A Strategic Plan of Asda - Essay Example

A Strategic Review of Asda Table of Contents Strategic Review (SWOT) 5 The strategic review includes the internal and external analysis of Asda by Swot analysis. 5 Internal Analysis: 5 Strength: Asda owned by Walmart, is a powerful retail supermarket chain in terms of reputation and for offering low priced daily use products. The company’s primary focus is to save money for the customers by offering lower prices than its competitors. Asda has developed its core competencies on economies of scale, i.e. they buy in huge bulk at a lower procurement cost and thus, are able to sell at low prices. They use information technology to track sales trend of individual product, as a result it helps in achieving highly efficient inventory management system. The system also tracks individual customer’s consumption pattern and offers them suggestions and special offers and discounts on products that they often buy. Asda realises that its major work force is dependent on human resources, so they provide extensive training to their employees. Acquisition by Walmart has enhanced its presence in the non-food retail market. Within five years, Asda’s non-food retail chain has increased its offering to more than 12,000 merchandize. 5 Competitor analysis 10 Conclusion and Strategic opinion 12 Executive Summary Asda is one of the leading supermarket chains in Europe, which was acquired by Walmart in 1999. It operates as one of the largest grocery store and it also sells a variety of products including apparels, household items, books, etc. After its acquisition by Walmart, Asda is supported financially and also in its operations by providing cheaper resources. Asda has its core competence in food retail, but it has now expanded in to the non-food sector as well. The company faces steep competition from fellow companies like Tesco, Sainsbury and Morrison’s. The product offering in the retail sector is highly standardized, so the companies try new ways to differentiate themselves on the basis of service quality and brand valuation. Market environmental factors like tax imposition and business regulations often pose hindrance on retail business. Introduction Asda Stores Ltd., headquartered in Leeds, West Yorkshire, is a British retail supermarket chain which caters in sections like food, clothing, toys, general merchandise and financial services. In 1999, Walmart wanted to penetrate into the British market, so they lobbied with the then British Prime Minister Tony Blair and acquired Asda for £ 6.7 billion, winning a bid from rival Kingfisher plc. The main competitors of Asda are J Sainsbury plc, Tesco plc and WM Morrison Supermarket plc. Over the years, Asda has managed to position itself as UK’s cheapest retail supermarket. As of 2012, Asda’s operating profit increased by £51 million to £857 million (Wood, 2012). Asda started as a dairy firm in 1920s. Asda name was adopted in 1965, when it got merged with Asquith super market chain. Currently, the company operated over 568 locations with 175,000 employees. The market share of Asda increased to 17.1 percent in 2014, while all other big supermarkets saw a fall (West, 2014). This paper focuses on the internal and external analysis of Asda, which includes its Competences, Capabilities, Resources, Skills, Products or Services, PEST analysis and Porter’s five force analysis. It also includes the Ansoff’s matrix of growth strategy. Strategic Review (SWOT) The strategic review includes the internal and external analysis of Asda by Swot analysis. Internal Analysis: Strength: Asda owned by Walmart, is a powerful retail supermarket chain in terms of reputation and for offering low priced daily use products. The company’s primary focus is to save money for the customers by offering lower prices than its competitors. Asda has developed its core competencies on economies of scale, i.e. they buy in huge bulk at a lower procurement cost and thus, are able to sell at low prices. They use information technology to track sales trend of individual product, as a result it helps in achieving highly efficient inventory management system. The system also tracks individual customer’s consumption pattern and offers them suggestions and special offers and discounts on products that they often buy. Asda realises that its major work force is dependent on human resources, so they provide extensive training to their employees. Acquisition by Walmart has enhanced its presence in the non-food retail market. Within five years, Asda’s non-food retail chain has increased its offering to more than 12,000 merchandize. An effective management is the key to company’s good performance. The management is strictly focused on meeting the short term as well as long term goals. The company keeps on changing itself to adapt to the changing environment. In 2014, Asda has decided to cut 1360 jobs in order to restructure the management of their stores. The company has cut off 1360 middle managers, and has redeployed staff into its online shopping section. The CEO, Andy Clarke has stated that this decision has been rightly taken for a better future of the company (Hegarty, 2014). Weakness: Asda lacks smaller supermarkets or convenience stores; as a result, Asda cannot penetrate into a wider section of the market. Many European countries including Britain have restricted the construction of mega stores in rural areas (Matlack, 2005). Asda has its core competence in grocery business; however, the other sectors like clothing and stationery lacks focus which leads to revenue leakage, increased operational costs and customer dissatisfaction. The competitors may eventually take advantage of this weakness by offering better services where Asda lacks. External Analysis: Opportunities: Asda has huge product line expansion, courtesy of Walmart. The company can expand the non-food section, particularly, the clothing sector by sourcing raw materials on a global scale. The global sourcing will help in reduction of clothing prices. Asda can expand itself overseas by acquiring other super market chains. The acquisitions of Netto super market will eventually lead to establishment of smaller stores in large numbers. Introduction of smaller convenience store will lead to deeper market penetration and increased revenue and brand valuation (Diyweek, 2010). Asda can use global merchandizing to leverage Walmart’s worldwide operations. Thus, Asda can remove the middle men from the international supply chain, which will help to reduce procurement costs (Your Asda, 2014). Threats: Rise of materials cost leads to lower profit margin for Asda. The company faces significant threats from its competitors in the industry. Tesco and Sainsbury are in constant price war with Asda. Moreover, Tesco’s smaller stores, known as Tesco Express poses a severe threat to Asda, as Tesco covers a wide range of target customers (Selby, 2014). Asda’s acquisition by Walmart, has threatened the number one position of Tesco, this may encourage Tesco to undergo a bigger acquisition to beat Asda. The analysis of competitors can be better understood by Porter’s five forces: Threat of new entrants: The retail supermarket industry is dominated by major players like Tesco, Asda, Morrison’s and Sainsbury, each of them have large market shares, so any new entrant will face a tough competition from them. Moreover, in order to get into the retail industry, a company needs huge capital investment, along with market knowledge and experience in retail business industry. The market leaders already have a strong foot hold in the market and years of experience in the industry, thus the threat of new entrant is very low in the retail super market industry. Threat of substitutes: In the retail industry, most of the products offered are standardized and the only differentiation between the rival companies is the price, quality, in-store services and brand image. Thus, for a particular product there are several substitutes in the market. The smaller convenience stores or local stores also act as a substitute for the customers who are not willing to travel long distance to buy few products. Thus, threat of substitute is high for Asda (Nevile, 2013). Power of Buyers: Customers are the centre point of every business. The power of buyers is high in the industry because, the customers have a lot of options to choose from. The same product is offered by different supermarkets at comparable prices, so the customers are likely to choose the one who offers lower price. Thus, buyers enjoy moderately high bargaining power. Bargaining power of suppliers: The suppliers maintain relations with different companies and provide them with more or less same products. So, if a supermarket makes any dispute with the suppliers, they will easily cease their business and move to other supermarkets. Moreover, the suppliers maintain a good unity among them and thus, control the price of the products. Asda has around 500 suppliers; and the company try to maintain a good relationship with them, to avoid any dispute (Your Asda, 2014). Rivalry among firms: The UK retail industry is highly competitive, due to the presence of many big companies. Asda mainly competes with Tesco, Sainsbury and Morrison’s and all of them try to differentiate themselves on the basis of price and quality of service along with brand image, in order to grab the largest market share. The competitors are to find new ways of product differentiation which will turn customer decision making in their favour. However, recent studies have shown that the price is no longer a differentiator in the retail industry, which has allowed Lidl, Waitrose and Aldi to capture the retail market. These smaller companies are now forcing the major players like Asda and Tesco to compete in a much smaller middle ground (Silvera, 2013). The market environment can be studied in detail by the PEST analysis: Political: The European Union enjoys freedom of movement and trade; as a result companies of UK face competition from all over Europe. Higher competition has led Asda to decrease their prices to keep the existing customers and invite new ones. The rise of taxes on oil prices will eventually increase Asda’s oil price in the market. The government has also restricted building supermarkets in the rural areas of Europe; this in turn, will reduce the expansion options for Asda (Matlack, 2005). Economic: The economy plays a major role in the performance of a company. The company does well at the time of “boom”, whereas, it performs poorly during crisis or recession. Other factors like the wage rate, inflation rates and interest rates also influence the operation of the company. In recent years, due to the after effects of the financial crisis, UK economy has barely seen any growth (Tovey, 2014). According to Bank of England’s prediction, the inflation should be on target, and then Asda will have a positive sales boost up. Social: The social factors involve the changing mind set of the customers. They are now-a-days more health conscious and choose their food products carefully. The horsemeat scandal in 2013 has definitely put a negative impact on Asda’s brand image (Core, 2013). The rising population of the UK, along with the growing population of aged people has contributed to high sales volume of Asda (Parliament, 2010). So, this will lead to rise in demand of products and services in the industry. The growing population can also impact negatively on the supply side on the retail industry. Higher consumption may eventually lead to shortage of products and this may become the reason for price hike. Technological: The technological advancements have opened new opportunities for Asda. It has enabled further development of online shopping, customer trend monitoring, and better marketing communications. The faster spreading of internet has enable Asda to reach out to a lot of customers with the internet advertisements. Complete incorporation of information technology in Asda’s operation would require huge capital investments, but it would eventually facilitate efficient management and cost reduction for the company. Competitor analysis Source: (Nevile, 2013) The perceptual mapping of competitors suggest that, Asda belongs to the low price and low quality segment, whereas, its competitor Morrison lies in the same segment but offers lower quality product. On the other hand, Tesco has crossed the line of price equilibrium and offers at a higher price than Asda. Thus, Asda has a price advantage. Porter’s Generic Strategies Asda follows the “cost leadership” strategy, by focusing on being the lowest cost producer in the industry. Cost leadership arises when the products are undifferentiated and are sold at a standardized price point. Asda tried several ways to reduce costs, one of them being procurement in bulk, which takes advantage of economies of scale. Another recent effort is cutting 1360 jobs in order to prevent revenue leakage and future profit generation of the company. The risk of employing the cost-leadership strategy is that, a companys motive of cost reduction, even sometimes at the cost of other important factors, may turn out to be so dominant that the company loses its vision as to why it followed such strategy in the first place (Asda, 2014). Ansoff Matrix The Ansoff matrix is divided into four quadrants which are market penetration, market development, product development and diversification. a) Market penetration strategy: This involves selling existing products in the existing market. ASDA seeks to increase its revenue by increasing the customer base in the same market they have been operating in. b) Product development strategy: This strategy involves differentiation of products. Since, in the retail market the products are standardized, so companies like Asda have tried to offer a variety of products in their basket, like Tyres, Own brand fuel, introducing wine shops, etc (Nevile, 2013). c) Market development strategy: Developing new market is tapping in to new geographic locations, where the company has not yet operated. To put it simply, it is selling existing products in new markets. As of now, Asda only operates in Europe. A future market development strategy would involve expanding its business overseas. However, Walmart has gone for a market development in Europe by acquiring Asda (Your Asda. 2014). d) Diversification: Diversification involves selling new product in a new market. As of now, Asda has not gone for any diversification strategy, but it is definitely a future prospect for the company’s growth. Conclusion and Strategic opinion Asda may be ranked second after Tesco, but with Walmart as its ally, it will not take long for Asda to take over Tesco’s position. Walmart has allowed Asda to source materials globally, thus the company has a price advantage. Factors like tax changes, barriers to overseas trade, government policies can impact Asda’s operations, so the management must abide by all the laws and regulations to avoid dispute with the government, which may eventually lead to penalty charges or even closure of business. The SWOT and the PESTLE analysis should therefore be conducted in order to have a clear idea of the market scenario as well as be ready for any future contingencies. Asda in the near future should diversify into new markets overseas, for further expansion. The parent company, Walmart should go for vertical integration, which will strengthen its operation and reduce procurement costs. Since, suppliers has a high bargaining power, they often control the price of the raw materials. The vertical integration will remove all the suppliers, as the company itself will be capable of producing their own required raw materials. Asda can also go for horizontal diversification in the telecommunication sector, either by establishing a new company or collaborating with an existing one. Although, moving into the telecommunication industry requires huge capital investment, but it should not be a problem as Asda has the financial backup of Walmart. Reference list Asda. 2014. Asda Business. [online] Avaialbale at:< http://www.asda.com/business/> [Accessed 27 October 2014] Core, K., 2013. Asda chief: Cheap food not to blame for horsemeat’. [online] Availble at: [Accessed 27 October 2014] Diyweek. 2010. Asda buys Netto. [online] Available at: [Accessed 27 October 2014] Hegarty, R., 2014. Asda confirms 1,360 management redundancies in stores.[online] Available at:< http://www.thegrocer.co.uk/channels/supermarkets/asda/asda-confirms-1360-management-redundancies-in-stores/359233.article> [Accessed 27 October 2014] Matlack, C. 2005. Wal-Marts Overseas Stumbles. [online] Available at: [Accessed 27 October 2014] Nevile, S., 2013. Big four supermarkets squeezed by high-end and discount competitor. [online] Available at:< http://www.theguardian.com/business/2013/jul/16/big-four-supermarkets-squeezed-competitors > [Accessed 27 October 2014] Parliament. 2010. The ageing population. [online] Available at: [Accessed 27 October 2014] Silvera, I., 2013. Britains Big Four Supermarkets Sainsburys, Tesco, Asda, Morrisons Feel Pressure from Smaller Competitors. [online] Available at: [Accessed 27 October 2014] Tovey, A. 2014. UK economy finally returns to pre-crisis level. [online] Available at: [Accessed 27 October 2014] West, M., 2014. Asdas grocery sales rise 2.4% but rest of the big four supermarkets suffer declines as competition from discounters bite. [online] Available at: [Accessed 27 October 2014] Wood, J., 2012. Asda sees 6% rise in profits . [online] Available at: [Accessed 27 October 2014] Your Asda. 2014. Low prices and a friendly welcome: what you’ll find in every Asda STORE. [online] Available at: [Accessed 27 October 2014] Your Asda. 2014. Walmarts Asda Opens New Chapter with Ambitious Plans to Grow and Broaden its Business. [online] Available at: [Accessed 27 October 2014] Read More