Price War Between Woolworths and Coles

Woolworths which has been deemed untouchable for more than a decade is now in a price war with Coles which was a shambles just three years ago. The price of milk is down and staying down is one of the recent aggressive price cuts introduced in a five year plan. The strategy of Coles is simple. By setting lower prices, a company hopes to win back its customers and in this way sees an opportunity to increase market share or profits. However, many unprofitable price wars happen, because the fact that competitors will respond is ignored. This essay will analyze whether an aggressive price cut justifies the action and how rivals responded and should respond to that, as well as the short and long-term effects of Coles’ strategy on other major supermarkets, small retail shops, customers and Coles itself.

By setting lower prices, Coles forced Woolworths and Aldi to reduce their prices too. Leading supermarkets have to meet the customers’ and shareholders’ demands. This obliged them to drop prices as well. This strategy costs Coles millions of dollars every week. As a result punishing potential rivals Coles hurt its bottom line. There is no doubt punishment hurts the punisher. The question that arises then is whether punishment should have been carried out initially?

Firstly, it is important to note that it is not only the price cut that has been one of the best strategies for Coles to win its customers back. Promotion of Curtis Stone and MasterChef along with the price cut had cut Woolworths deeply. Introducing five-year tuenaround plan is a huge short-term cost, but Coles still does it, mainly because while Coles is hurting its bottom line, it is hurting Woolworths more, where the latter have launched widespread price audits of its business and fixed some underperforming stores. This combination of strategies made the punishment well carried out. It will lead to Coles taking significant market share back from its rival in the long-term. Therefore,