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Estimations about demand and costs
Special pricing strategies for imperfect competition
7 eleven Whitsunday’s is a convenient store operates as a franchisee through 7- Eleven Store Pty. Ltd Australia, which will be located around different islands in the region. These stores will be focusing on meeting the needs of convenience-oriented customers, whom are spending their holidays on the islands or it residents through a 24 hours operating system and a product range that will meet their needs. The Whitsundays region contain eight islands that are popular tourism destinations that lacks convenience stores that can be a strong competitor to 7-Eleven in operations hours, pricing strategy and the strength of the brand. The standardized product range can meet the tourism traffic generated by the variety of accommodations spread along the islands. On the other side of the shore on mainland there are two of the biggest player in the retail industry (Coles and Woolworth) with a competitive edge using technology to provide online delivery to every island. However, the four firm concentration ratio was hard to predict due the different factors contributed to the retail industry. With a high level of barriers to entry, the new stores will unlikely have a competition in the meantime. Also, the start up franchises will receive financial and advertising support from the local council of the region and 7 eleven company.
Background about the Business
7-Eleven started their business in Australia by 1977, through their franchisee given to the Withers/Barlow family as a privately owned company. Since then the company has reached through it franchisees around Australia, an annual sale estimated by 1.4$ billion becoming the leader in the convenience store industry. In two years in a row 7-Eleven has kept it title “Franchisor of the year” through local voting, proving the satisfaction level of the business structure.
(7elevenfranchise.com.au, 2014)The company has adopted a business model around the world that built a global brand through an excellent business management and developing. (7elevenfranchise.com.au, 2014) The strength of the brand is reassembled among tourists, which can create a recall and memorable experience. A Real Estate expert in 7-Elevn chooses the most profitable locations to their franchisee through professional market research. Meanwhile the company will provide their stores with the designed layout with the cooperation between their marketing and construction teams. However, 7-Eleven is highly known for it performance and imagery thus each franchisee has to follow up to these rules.
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Convenience stores in general are relative to it name through the nature and range of the products they stock and sell. Most of their product range includes eggs and dairy products, medications, dry and canned goods, meats, drinks, sweets and snack, and some additional products such as cigarettes and batteries. These products are available usually in different sizes and kinds to satisfy the different needs for each consumer. (Hose, 2014)
(Deloitte Touche Tohmatsu, 2010)
The range of standardized products available through a 7 eleven store is not only resident oriented products but they are also tourist oriented products such as sun creams and Slurpee. They are targeting the consumer who feels free and the master of it own destiny, the kind of consumer who choses to spend it leisure time in islands. In a 7-Eleven store, the product category has expanded. Creating Proprietary products in addition to a range of world wide known branded products. Around the world names such as Slurpee, Café, Big Gulp, and Big Bite has created its own costumer base that are aware of these brands and loyal to it. The store of 7-Eleven is also known for it ranges of fresh and daily sandwiches and fruit salads. (7eleven.com.au, 2014) (7elevenfranchise.com.au, 2014)
Background about costumer base
Location of Operation:
The Whitsunday reign is a 23,856 square kilometers area, including 74 Islands. Located on the Great Barrier Leaf one of the world’s seven wonders, between Brisbane and Carinas. The region provides a supporting system for the habitat located on the islands such as the wildlife and the rainforests. It is an attractive destination for tourists and families to raise their kids. Most of the islands are deserted yet beautiful destinations for tourism, but only eight host accommodations facilities and resorts, including Hamilton island which has the largest resorts, a grocery store, and a private marina, with 70% of it is area as parklands including a golf club. Also, Daydream Island resort and Spa, which can be accessed by a ferry from the Hamilton Island airports and the Whitsundays Coast, has a family friendly atmosphere through it entertainment facilities and activities. Hayman Island is the private Australian island that is located on the great barrier leaf, shall be open July 2014, will be a strong tourism attraction and a new market opportunity. Hook Island on the other hand, is a popular for the scenery under water. People visit it every year to scuba dive and snorkeling and visit their famous observatory located under water. They tend to either camp or stay at the resort on the Hook Island.
Long Island is known for it spacious area and it close destine from the mainland. Can be accessible through day trips provided by local companies ferry service.
South Molle that is famous for appearing in a global commercial by coca cola for its sceneries. It provides permit campaigning for it visitors and it is known for it self sufficient of water and energy. Lindeman Island, which was a tourism attraction for many years, which was announced, sold for a private owner in 2013. Every year the area host more than 80,000 tourists, including a local population estimated by 30,000. The Whitsunday’s has become more desirable because of it natural landscapes and a driven business sector that flourish the local economy such as, mining, sugar, and tourism. (IT, 2014) (Tourismwhitsundays.com.au, 2014)
The trends in the convenience store industry has shifted to more specialized product range to suit the local consumer base and longer operating hours, to overcome the competition applied through local mega supermarkets, news agencies, and the advantages of technology that created the opportunity of trading and selling online for supermarkets. (Deloitte Touche Tohmatsu, 2010) In 7-Eleven the marketing team has tailored their marketing mix to best serve local consumers whom are driven by the value of a free life that is enjoyable through being independent by providing fast and quick convenient food fix. As it for the Slurpee, it consumer base is focused on students with high level of sales during the weekends. Thus, 7-Eleven has divided the consumer profile into four big segment (Fast Fixers, Junior Junk Junkies, Go-Getters, Relaxed Run-Abouters, In transit top-ups) (Afrbiz.com.au, 2014)
Background about competitors
List of Competitors:
Consumers usually prefer to visit a supermarket because they stock a broader range of products with a competitive edge on pricing, which creates a major challenge in the industry of convenience store. Mentioned, the development of supermarket through technology and geographical locations. (Deloitte Touche Tohmatsu, 2010)
Coles and Woolworths are major player in the retail industry of Australia, with a 750 stores estimated nationally (Deloitte Touche Tohmatsu, 2010). In the mainland of Whitsunday, tourists can visit the local market known by the Airlie Market from 7am-1pm. Operating hours for other services such banks and shopping centers between 9am to 4pm-5pm. Tourist-oriented products such souvenirs and local craft can be purchased through smaller markets along the coast. Meanwhile, every Sunday there is variety of markets open in the early morning until the afternoon or midnight such as Bowen market, Proserpine markets. Tourists can visit the three main shopping centers located near the islands for fine dining and specialty stores like target and Coles. (Mydestination.com, 2014) Online ordering is a major trend in Australia and the Whitsundays in specific, people tend to order their grocery from three different places, Coles, Whitsundays Provisioning, and Hamilton Island Grocery Store. They all provide a wide range of fresh food and home appliances, which is very ideal for people who own or renting an apartment. These providers usually cost more due to the luxurious nature of the service, which creates a gap for a competitive advantage for a well-known store like 7-Eleve for it reasonable pricing that is consumer oriented and essential product range. Also, some of these providers require an early ordering because of the economical strategy of delivering they have adopted to reach as many consumers through one trip. The potential of a 7-Eleven store on the island will be more tempting for the consumer on the island to be free of the burden of advance ordering and high prices. ATM’s are located on the local markets, creating an opportunity for 7-Eleven financial services to provide access to an ATM within the area. (Mydestination.com, 2014)
The concentration of the industry:
At the first glance of the retail industry of grocery stores, Coles and Woolworth are seen as the two key players due to their convenient. However, a study has shown that this industry has a complicated picture when it comes to the concentration ratios due to the definition of the market that is based on (product space, geographic space, functional space, time space) and the segmentation in which player is targeting.
Although there is a high industry concentration in the food retail market, there is no abuse of power in the market. The market share of Woolworth has been built through the contribution of a wholesaler method of retailing which means that the profit that are estimated for the supermarket is in fact an image of the performance of the whole firm. Also, food processors such Cadbury and Kellogg’s plays a role in pricing their product. Farmers on the other hand, are affected by international factors, which can be bargain on when it comes for setting a price that is opposite in food processors. Another factor to eliminate any concentration in this industry is barriers to entry due to the laws set for land acquisitions and regulations. Also fixed cots can affect the economic of scale. (Deloitte Access Economics, 2012)
High Barriers of Entry:
The government has the power to determine the areas in which a supermarket can operate. (Deloitte Access Economics, 2012)
Economic of scale:
Companies and business has to obtain their competitive advantage due to the affect of fixed costs in this industry on the economic of scale. (Deloitte Access Economics, 2012)
The government of Australia and the council of the Whitsundays region are providing start up business financial and management support. (Deloitte Access Economics, 2012)
There are many regulations and laws to conceder when operating in Australia as a convenience store, and it depends on the nature of the service and the product that are sold. For example, high-risk work license, food business license there can be applied to through the Whitsundays region council (the Food Act 2006, Food Regulation 2006, and Food Production (Safety) Act 2000.) To sell tobacco products, the business has to apply for the Tobacco and Other Smoking Products Act 1998 and Tobacco and Other Smoking Products Regulation 2010 through the Queensland health department.(Business.qld.gov.au, 2014)
Integration, R & D, advertising or cooperation between businesses operating in this industry:
The council of the Whitsundays region has created the Whitsundays Marketing and Development (WMDL) to improve the economy of the region and it social and environmental wellbeing by developing it people and assets. (IT, 2014)
There are several website set to promote the islands through advertising it facilities, accommodations and entertainment activities.
However, in 7-Eleven the philosophy adopted from the management team is to provide promotion and advertisement through their chain of franchisees.
Estimations about Demand / Costs
Special pricing strategies for imperfect competition:
The retail industry involving convenience stores in the Australian market has the shape of the imperfect competition market model. The competition nature of the supermarket retailing industry is workably in nature, according to the ACCC grocery inquiry in 2008. Coles and Woolworths are competing strongly to limit the price competition from the independent grocery stores. Meanwhile the barriers of entry are limiting the effectiveness of price competition in the industry. Many buyers and sellers have created a price takers environment. Businesses in the industry of retail are usually privately own thus, they tend to minimize input to maximize output. They generate profit through the economic of scale and fixed costs. However, this may lead to inefficient productivity level because of the similar nature of the business competitors will only duplicate their fixed costs. Another way is using predatory pricing, which means under pricing product for the short run to lure in consumers through the long run. This will lead to an in anti-competitive nature of win over the market share. However, consumers nowadays are savvy and have knowledge about pricing, which will may be missintreputed into the quality of the product and imagery of the brand.
(Deloitte Access Economics, 2012)
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