund provider to the Wesfarmers. The Bunnings Warehouses have around 20% of the Company’s revenue. The department stores are sitting in the third level of revenue contribution margin. Kmart and Target make up 12% of the Company’s revenue. Industrials and historic products such as chemicals, fertilisers, and energy show up are contributing to the Company’s revenue by 8%. Officeworks is the 5th revenue contributor by having 3% revenue of the Company (Wesfarmers 2017).

(Wesfarmers 2017).

Wesfarmers 2018 annual report indicates its strong balance sheet. The company has access to diverse funding market, limited maturities, and stable credit ratings. The report indicates that the company’s net financial debt is $4.2b1 at 30 April 2018 but the US bond of $750m has repaid in March 2018.  The report also shows that the finance costs are decreasing continuously and FY18F interest expense is expected to decrease and be between $215m – $225m. The Curragh Mine increased sale and proceeded of $700m in 29 March 2018 (Wesfarmers 2018).

Rob Scott the Managing Director of Wesfarmers, the company has delivered a sufficient financial results. This achievement is through earnings from continuing operations and excluding important items growing 5.2 per cent. Wesfarmers reported net profit after tax emulated the business losses and significant aspects identified with Bunnings UK and Ireland. However, these international investments were disappointing, but the revenue and sale has freed the company of operating losses, lease commitment, future capital, and has strengthened the company’s financial position (Wesfarmers 2018).

Financial Performance in the last three years

A company’s financial position is clarified by its assets, liabilities, and shareholder’s equity. To assess the Wesfarmers financial performance in the last 3 years, the annual report of the company has included all the required information. The company’s balance sheet provides the assets, liabilities, and shareholder’s equity to analyse (Cunningham 2019).

Wesfarmers balance sheet indicates that in the last three years, the company’s total current assets and total assets have both decreased since 2016. Total assets of company was 41,394b at 2016 that has decreased to 40,837b at 2017 and at the end of June 2018 has decreased to 37,606b. This is the result of selling lands and buildings due to the Bunnings stores underperforming in the UK.  The company’s total current liabilities and total liabilities both have decreased from 44.56% at 2016 to 39.49% at 2018. Wesfarmers had total liabilities of 18,445b at 2016 which has decreased to 16,896b at 2017 and again decreased to 14,852b at 2018. This means that the company’s account payables have increased and the company has paid more of its liabilities. Wesfarmers annual report indicates that the total shareholder’s equity in the last three years had some up and downs. Total equity at 2016 was 22,949b that has increased to 23,941b at 2017 but then has decreased to 22,754 at 2018 (Investing.com 2018).

Generally, the company’s most fund providers in the Australia are performing well. Especially Coles that has the most profit and Bunnings stores also doing well in Australia. However, the Bunnings store in the UK and Ireland did not performed as the estimated plan and made a big loss for the company in the last few years. In case of department stores Kmart is performing very well and increasing the company’s profit but Target did not performed as well as Kmart in the last few years but the company’s Managing Director indicates that the Target stores are getting back to track in 2018. Wesfarmers is still one of the largest Company’s in Australia and trying to achieve its main objective that is providing satisfactory return to the shareholders (Dow 2018).

Market Characteristics

Wesfarmers is an Australian stock exchange listed company, its operations from being a farmer’s goods company to diversifying itself into retail, hospitality and industrial sector. It has come a long way.It retail segment includes Coles a supermarket chain, home improvement stores Bunnings warehouse, office supplies stores Improvements, Target a discount retail store in the US and Australia and Kmart. Its industrial segment includes chemical business, Resources and insurance etc. The primary objective of Wesfarmers is to provide maximum return to its shareholders through integrating sustainable corporate strategies in order to maintain a strong financial position in the market. It is the largest public sector employer in Australia with around 220,000 people working with commitment in order to provide quality products and services to company’s business as well as its retail customers. Wesfarmers diversified business portfolio ensures customer satisfaction from all its segments (Wesfarmers 2017).

5 C’s of Wesfarmers

Company – The major strengths of the Wesfarmers is its large product portfolio. Wesfarmers continuously work hard to fulfil its primary objective which is to provide satisfactory return to shareholders. After Cole’s acquisition the balance sheet of Wesfarmers depicted a very strong financial position as Coles is its largest revenue earning segment. The major weakness is its other business segments which includes Target, Resources and other industrial segments which are not showing much signs of financial growth, as a result its slow growth offsets the profitability of Coles. The market base of Wesfarmers is limited to Australia and New Zealand, Wesfarmers can think of expanding into the other developing countries market where the company can open its retail stores Kmart and Coles. Wesfarmers can easily achieve economies of scale as the cost of operations will be comparatively low.

Customer – Wesfarmers is touching every possible customer segment. The company has realised that the most profitable business segment is its retail store business Coles, Target and Kmart. The key to the success of these retail chains are inducing customers by offering them heavy discounts. Generally the buying behaviour of Australian consumers are they go shopping once in a week and buy all the necessary items in bulk. Wesfarmers introduced its very famous down discount campaign in which it cuts down the prices of variety of products switch makes these products irresistible to purchase. At its Bunning warehouse stores, Wesfarmers provide best of the hardware at very affordable prices.

Collaborators – Wesfarmers has around 15,000 suppliers who support its business. The company make sure that the quality of the product should not get affected that is why it choose suppliers not only from Australia but also internationally so that its customers get the best quality products. Coles has signed a deal with sun drop tomatoes to supply truss tomatoes grown using sea water and solar energy. Workwear group has collaborated with indigenous supplier to design its safety range of footwear’s.

Competitors – The major competitor in the retail segment is Woolworths who holds the dominant supermarket chain position in Australia. Apart from this Wesfarmers also feel Amazon is also the competitor as they provide retail facility 24/7.

Context – Wesfarmers also operates in insurance business, in 2011 when the states of Queensland hit by floods the company had to deal with various claims and mine situated there were also waterlogged which affected the profitability of the business. Queensland also experienced heavy rains in the year 2010 due to which there Curragh mines operation were temporarily closed, due to which company had to suffer losses (Wesfarmers, 2010). The Australian dollar rate is continuously declining as a result goods sold at a high cost which is attracting fewer consumers (Burrel, 2012). The impact of this can be very much seen in the Industrial and Safety business who have witnessed a $14 million decline in earnings in the year 2016 (ABC, 2016).

The information provided about customers, competitors and about the environment etc. is very important to any company, as these information provide a strong base analysing future risk and helps to avoid such risks by formulating strategic decision policies in advance (Wesfarmers 2017). Wesfarmers personal information about the suppliers, customers, shareholders is fetched through its official websites using server logs and google analytics. Customers who shop in the Coles retail stores are given attractive discounts if they enroll in its loyalty programs also details are collected through flybuys cards, payment cards and online shopping. All these programs helps Wesfarmers to analyse the shopping behaviour of the customers (Wesfarmers 2018).

Marketing Strategy of Coles

It has been quite clear that the major sources of revenue generators are their retail store Coles. In Australia, Coles has been facing a severe competition from its rival Woolworths which only operates in Australia. So as a result Wesfarmers should try to explore other opportunities in other markets. Developing economy can be a suitable market for Wesfarmers. Developing countries like India is known to be as consumption driven economy all over the world. The demand for consumer goods is very high as India’s population is around 1.252 billion as compared to the population of Australia which is 25 million. The Indian economy is expected to grow by 6.3% which means there is a huge potential lies in the Indian market. The benefits of operating in a developing economy are: cost effective and skilled workforce, Low cost of operation and the laws and regulations that are quite lenient as compared to other countries (Wesfarmers 2016).

All these factors mentioned can help Wesfarmers to achieve economies of scale. Also people in India are price sensitive in other words people are discount oriented. They want quality product at an affordable price. Personalisation is also success factor. By providing the customised product and understanding the needs of the consumer can prove to be a success formula (Wesfarmers 2016).

Marketing Recommendations

Product – The major competition in retail sector is not only to offer cheap products at an affordable price but also to provide customer delight by offering personalised services. To make sure people visit the stores again, retail stores should try to provide a shopping experience memorable by providing high quality products, personalised services at an affordable price.

Price – Price plays a very crucial role in the success of Wesfarmers. While fixing a price, Wesfarmers should research about the prices of the same product offered by other competitors. In the online segment its competitor Woolworths and Amazon are doing quite well as compared to Coles. In order to reach masses it should try to offer best deals online.

Place – In order to reach each and every customer segment it is very important that the stores are located at a reachable location. It is also to be kept in mind the stores should be opened in a metro city as people living in the metro city will be in a better position to spend. Which means Wesfarmers should go for intensive distribution strategy. Making the product available not only on stores but online is also important as there is working professionals who do not have time to go shopping even on weekends can order their products online at their convenience.

Promotion – Wesfarmers have to spend a heavy amount on promoting its brand. Going online is one of the best decisions of promotion. By taking help of social media sites such as Facebook they can post ads along with giving customers special irregular discounts. It can also tie up with certain organisations or can sponsor events. Big billboards and going digital for advertisements can be an option too (Kotler 2002).

People – In retail business satisfying the customer in terms of services and product offered at the store is very important. It is the responsibility of people working there to provide customers a delightful shopping experience so that they visit the stores again. Wesfarmers should highly focus on hiring and training staff that are willing to treat customers as their family and provide them with a memorable shopping experience. Wesfarmers should train the staff so that they can maximise the customer satisfaction (CIM 2015).

Human Resources

As of June 2017, Wesfarmers had more than 217,000 employee, making Wesfarmers Australia’s largest private sector employer. Wesfarmers pays at least minimum wages in all locations over Australia. Wesfarmers seek redeployment opportunities and sometimes redundancy packages and outplacement services to affected employees by reductions. More than 87% of the workforce is covered by collective agreements. Wesfarmers recognise the right of those they employ. Wesfarmers various divisions provide numerous job-specific and career development training opportunities that cover technical skills , customer service, team work, leadership and much more. Wesfamers is also a very diverse workforce that is balanced between genders, ages, races and all the differences between the employees. Wesfarmers is big on indigenous engagement in the company as a big number of its employee are indigenous (Wesfarmers 2017).

Conclusion

This report has discussed the Wesfarmers operations and assessed its international performance. Wesfarmers is performing as one of the largest Australian companies and found on 1914 in Western Australia. Wesfarmers group is a public company and most of its income is from supermarkets. The company’s operation includes: supermarkets (Cole’s), Department stores (Target and Kmart), Office supplies (Office works), home improvement (Bunnings Ware house), hotels, and liquor. The company operates in industrials division such as energy, fertilisers, chemical, coal, and safety products as well.  Wesfarmers major competitor is Woolworths Ltd. and Amazon as an online competitor. Wesfarmers as a private sector has employed around 220,000 employees in Australia and also has a shareholder base around 530,000. The Business’s primary objective is to provide a sufficient return to the shareholders.

Wesfarmers has following some strategies to expand the business. The company performs effectively to meet customer’s needs and adopts entrepreneurial initiative to secure growth opportunities. The company restates its portfolio by value-adding enterprises and ensures sustainability through sufficient management plans. In regards to expansion to international markets, the company has expanded its home improvement business (Bunnings stores) to the United Kingdom and Ireland. The management team of the company’s estimated plan did not work in the UK and Ireland and due to underperforming, company has signed disposal agreement and closed some stores over there.

Wesfarmers major fund is provided from Cole’s, which is about 57% of the company’s revenue. The Bunnings Warehouse is providing about 20% of company’s funds and department stores 12%. Industrial products are providing 8% of the company’s revenue and office works is contribution is 3% in the Wesfarmers revenue. Assessing the company’s financial statements in the last three years indicates that its total assets has decreased due to selling the lands and buildings in the UK. In the last three years the company’s total liabilities has decreased which means it has paid more of its account payables.

The company’s major strength is its largest product portfolio. Wesfarmers is looking after its customers very well by offering them high discounts on the retails stores. In case of customer’s convenience, in the Australia and overseas the retail stores are open 7 am to 9 pm and guaranteed to provide the lowest price. Wesfarmers works with around 15,000 suppliers in Australia and overseas to ensure that it can provide and meet all consumer’s expectations.

In regards to extending to global markets some recommendations has been suggested for Wesfarmers in this report. Wesfarmers can expand to the developing countries such as India. The consumer goods demands is very high in India and also they have a big populations (1.252 b). It is beneficial for company to operate in India due to the cost effective and skilled workforce, lower operation costs, and lenient law and regulations that makes it as a good opportunity for expansion.

Wesfarmers as a largest private employer in Australia is looking after its employees by recognizing and respecting their rights. More than 87% of its workforce is covered by collective agreements. Wesfarmers provides job-specific training for its employees and ensures the development opportunities for them as well. The company has a very diverse workforce and it is balanced between genders, ages, races, and it has engaged a big number of indigenous to work for the company.

References

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