By

Name & Student ID

Syeda Sara Banu (1019184)

Signature

Syed Razvi (1019470)

Aman Preet Kaur

Tony

TABLE OF CONTENTS
By.....................................................................................................................................................................1 Syeda Sara Banu (1019184)............................................................................................................................1 Syed Razvi (1019470)......................................................................................................................................1 Aman Preet Kaur.............................................................................................................................................1 Executive Summary.........................................................................................................................................1 Management....................................................................................................................................................4 Strategic Profile................................................................................................................................................8 Major Issues or Problems .............................................................................................................................10 Growth Strategy Expanding Internationally by acquisition of Supermarket chain.......................................13 HR Plan..........................................................................................................................................................16 Competitors....................................................................................................................................................16 Innovation......................................................................................................................................................20 Historical Financial Data................................................................................................................................21 Proforma Financial Data................................................................................................................................24 Cost Control...................................................................................................................................................35 Effects of Loan or Investment........................................................................................................................35

Executive Summary Coles Group operated diverse businesses such as Coles Supermarket, Liquor Retail Group, (First Choice, Vintage Cellars and Liqourland), Target, K Mart and Officeworks brands until 2008. During 2008, Wesfarmers Ltd acquired Coles Group. This paper has outlined the overall analysis of Coles Group which mainly includes the analysis of its strengths and weaknesses, its strategic profile, its financial profile and its competitors. Coles strategy is mainly rested on its high diversification and its high market concentration with its main competitor, Woolworths. Financially, the company had low profitability but had prospect of achieving higher levels of profit considering that it operates at a profit and not at a loss. Given such information, we are looking at growth plan for Coles by expansion in the international market and the strategy for implementations generated throughout the paper. Coles have made strong progress in simplifying their business in line with their strategy to create one integrated Coles business meeting the everyday shopping needs of all Australians. The business currently operates 2223 retail outlets across Coles, BiLo, First Choice, Liquorland, Vintage Cellars, Coles Express and spirit group Hotels and employs around 106000 team members and manages more than 17 million transactions a week. After its acquisition by Wesfarmers, it is headed by Ian Mc Leod as its Managing Director. Coles along with Woolworths has occupied around 80% of the Australias market share and is now evaluating strategic options for expansion that offer economies of scale and is looking for growth opportunities overseas. Coles has analysed following strategic options for its growth: Do nothing With the changes in the business environment, Coles cannot continue to operate profitably by doing nothing, hence it is not a viable option for Coles Organic Growth- Coles currently operates in Australian market and together with Woolworths occupies more than 80% marketshare leaving very little scope for organic growth as other small players try to barge into their existing shares, hence it should try to maintain its market share by refurbishment of existing stores and being al to tackle competition from other players like ALDI, Supa IGA, Metcash etc Growth by Acquisition Coles is presented with a very good opportunity to expand internationally by acquiring existing foreign players. Countries like Canada, HongKong, Singapore provide a good opportunity. Canada provides a very good opportunity which is being examined and implemented in this report Exit the market As Coles has been able to do well in past, it cannot exit the market after getting into the umbrella of Wesfarmes as it had been one
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of the highest revenue generating business segments for Wesfarmers. Therefore exiting the dominant position would be loss of an opportunity Coles has identified Canada as a potential market to expand overseas. It is built around improving customer proposition through better quality, service and value. Canada has been a prime piece of real estate and second-largest country in the world in area. However, a combination of physical geography and divergent sense of regionalism has affected the development of Canada's supermarket industry, both from within and by U.S.-based and international companies. The Canadian food retailing category has grown at an average annual growth rate of more than 5% since 2005. Although the industry is fragmented by more than 25,000 outletsincluding chain supermarkets, convenience stores, independent grocers, and non-traditional grocery outlets (mass merchandisers, warehouse clubs, drugstores, and specialty food stores)it is dominated by conventional supermarkets, which has presented itself as a viable option for expansion overseas to Coles by way of acquisition of existing supermarkets. Coles has been negotiating with Jim Pattison Group to takeover its Overwaitea Supermarkets operated in Canada by 2011. The shareholders will be presented with an attractive opportunity to both continue to benefit from the growth of Coles businesses and to earn higher dividends as shareholders of the expanded company. Over the past few years, Coles has concentrated much in terms of time & resources to study ways to improve overall performance of the company and increase profits. This plan is a result of that study. The basic components of this plan are: Expansion into international market of Canada by starting our supermarket division by way of takeover of Overwaitea supermarkets.
1. 2.

Having Competitive pricing Expand the marketshare Ensuring lower cost of business,

3. Improving overall levels of efficiency within the supply chain

4.

5. Thereby achieving higher profits. Coles is seeking to raise $1500mn from Banks as Term Loan to fund its acquisition, apart from using its own reserves to purchase the super market
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chain Overwaitea group in Canada, to maintain a cash reserve and provide adequate working capital for anticipated expansion of the business. A total of $1500mn is being raised which will be used to finance working capital, plant and equipment. Financial Goals for Supermarket division Year 1 Year 2 Year 3 Sales Net Income $35000 $1862 $38000 $2120 $42000 $2531

Year 4 $45000 $2745

Year 5 $48000 $2934

Management Coles under the umbrella of Wesfarmers and leadership of Ian Mc leod, Managing director of the company has seen growth in terms of turning around the performance of the company. Under his leadership, Coles has achieved a personality makeover - from an expensive, unpopular shopping outlet into a seemingly well run, profitable and cheaper option for consumers. Has been responsible for achieving growth by :

Cutting prices Developing strong links with suppliers

Deveoping warehouses that are world class in terms of standards Completing supply chain project to leverage effectively and drive up further levels of efficiency

Sprucing up the supermarkets Aligning itself to a cooking show MasterChef

Coles has been under the responsible leadership of Mr. Ian Mc Leod, the Managing Director, after its acquisition by Wesfarmers, who has been responsible for implementing their turnaround strategy and yielding remarkable results leading it to become the most contributing segment of Wesfarmers. The management has projected a sales growth from $30000mn to $ 48000mn in five years from its sales in Australia as well as Canada.

Short Biographies The Board of Wesfarmers, the parent company currently comprised of 11 directors, with nine non-executive directors, including the Chairman, and two executive directors. Chairman Bob Every, Chairman of Wesfarmers group, which Coles is a part of now was appointed in 2006 as a non-executive director (independent) and appointed Chairman in November 2008. He was also appointed as Chairman of the Remuneration and Nomination committees and member of the Audit Committee. Bob was the Chairman of the New Zealand-based listed company Steel and Tube Holdings Limited and a director of OneSteel Limited. Other executive positions previously held by Bob include Managing Director of Tubemakers of Australia Limited, President of BHP Steel and Managing Director and Chief Executive Officer of OneSteel Limited, a position from which he retired in May 2005. Managing Director Richard Goyder, MD of Wesfarmers group was appointed in 2002 as an executive director (non-independent). Richard joined Wesfarmers in 1993 after working in various commercial roles at Tubemakers of Australia Limited. He has held a number of commercial positions in Wesfarmers Business Development Department including General Manager. In 1999 Richard was Managing Director of Wesfarmers Dalgety Limited, which subsequently became Wesfarmers Landmark Limited, a position he retained until his appointment as Finance Director of Wesfarmers Limited in 2002. He was appointed Deputy Managing Director and Chief Financial Officer of Wesfarmers Limited in 2004 and assumed the role of Managing Director and Chief Executive Officer in July 2005. Finance Director Terry Bowen, Finance Director of Wesfarmers was appointed in 2009 as an executive director (non-independent). Terry has held a number of finance positions with Tubemakers of Australia Limited, culminating in his appointment as General Manager Finance. Terry joined Wesfarmers in 1996 and undertook various roles with Wesfarmers Landmark Limited, where he was appointed Chief Financial Officer, until its acquisition by AWB Limited in 2003. He was then appointed the inaugural Chief Financial Officer for Jetstar Airways, prior to rejoining Wesfarmers as Managing Director, Wesfarmers Industrial and Safety in November 2005. Terry became Finance Director, Coles
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in 2007, prior to his appointment as Finance Director, Wesfarmers Limited in May 2009. Managing Director of Coles Ian McLeod - Ian joined Wesfarmers as Coles Managing Director in 2008. He has extensive experience in British and European retailing, including senior executive roles at the United Kingdom retailer Asda where he played a key role in the recovery and turnaround programme during the 1990s. Other senior retail roles included Chief Executive Officer for five years at Halfords Group plc, the UKs leading retailer of car parts, leisure and cycling products and Chief Merchandise Officer with Wal-Mart in Germany.

History of Coles Coles Group operated diverse businesses such as Coles Supermarket, Liquor Retail Group, (First Choice, Vintage Cellars and Liqourland), Target, K Mart and Officeworks brands until 2008. During 2008, Wesfarmers Ltd acquired Coles Group. Coles holds a strong brand name and has a rich history in the retail business for over 90 years in Australia and until November, 2007 had held a leadership position on its own in the retail segment. This company was very successful in generating and increasing sales, but had failed earlier because of its strategy to rename BiLo stores as Coles supermarket which did not deliver planned customer value proposition. The effects of this strategy were not anticipated earlier and as a result the company experienced decline in sales which resulted in gamble of shareholders money. To overcome its problems, the board proposed takeover of the company by Wesfarmers by way of scheme of arrangement. In 2007, it was taken over by Wesfarmers an equally veritable name not just in retail but engaged in diversified business activities. Nonetheless, becoming a flagship company of Wesfarmers has brought it new opportunities, challenges and uncertainties.Coles strategies are epitomized by its diversification. One of its core missions is to create wider markets through more flexible offerings. Coles holds reasonably diversified operations from office supplies to supermarkets. Since Coles acquisition by Wesfarmers, the company has grown to embrace the value of customer support as its strategic approach to attract more markets along with the diversification. Coles is now one of the highest generating segments among all businesses of Wesfarmers, hence Wesfarmers now has plans for expansion of Coles into International market like Canada to maximize the shareholder value. The options are analysed and implementation strategies are generated throughout this paper.

Strategic Profile Coles strategies are epitomized by its diversification. One of its core missions is to create wider markets through more flexible offerings. Coles held reasonably diversified operations from office supplies to supermarkets. Since Coles acquisition by Wesfarmers, the company has grown to embrace the value of customer support as its strategic approach to attract more markets along with the diversification. As Coles parent company, Wesfarmers has substantially supported the operation of the company and its activities pertaining to its diversification. During 2010, Wesfarmers has supported Coles Group in adding car insurance product as part of its diversified service offerings. The identified strategies for Coles differ from its main competitor, as it is operating environment is not similar to that of Woolworths. Woolworths is a stable company which currently operates its business whereas Coles had been substantially acquired due to the failure of its past management. Furthermore, Woolworths only operates supermarket chains whereas Coles Group operates highly diversified businesses such as supermarkets, liquor retail and office supplies. The business strategy of Coles mainly depends on its strength of having diversified operations, a characteristic which Woolworths does not have. Internal Processes:

The internal processes of Coles may be described as highly constructed. IT partners Coles businesses to deliver business solutions and innovation services which maximise customer and shareholder value. They support the businesses by standardising the IT portfolio of products and reducing the cost of doing business through technology-enabled process improvement. The company significantly rely on its seven key areas in procurement and logistics through its IT function. The key areas include the following; program management which works to integrate projects in line with the business strategies of Coles, Business Systems and Process Management which supports the integration of new systems to Coles existing operations, Application Deployment and Support which implements and supports business functions such as procurement, Infrastructure Service and Operation which supports the IT infrastructure or system of the company, e-Technology which drives the companys electronic strategies, Strategy and Architecture which aims to develop high levels of applications and IT Finance and Administration which helps support the finance function of the company as it is integrated with the IT function. The company has been investing in new technologies by taking into account the changing local, regional and international preferences of its customers.
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They specifically rented to improving global sourcing capabilities that would bring down the per unit prices of its products and at the same time increasing the variety. This meant that it had concentrated on supply chain management that would improve its interaction with the suppliers and make available the products to the consumers on time, every time. Besides, the company continued its expansion in new stores in addition to refurbishing the existing ones. The result of all these measures has made it a dominant force in the market which Coles Group would have to face by way of competitive challenges.

Major Issues or Problems The major problems encountered by the company as well as the business strategies available for Coles are outlined in the SWOT analysis as illustrated below. Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis

Strengths
1) Diversification

Weaknesses
1) 2) 3)

through varied businesses 2) 80% market share in the grocery industry in Australia and New Zealand

Low profitability Limited brands in limited areas Lower sales per square when compared with Woolworths.

SO Opportunities 1) Expansion to other geographical areas other than Australia and New Zealand. 2) Operational expansion to other retail forms such as through shopping centres Expand its Increase operations in the through international expansion markets by concentrating on its strength of having a high market share in the existing area of operation. Increase diversification through penetration of shopping centres.

WO profitability international

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Threats 1.) International markets show little prospect for growth 2.) Shopping centres are forbidden to accept anchor tenants

ST Use its strength pertaining to its unique market power of 80% market share to offset the low growth rate Penetr ate shopping centers which allow anchor tenants such as Coles and Woolworths

WT Provid e better management by hiring professionals to help organize the strategic actions of the company, particularly pertaining to international market penetration.

Details of the SWOT Analysis Strengths and weaknesses as well as the opportunities and threats available to the business are outlined below to analyze the viability of the business operations. The matrix presented shows the different business strategies which may be applicable to the companys circumstances as supported by the strengths, weakness, opportunities and threats identified. Strengths:

One of the strengths of Coles is the diversification of the Coles Group through varied businesses. Wesfarmers acquired Coles Group with diverse businesses such as Coles Supermarket, Liquor Retail Group, (First Choice, Vintage Cellars and Liqourland), Target, K Mart and Officeworks brands. The existence of established diversified brands and operations is a major strength of the company considering that this proposes a potential or prospect for expansion and growth. Having 80% market share in the grocery industry together with its competitor, Woolworths, within Australia and New Zealand is one of the strong points of the company. Coles and Woolworth have grown exclusively in the Australian and New Zealand markets. The level of concentration of market power that these competitors have in the market is unique in the world.

Weakness: 11

The companys weaknesses include Coles low profitability over the recent years. Coles has had problems with its operation, therefore prompting their management to consequently sell their company to Wesfarmers. Coles operations prior to the acquisition of Wesfarmers represented a significant shift in strategic emphasis (Rebadging of Bi-Lo stores to Coles was blamed in part for poor results) and a significant gamble with shareholders money. This is a significant weakness taking into account the possibility that such brands and diversified businesses of Coles Group may not be profitable even with the new management. The new management of Wesfarmers runs the risk of not being able to produce profit out of the currently unstable brands. The other weakness of the company is that it has limited brands in limited areas. Coles operates exclusively in Australia and New Zealand. Over its existence, the company has not considered branching out into international markets therefore causing the company to concentrate solely on its limited markets in the said geographical areas.

Opportunities: Coles has an opportunity to expand to other geographical areas other than Australia and New Zealand. As mentioned, Coles has substantial diversified businesses which mainly include supermarkets and other service chains. In this regard, the company has the opportunity of expanding their market range given the diversified nature of the Coles Group.

Threats:

The companys threats include little prospect for growth of international markets. Despite the fact that Coles has substantially diversified operations and businesses which may be able to attract more markets, such opportunities may still be disproved by an equal threat of not being able to capture international markets considering the main weakness of the company which is its unstable profitability. This may highly translate to the international market with higher risk due to the higher expenses and operational activities associated with internationalization apart from cultural differences.

From the identified SWOTs, it is important to determine the business strategies which may be available for the company to thrive as a highly profitable and vastly operated company.

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Growth Strategy Expanding Supermarket chain

Internationally

by

acquisition

of

By entering new markets like Canada, it can serve as a key growth driver of the company's revenues and expansion strategy. Coles interests in Canada are likely to continue growing in due course, as Canadian markets are showing an increase in consumer spending and increased trend towards retailing. These new markets are also demographically high opportunity markets. In the case of coles, one of the suggested strategic options is in international alliances with the local retailers in canada. It will be considered as a method of development and may be formed to exploit current resources and competence. By acquisition of existing player in the industry, in order to gain a larger economy of scale and larger market presence, Coles will draw on its extensive local knowledge and operating expertise while adding its own supply chain, product development and stores operations skills to deliver a better shopping experience to customers. The success of the expansion will be related to three main success criteria: sustainability, acceptability and feasibility. Sustainability will be concerned with whether a strategy addresses the circumstances in which the company is operating. It is about the rationale of this expansion-market development strategy. The acceptability relates to the expected return from the strategy, the level of risk and the likely reaction of stakeholders. Feasibility will be regarded to whether coles has the resources and competence to deliver the strategy. Coles intends to start with 200 supermarkets in Canada in 2011 by acquiring the existing supermarket chain Overwaitea owned by Jim Pattison group which like the supermarkets in Australia will serve as the one stop shop for all the shopping needs of Canadians. The features are as under: Will offer competitive prices compared to other supermarkets in Canada Will be technically advanced and will have easy store ordering platform for its products Will begin with one national consolidation centre to distribute products to all the supermarkets initially Will provide customers with improved service in place Will provide customers effective value promotion campaigns to attract

Will maintain three days of inventory in place initially and will aim to reduce its shelf depth gradually
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We have contacted local farmers and suppliers to meet our inventory requirements and terms of logistics and transport discussed in later part of plan are agreed upon. The contracts with suppliers are in place to provide 30 days of credit on all purchases and are renewable every 2 years which is cancelable upon 90 days written notice We also intend to offer facility of online shopping to local customers Investments in infrastructure will be made to bring up high quality Different methodologies and formats will be adopted to satisfy consumer expectations.

Products and Services Coles offers the following products and services: Groceries: We will offer high quality groceries from Italy, the Mediterranean, Mexico, Asia, Europe, Australia, and the United States. Groceries will include items that represent the best known and desired foods from different areas. Gifts: Gift items will complement the international theme of the store and include a limited selection of kitchen wares, cookbooks, picnic items, and original sewn items and jewelry. Gift baskets will also be available in the store and over the internet. Liquor: Coles provides its customers with a wide range of alcoholic and non-alcoholic beverages were you can shop for beer, wine and spirits at Liquorland. Promotion of Homebrand products Coles, apart from selling products of various companies will now reposition its homebrand and will cater to different segments of consumers. Though there will be competition and competitors indulging in price wars, after certain amount of time, Coles will be able to overcome the threats after reaching economies of scale in terms of logistics and other areas. Key Initiatives and Objectives The primary objective of the company is to attain and maintain a position as the major source of groceries and liquor joint in the Australia and Canadian
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market. In the first year, we hope to capture 10 percent of the local retail market for groceries and othe homeneeds, increasing to 30 percent by the third year of operations. The store is scheduled to be open for business after acquisition on January 1, 2011. A term loan of $1500mn is needed to ensure that the store has adequate inventory on hand when the store opens. Negotiations with Overwaitea supermarkets of Jim Pattison group, one of the leading supermarket chain and distributors in Canada, have taken place and a tentative contract is in place. Finalization of the contract is contingent on receiving bank financing.

Long Term Coles believes very strongly in technical, financial, business and moral excellence. To secure a stable future for all those connected with Coles, we have set the following long term goals: Our goal for market share is 10% initially as we would be entering in the market by acquiring regional player and want to be considered by our peers to be the market leader in sales in course of time as evidenced by:

Increase in our shareholder value Major market share Increased customer satisfaction Commanding a position with our suppliers

Short Term Market share goals 1. First Year 3. Third Year 4. Fourth Year 10% 20% 30% 40% 2. Second Year

We further aim to achieve economies of scale in terms of procurement, logistics and store management thereby being able to provide customers with lowest possible prices for all the products and gaining repeat customers. Increase productivity by investing in employee training and education and launching various employee incentive programs to keep the team going. Our focus is to have a wider range of store innovations, including more focus on non-food products and services, and an increased spotlight on our own label i.e. Homebrand of Coles.

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1. 2.

Budget for complete training to employees for handling of retail customers handling of transactions. Launching of employee incentive programs for building up efficient and responsible sales team.

3. Investments in new technologies, particularly for warehouse management, supply chain applications, front-end and electronic retailing. 4. Maintain state-of-the-art accounting system for careful tracking. 5. Monthly reports on financial status vis-a-vis the industry.
6.

Aggressive recruitment of the best sales staff in the industry.

7. Support company involvement in various local and national charity events. HR Plan Coles, intending to expand their business in Canada by opening their retails stores in major cities. We shall evaluate key HRM issues faced by Coles during the set up phase of their expansion to Canada by opening 200 stores initially. The key issues identified requiring action to be taken includes Recruitment and selection, training and development, performance management and compensation. The employees at higher positions will be trained and sent from Australia after giving pre-departure training There will be a staff of 48 at each supermarket including process workers, cashiers, departmental managers and supervisers. The existing staff of Overwaitea supermarket which is proposed to be taken over by Coles will be trained sufficiently to imbibe the values which Coles wants its employees to display. Accountabilities will be fixed and various incentives will be announced to promote the winning culture among the team to win consumer confidence. The company shall provide adequately for training and development of all the employees. Competitors Local Competitors in Australia

The chief threat to Coles is, the challenge the company faces from its chief and powerful competitor, viz, Woolworths. However there is also presence of other super markets such as Aldi group & Metcash Limited in Australia which is an existing competition to Coles. Woolworths is a strong Australian company that has joined the ranks of top 25 world retailers (Woolworths Ltd-Annual Report, 2008) whereas Coles Group had held the 31st position.
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As of June, 2008, Woolworths had operated with 3030 stores out of which 2192 were supermarkets, 567 merchandise stores, 271 hotels that includes 8 clubs (Deloitte). During the same period, it had annual sales of a$47 billion that generated a net profit of a$1626.8 million (Woolworths LtdAnnual Report). Throughout its growth, Woolworths adopted innovative methods, high level and constantly improved customer service to reach such a leadership position with which policies it is continued to be guided. Apart from Woolworths, Coles faces substantial competition from local supermarkets, department/convenience stores and e-retailers. Other competitors include ALDI Group and Metcash Limited. ALDI Group is known for its cheap and discounted product offerings with over 9,400 stores worldwide, is widely considered as one of the most significant competitors of the company accounting for its international operations. Metcash Limited is one of the largest grocery and liquor distributors in Australia. The company has concentrated on grocery and liquor markets. Both companies pose significant threat to the company despite its high market concentration with Woolworths.

Prospective Competitors after expansion to Canada About Canadian Supermarket Industry Canada is a prime piece of real estate. It is the second-largest country in the world in area (after Russia), encompassing 3.85 million square miles, six time zones, and a 5,500-mile border to the south that is shared by 12 U.S. states. However, a combination of physical geography and divergent sense of regionalism has affected the development of Canada's supermarket industry, both from within and by U.S. based and international companies. The battle for supermarket marketshare is being waged among Canadian owned and operated companies. But as national and regional players are gearing-up for increased market position to combat competition from outsiders. Although the industry is fragmented by more than 25,000 outletsincluding chain supermarkets, convenience stores, independent grocers, and nontraditional grocery outlets (mass merchandisers, warehouse clubs, drugstores, and specialty food stores)it is dominated by conventional supermarkets. The top six companies (two national, four regional) control more than 80% of the market. The combined estimated market share of the two major national playersLoblaw Companies Ltd., Toronto, and Sobeys Inc., Stellarton, Nova Scotiaexceeds 50%. Loblaw's estimated 35% of the market (the maximum allowed by Canada's Competition Bureau) is more
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than that of the top four regional competitors combined: Canada Safeway Ltd. (9%), Metro Inc. (7%), A&P Canada acquired by Metro (6%) and Overwaitea Food Group (4%), according to Standard & Poor's, Toronto.

There have been major rounds of food retail consolidation occurring in Canada when the national players bought other small supermarket groups. The focus of all the supermarkets is on increasing their operating margins. Loblaw and Sobeys are the only Canadian grocery operations that span the nation's 10 provinces. Canada Safeway, based in Calgary, has more than 210 stores throughout Alberta, Vancouver and Winnipeg. With solid parentage in Safeway Inc., the Canadian unit is regarded as a strong regional buyer seeking to add to its estimated mid-20% share of the western Canadian grocery market. Vancouver-based Overwaitea is seen as developing regionally and remaining strong (as a division of The Jim Pattison Group, Canada's thirdlargest privately owned company) which Coles has entered into talks to acquire for its international expansion.

Market Scenario

The perceived weaknesses for Coles Group as a whole lie in the following factors. Its prices and earning are affected by sluggish economic growth, resulting in weak consumer sentiments accompanied by reduced consumer spending and changing patterns. A major concern is that Coles has been lagging behind its major competitor Woolworths. In 2008, on a year to year comparison, while Woolworths food and liquors sales grew by 6.6%, Coles posted an abysmal 0.8%. Again, a comparison of the overall market share between the two shows a huge lagging behind by Coles; during the period under reference, whereas, it was 42.1% for Woolworths, it was 32.4% for Coles. Independent market surveys as Real World Marketing Survey had shown that Woolworths customers have more loyalty to its brands than those shopping with Coles. In addition, Woolworths scored a higher ranking when it came to secondary buying from customers loyal to independent supermarkets. Yet another threat includes the fact that shopping centers are forbidden to accept anchor tenants. Because of this, the company runs the risk of not maximizing its potential markets due to a restriction in one of its opportunities to expand to other retail forms. Apart from Woolworths, Coles faces substantial competition from local supermarkets, department/convenience stores and e-retailers. In addition, the global recession that gripped the world economies, has brought adverse consequences for the company due to the reduction in the purchasing power and general declines in consumer spend. This is despite the fact that Australian economy was affected lesser when compared with
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the US and UK economies. Close to 61% of companys revenues are contributed by retail operations and the recession has brought in a severe dent in its operations in the previous year (2008-2009). Its insurance division also had felt the heat of the overall sluggish economic situation which was evidenced in the fall of the insurance premium by about 3%.

Competative advantage: The distinctive competitive advantages which coles brings to this market are: Coles main competitive advantage has been its ability to offer the most competitive price to consumers by having a cost efficient operating system that ensures low costs. Coles expense structure, measured as a percentage of sales, was among the lowest in the industry . These cost savings were used to promote its Every Day Low Price (EDLP) strategy which ensured the lowest price among competitors. Economies of scale in production and distribution. Lower marketing costs. Consistency in brand image. Uniformity of marketing practices Build sales volume and ride down the experience curve with a cost advantage. Easier to establish own culture and operating routine. Ability to leverage good ideas quickly and efficiently. Lastly better ability to build organisation

Coles marketing strategies: Coles have an established name and reputation around the globe, and entering into new markets should encounter little resistance and provide as an opportunity to prove itself. Coles will rely heavily on in-store displays and demonstrations in stores. Special attention has been given to developing an attractive label that will stress the specialty nature of the products. A copy of the label is attached in the appendices. A business planning and marketing specialist will assist with developing the label, and conduct a focus group study to evaluate the image projected by the label as well as the packaging.

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Coles plans to hold a grand opening that will be publicized with spots on the local radio station as well as advertisements in the local news papers. Posters announcing the opening of the stores will be placed in high traffic areas such as regional district offices, community centres, local pubs, shopping malls etc. Periodic advertising will be placed in local newspapers once the stores are operational. Innovation Coles has a history of innovative ideas.: We propose to add to all our supermarkets a Drive-Through section, which will have pre-packed selections of products in typical combinations. The drivethrough selection window will have a list of different combinations of most used products from small and cheap, most basic, to more complicated and specific. The lists of drive-through produce should be distributed and advertised extensively, for public to be ready to make fast selection. Shopping will take minutes leading to customer satisfacton.

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Historical Financial Data Coles focused throughout the year on meeting customer demands for value, improving fresh quality, housebrand offer and services. Income Statement & Balance Sheet Prior to its acquisition by Wesfarmers, Coles Group had operated at a loss. Coles division includes the food, liquor, convenience and Coles property businesses after its acquisition by Wesfarmers.The Coles division reported revenues for various years after its acquisition as under: Revenue ($ in mn) EBIT ($ in mn)

2010 3000 2 962

2009 2879 9 831

2008 1687 6 475

The Coles segment registered a growth of 4.12% in the year 2010 over the previous year 2009 after implementation of its turnaround strategy to transform the business and improve performance. However the performance of 2008 and 2009 is not being compared as Coles was acquired by Wesfarmers during second-half of 2008 and revenue earned after 23rd November 2007 has only been taken into account. Though the segments revenue grew by only 4.12% in 2010, the EBIT actually grew by about 15.76% after implementation of its strategies which shows that the company has been able to control its operating costs.Coles has also been the highest contributor among all the business segments of Wesfarmers. Coles Group has total assets of $18,382mn which includes investment in associates of $32mn and total liabilities of $3,113mn in 2010. This shows that the company is highly liquid in terms of the ratio between its assets and liabilities. This further means that its assets may very well support its liabilities. Coles assets also include $10216mn of intangible assets in the form of goodwill in 2010. The recoverable amounts of the cash generating units have been determined using cash flow projections based on Wesfarmers corporate plans and business forecasts using a fair value less costs to sell or value in use methodology as required by Australian Accounting Standards. Wesfarmers corporate plans are developed annually with a five year outlook. The parent company Wesfarmers earned a revenue of $ 51,827 mn from its businesses in Australia & overseas in 2010 which were $ 50982 mn in
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2009. The company had EBIT of $ 3786mn in 2010 and posted a net profit of $ 1565 mn which is 2.8% higher than that of previous year.

The companys net profit margin is 6.20% for the year 2009. This margin was well above the industry average of 5.06%. This evidently indicates that the company has a good financial performance and has an effective pricing structure, overhead structure and profit level. A high profit level would most likely lead to a high return on the stockholders investment, depending on management assertions. The 5-year average net profit margin of the company is 9.69, a little over the industry average of 9.89. The 5-year net profit margin is a more accurate basis in determining the companys financial performance because it does not only deal with one annual report. It shows a plausible picture of the companys operation for the succeeding years, all other conditions being the same. With this information regarding the companys profitability, it is clear that the company has a strong financial standing and performance in the market, and has the capability to operate fairly well in a financially distressed environment. The year 2010 also included $10 mn impairment charge which was $ 82 mn in 2009 due to impairment of freehold property held by Coles division as a result of decline in rental yields used to determine the recoverable amount. The company had equity shareholders of $23,235mn as on 2010 and also have total interest bearing debt of $ 5353mn from banks in the form of Term loan-syndicated facility, unsecured loans and Corporate Bonds. The company also had increased cash flow from operating activities which was used to support increase in capital expenditure which was on accont of acquisitions of land and buildings of Coles and bunnings. The company provided an 6.40% return on average equity. The return on equity for the recent fiscal year, as well as the 5-year average return on asset is significantly higher than the industry average. This indicates the ability of the company to generate profit from its asset. The high return on equity is attributable to the operating activities of the company which is highly reliant to its fixed assets. The liquidity ratios show the ability of the company to meet the demand of the creditors and the solvency of the company in relation to their highly liquid assets. The current ratio shows the ratio between the current assets and the current liabilities. The quick assets ratio shows the ratio between the current assets excluding the inventories and the current liabilities. This shows a more stringent ratio, considering only those assets that are highly liquid and are quickly convertible to cash.

22

23

Proforma Financial Data

Period End Type of Disclosure Months Covered To Print in Reports? Yes - 1 / No - 0 BASIC DATA 31-Dec11 Projecti ons 12 1 31-Dec12 Projecti ons 12 1 31-Dec13 Projecti ons 12 1 31-Dec14 Projecti ons 12 1 31-Dec15 Projecti ons 12 1

ASSETS

Cash Marketable Securities

550.00

600.00

700.00

756.00

900.00

Accounts Receivable - Trade less: Allow for Doubtful Accts Total Accounts Receivable Net

Income Tax Receivable

Finished Goods Other Inventory Supplies Inventory 3,011.0 0 3,451.0 0 4,459.0 0 6,000.0 0 7,869.0 0 3,011.00 3,451.00 4,459.00 6,000.00 7,869.00

Prepaid Expenses Cost in Excess of Billings

24

Other Current Assets Deposits Due from Parent/SubsidiariesCurrent Due from Related Parties Current Due from Officers/Stockholders TOTAL CURRENT ASSETS 3,561.0 0 4,051.0 0 5,159.0 0 6,756.0 0 8,769.0 0

Land Other Depreciable Fixed Assets Buildings & Improvements Machinery & Equipment Furniture & Fixtures Leasehold Improvements Transportation Equipment Capital Work in Progress Total Depreciable assets 3,500.0 0 4,000.0 0 5,300.0 0 6,400.0 0 7,000.0 0 3,500.00 4,000.00 5,300.00 6,400.00 7,000.00

Gross Fixed Assets less: Accumulated Depreciation

3,500.0 0 350.00

4,000.0 0 715.00

5,300.0 0 1,043.00

6,400.0 0 1,369.00

7,000.0 0 1,682.00

Total Fixed Assets Net

3,150.0 0

3,285.0 0

4,257.0 0

5,031.0 0

5,318.0 0

25

Non Current Receivables Due from Related Parties

Intangibles less: Accumulated Amortization

1,000.00

2,400.00

2,800.00

3,000.00

3,200.00

TOTAL NON-CURRENT ASSETS

4,150.0 0

5,685.0 0

7,057.0 0

8,031.0 0

8,518.0 0

TOTAL ASSETS

7,711.0 0

9,736.0 0

12,216. 00

14,787. 00

17,287. 00

LIABILITIES

Notes Payable Parent/Subsidiaries Curr Mat LTD-Financial Institutions 300.00 300.00 300.00 300.00

Accounts Payable - Trade

2,149.00

2,355.00

2,604.00

2,730.00

2,895.00

Accrued Liabilities

Total Accrued Liabilities

Income Taxes Payable Deferred Income Tax Liabilities Other Current Liabilities
26

Other Current LiabExtraordinary

TOTAL CURRENT LIABILITIES

2,449.0 0

2,655.0 0

2,904.0 0

3,030.0 0

2,895.0 0

Long Term Debt-Financial Inst.

1,200.00

900.00

600.00

300.00

TOTAL SENIOR LT LIABILITIES

1,200.0 0

900.00

600.00

300.00

TOTAL SENIOR LIABILITIES

3,649.0 0

3,555.0 0

3,504.0 0

3,330.0 0

2,895.0 0

Subordinated Debt

TOTAL LIABILITIES

3,649.0 0

3,555.0 0

3,504.0 0

3,330.0 0

2,895.0 0

NET

WORTH

Common Stock Paid In Capital Retained Earnings / Reserves & Surplus 2,200.00 1,862.00 2,200.00 3,981.60 2,200.00 6,512.80 2,200.00 9,257.85 2,200.00 12,192.0 9

NET WORTH

4,062.0 0

6,181.6 0

8,712.8 0

11,457. 85

14,392. 09

TOTAL LIABILITIES & NET

7,711.0
27

9,736.6

12,216.

14,787.

17,287.

WORTH TANGIBLE NET WORTH NET WORKING CAPITAL

0 3,062.0 0 1,112.0 0

0 3,781.6 0 1,396.0 0

80 5,912.8 0 2,255.0 0

85 8,457.8 5 3,726.0 0

09 11,192. 09 5,874.0 0

INCOME NT

STATEME

Sales less: Excise / other duties Memo: Contact Backlog

35,000.0 0

38,000.0 0

42,000.0 0

45,000.0 0

48,000.0 0

Net Sales

35,000. 00

38,000. 00

42,000. 00

45,000. 00

48,000. 00

COGS Depreciation in COGS

26,250.0 0

28,500.0 0

31,500.0 0

33,750.0 0

36,000.0 0

GROSS PROFIT/REVENUES

8,750.0 0

9,500.0 0

10,500. 00

11,250. 00

12,000. 00

General & Administrative Expense Selling Expense Wages & Salaries Officer's Compensation Bad Debt Expenses

2,000.00

2,200.00

2,420.00

2,662.00

2,928.20

28

Other Operating Expenses Travel & Entertainment Amortisation Depreciation

4,000.00

4,200.00

4,410.00

4,630.50

4,862.03

TOTAL OPERATING EXPENSES

6,000.0 0

6,400.0 0

6,830.0 0

7,292.5 0

7,790.2 3

TOTAL OPERATING PROFIT

2,750.0 0

3,100.0 0

3,670.0 0

3,957.5 0

4,209.7 8

Interest Income Interest Income - Parent / Sub Other Income Other Income Other Expenses Foreign Exchange Gain/(Loss) Gain / (Loss) on Sale of Assets Earnings from Sub (Non Equity Method) Earnings from Sub (Equity Method)

EBITDA EBIT

2,750.0 0 2,750.0 0

3,100.0 0 3,100.0 0

3,670.0 0 3,670.0 0

3,957.5 0 3,957.5 0

4,209.7 8 4,209.7 8

Interest Expense ST Interest Expense ST, Parent / Sub

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Interest Expense LTD Financial Inst Capitalized Interest

90.00

72.00

54.00

36.00

18.00

INTEREST EXPENSE

90.00

72.00

54.00

36.00

18.00

PROFIT BEFORE TAXES & EXTR ITEM

2,660.0 0

3,028.0 0

3,616.0 0

3,921.5 0

4,191.7 8

Current Taxes Deferred Taxes

798.00

908.40

1,084.80

1,176.45

1,257.53

PROFIT BEFORE EXTRAORDINAY ITEMS Extraordinary Gain / (Loss)

1,862.0 0

2,119.6 0

2,531.2 0

2,745.0 5

2,934.2 4

NET PROFIT

1,862.0 0

2,119.6 0

2,531.2 0

2,745.0 5

2,934.2 4

NET PROFIT AVAILABLE TO COMMON STOCK HOLDERS

1,862.0 0

2,119.6 0

2,531.2 0

2,745.0 5

2,934.2 4

TOTAL CHANGES IN RETAINED EARNINGS

1,862.0 0

2,119.6 0

2,531.2 0

2,745.0 5

2,934.2 4

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Proforma Cash Flow Analysis

Coles Cash Flow Statement Amount in : $ in mn Period End Type of Disclosure Months Covered CASHFLOW 31-Dec11 Projecti ons 12 31-Dec12 Projecti ons 12 31-Dec13 Projecti ons 12 31-Dec14 Projecti ons 12 31-Dec15 Projecti ons 12

Sales - Net Change in Receivables

38,000.0 0

42,000.0 0

45,000.0 0

48,000.0 0

CASH FROM SALES

38,000.0 0

42,000.0 0

45,000.0 0

48,000.0 0

Cost of Goods Sold

28,500.0 0 -440.00 206.00

31,500.0 0 -1,008.00 249.00

33,750.0 0 -1,541.00 126.00

36,000.0 0 -1,869.00 165.00

Change in Inventories Change in Payables

CASH PRODUCTION COSTS

28,734.0 0

32,259.0 0

35,165.0 0

37,704.0 0

GROSS CASH PROFITS

9,266.00

9,741.00

9,835.00

10,296.0 0

SG & A Expense

-6,400.00
31

-6,830.00

-7,292.50

-7,790.23

Change in Prepaids Miscellaneous Transactions

Cash Operating Expense

6,400.00

6,830.00

7,292.50

7,790.23

CASH AFTER OPERATIONS Income Taxes Paid

2,866.00 -908.40

2,911.00 -1,084.80

2,542.50 -1,176.45

2,505.78 -1,257.53

NET CASH AFTER OPERATIONS

1,957.60

1,826.20

1,366.05

1,248.24

Interest Expense

-72.00

-54.00

-36.00

-18.00

Financing Costs

-72.00

-54.00

-36.00

-18.00

NET CASH INCOME

1,885.60

1,772.20

1,330.05

1,230.24

Current Portion Long Term Debt

-300.00

-300.00

-300.00

-300.00

CASH AFTER DEBT AMORTIZATION

1,585.60

1,472.20

1,030.05

930.24

Capital Expenditures Tangible Capital Expenditures Intangible CASH AFTER CAPITAL SPENDING & INVES

-135.00 -1,400.00 50.60

-972.00 -400.00 100.20

-774.00 -200.00 56.05

-287.00 -200.00 443.24

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FINANCING SURPLUS/ (REQUIREMENTS)

50.60

100.20

56.05

443.24

Change in Short Term Debt Change in Long Term Debt Change in Equity Total External Financing -300.00 -300.00

Cash After Financing Actual Change in Cash

50.60 50.00

100.20 100.00

56.05 56.00

143.24 144.00

Net Income + Depreciation

2,119.60

2,531.20

2,745.05

2,934.24

CASH FLOW LINE DETAIL:

MISCELLANEOUS TRANSACTIONS: Change in: Non Current Receivables Other Current Liabilities Other Liab Non-Cur Interest Bearing Other Liab Non-Cur Non-Int Bearing Income On Sale of Investments

33

TOTAL MISC TRANSACTIONS

CHANGEINTRACOMPANY/RELATE D ASSETS

TOTAL CHANGES

CHANGEINTRACOMPANY/RELATE D LIAB:

TOTAL CHANGES

Assumptions: Cash Receipts: Rent: Utilities: Salaries: Payroll: Advertising: Professionals: Commissions: Insurance: Travel & Entertainment: Miscellaneous: Taxes: 30% Cash Sales Suppliers offers 30 days of credit period. Terms to customers: Terms from suppliers: Sales Forecast Sales comprises of sales in two geographical locations Australia 85%
34

Percentages as indicated. Building rental at $7/square foot. Water, gas, sewer, trash, electric Executives. Hourly, non executive Trade, magazine, direct mail, etc. Figured at 10%.

Canada 15% Cash Flow Variables: We project that we will be able to generate sufficient capital from operations to meet our initial needs after the infusion of $1500mn to support our acquisition strategy which are repayable in 5 years time. Apart from Bank borrowings, there will be sufficient internal accruals to support the expansion plans in future. Cost Control

The internal processes of Coles may be described as highly constructed. IT partners Coles businesses to deliver business solutions and innovation services which maximise customer and shareholder value. They support the businesses by standardising the IT portfolio of products and reducing the cost of doing business through technology-enabled process improvement. The information will be compiled at the end of each month for preparation of financial statements. Each month these statements will be reviewed against our projections and appropriate action will be taken to adjust costs or our budget. If there is a huge variance between the estimates and actuals, we shall reevaluate our markup on products and then to recheck our costs to make certain that we are obtaining as well as offering the best possible prices.

Effects of Loan or Investment The funds invested in Coles will be used for the following purposes: Purchase or leasing of spaces for supermarkets & Warehouses Working capital Leasehold improvements Furniture Fixtures Costs of Acquisition - legal fees, filing fees Inventory Computer equipment These outlays will enable us to operate at a level that will allow us to meet our conservative sales goals for the first year. All the expenditure will be meted out of the cash flows and borrowed funds in the form of Term Loan from their existing Bankers which will be repaid at the end of 5 years time.
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References [PDF]Retail Petroleum price discounts; impact on grocery prices: http://www.vacc.com.au accessed on October,21, 2010 Woolworths Ltd., Annual Report 2008: http:// www.newsstore.smh.com.au, September, 29, 2008 accessed on October, 21, 2010 Woolworths One of Top 25 Global Retailers: http:// www.deloitte.com, January 14, 2008 accessed on October, 21, 2010 Wesfarmers Annual Report 2009 accessed October, 21, 2010 from http://ir.wesfarmers.com.au/phoenix.zhtml?c=144042&p=irolreportsannual Coles Group Annual Report 2007 accessed October 21, 2010 from http://ir.wesfarmers.com.au/phoenix.zhtml?c=144042&p=irolreportsannual Wesfarmers Annual Report 2010 accessed October 21, 2010 from http://thomson.mobular.net/thomson/7/3019/4340/

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