Macroeconomics and Grocery Stores Industry

Better Essays
Company overview Key information of the Woolworth Woolworth (WOW) is an Australia corporation with more than 195,000 employers which operates business in grocery stores industry which was founded by Percy Christmas in 1924 (Woolworths, 2012). Its manages 3,000 stores which are located in New Zealand, Australia and India serving 28 million consumers for liquor, span food, petrol, home improvement, hotel and general merchandize (Woolworths, 2012). First, the company WOW operates supermarkets under several well known brands across different countries, including 1,033 supermarkets with the brands of Woolworths and Safeway operating in Australia and the brand of Countdown brand operating in New Zealand (Woolworths, 2012). Moreover, there…show more content…
Figure 4: the unemployment in Australia (RBA, 2013c) Finally, the unemployment rate should be concerned to analysis the future macro economy. It reflects the state of economy whether it is at the full capacity. Higher unemployment implies a contraction which will drive down the stock price. As can be seen in Figure 4, the unemployment rate is low in the historical period and relatively high and upward since 2008. The upward unemployment rate will reduce the consumption capacity of the nations which will reduce the revenue of the WOW. Industry factors Woolworth (WOW) operates in the grocery stores industry. The key characteristics of the grocery stores will be discussed in the following 4 aspects. Sensitivity to Business Cycle The sensitivity to business cycle of a firm’s earning is determined by three factors: sensitivity of sales to the business cycle, the operating leverage and the financial leverage. First, the grocery stores’ sales are not very sensitive to the business cycle since their goods are inelastic to price and they can earn profit in spite of the economy contraction. Second, the operating leverage of the grocery stores industry is not large since the fixed cost/ variable cost ratio is not large in this industry. Finally, the financial leverage is very large in this industry, since the stores often have large payable in account. All in all, the grocery stores industry
Get Access