The Recent Cut in the Retail Milk Price by Asda - Research Paper Example

Business and Sustainability College March 19, 2008 CONTENTS Introduction 4 Evaluation of ASDA's non-financial reporting practices - Supply Chain 6 Evaluation of the Policies 9 Evaluation of the Environmental Management System 11 Evaluation of the Green Technology 11 My Recommendation to ASDA 12 Conclusion 13 Bibliography 14 Introduction Profit and average room rate at the UK's chain hotels continued to increase in November, according to the latest HotStats survey from TRI Hospitality Consulting. Across the total UK sample of 462 hotels, income before fixed charges (IBFC) - also known as gross operating profit - rose by 5.6 per cent to 52.81 per available room. Average room rate increased by 7.4 per cent to 95.03 in November, a similar rate of growth to the 7.2 per cent achieved during the year so far. In London, profit grew by 7.9 per cent to 82.19 per available room. London's hoteliers continued to achieve rate growth at near annual levels with an 8.9 per cent increase taking average room rate to a new high of 125.85. - Jonathan Langston, UK Chain Hotels Market Review November 2007 | TRI Hospitality, www.trihc.com ASDA is known for its cheap prices and has kept this name for ten consecutive years. Since Wal-Mart's acquisition of Asda, the company has steadily increased its market share to become the second largest retail chain operating company in the UK with a 12% market share. The company runs more than 269 Asda stores (including superstores and super centers), 47 Asda small stores, seven Asda Living stores, two discount stores (Asda Essentials) and 12 apparel stores (George) in the UK. It has successfully implemented Wal-Mart's low pricing strategy which is yielding positive results. Furthermore, Wal-Mart's robust financial performance (revenues reaching $348,650 million during the fiscal year 2007, an increase of 11.7% over 2006) would provide financial stability to the company. Also, Wal-Mart's presence in 13 international markets including the UK, Canada, Japan, Mexico, Brazil and China, it also allows Asda to foray easily into new markets. The Wal-Mart umbrella not only provides Asda with a strong brand image but also fuels the company's top line growth. Asda's George apparel line started as a small unknown brand in 100 ASDA stores. It is now the second largest clothing retailer in the UK by volume selling in more than 250 stores in the UK. Furthermore, George now has a presence in five other countries including Canada, Mexico, Argentina, Japan and the US. George products are available for men, women, and children and include apparel, shoes, handbags and even eyeglass frames in select stores. (DesJardins 2006) The George brand, known for style and quality, continues to grow in popularity as a favorite fashion choice across the globe. Strong brand image of George allows the group to extend the brand into other product lines. Asda is the second largest chain of supermarkets in UK with a market share of 16.8% as of February 2007. Furthermore, the company outperformed the rest of the retail sector for the first time in three years in terms of growth rate. The overall growth rate of the company was recorded at 9% for the fiscal 2007. Asda's competitors on other hand recorded a low growth rate during the same period. For instance, Sainsbury recorded a growth rate of 7.8%, Tesco (7.2%), Morrisons (3.9%) and Somerfield (-3.8%). This was primarily due to attracting one million new customers through its checkouts and re-evaluation of its customer offer and pricing strategy. Asda can leverage this growth to further enhance its revenues and profitability. Evaluation of ASDA's non-financial reporting practices - Supply Chain Evaluation Model Old Supply Chain Model Identifying Overheads in the Supply Chain Eliminating the overheads Drafting a new Supply Chain model The bargaining power of suppliers can be crucial. The suppliers are whole sale dealers of grocery and the like. The suppliers have undergone a drastic change over the years and with it their bargaining power also has increased. The following diagram shows the transition in the grocery market from 2000 to present. In 2000, there were a number of players in the field, subsequently, it got narrowed down and a consolidation is seen in this market. This increases the bargaining power of the suppliers. Here the customer is the hospitality enterprises. Old Supply chain model Over heads: The overheads here include warehousing, truckers, wholesalers and discounters. A product has to pass through all these intermediaries and finally reach the customer. Ultimately, the price of the product also increases with the increase in the supply chain. So, the intermediaries have to be eliminated to the core. Eliminating the overheads: After identifying the overheads, they are eliminated and a modified supply chain is developed. Modified Supply Chain model Source: Primary data The new supply chain model is given as a recommendation area for improvement in ASDA. Evaluation of the Policies Evaluation Model STEPS IN EVALUATION PROCESS: Evaluation is important function of the organization management. Evaluation is a command, over check, power, and authority to manage a responsibility given by the higher management. So the Evaluation process consists of the three basic steps. They are as follows: Establishing a standards Measuring and comparing the performance against the standards Taking corrective actions Through these steps the organizations provide a standardized format to regularize the concern's goal o be an effective one. Establishing standards: Each and every organization should have initial goal to achieve with in estimated time. So they need to plan the steps to achieve these in a short time period. So they format a standard to measure the performance of the organization for its future use. Consider the example, an institution follow the NAAC standards to get their recognition. So NAAC has given certain rules or formats to be satisfied by the institution for its approval. The organization performs their own key result areas and categorizes them. Some of the key result areas include marketing position, productivity, profitability, public relations etc.. Those standards which are introduced should be in quantitative terms. Consider our example, here the standards should be mentioned like,"60 systems are provided for the students in computer lab" The standards should be flexible in order to adapt to change condition. The standards are categorized based on the following: Physical standard Cost standard Revenue standard Capital standard The standards which are established should be analyzed and they need not take over the standards as rules and methods. Standards should make things do right rather than doing the right things. Measuring and comparing the performance against standards: The performance measurement should be made by comparing with the standards. They are measured through observation based on charts, figures etc. By comparing the standards against the performance the deviations are obtained. To overcome the deviation, first we consider the type of the control and then measurement are evaluated. Taking corrective actions: Based on the deviations measured by the second step, then the necessary actions are performed. Firstly consider the causes for the deviations. The causes include lack of communication system, improper selection and training event, motivations etc. Based on the causes the corrective actions are performed i.e. if a student gets low marks in the exam then the corrective action performed will be remedial classes. Evaluation of the Environmental Management System Asda has an excellent environment management system in place. The various areas include Recycling, Packaging, Energy Efficiency, Transport and distribution, water usage etc. For each area, standards are to be established and compared. Then finally corrective actions are to be taken. Evaluation of the Green Technology Asda has roped in with schools to spread its message on Going green. My Recommendation to ASDA Online shopping has steadily grown in popularity in the UK. It has been estimated that by 2012 online sales will increase by 320%, to 60 billion per annum and would account approximately 20% of all retail sales in the UK. Although the company provides online services, it has a significantly lesser market share than its peers. For instance, the company's biggest competitor, Tesco has 66% of the K's online shopping market. The company's weak presence in this stream of business denies it the opportunity to gain market share in this rapidly growing sector. ASDA has to still reduce its supply chain to compete. This now has reduced the supply chain further as follows: New Supply Chain Model Conclusion Asda has announced a "trade war" between retailers this summer with chief executive Andy Bond reportedly saying: "Over the next year, we are going to expose businesses that prey on customers, forcing them to pay through the nose for goods and services, while they pocket massive margins". Pots and kettles have nothing on this breathtaking statement. (Quilter 2007) Any dairy farmer reading the above is excused for feeling sick to his stomach, considering the profiteering that has taken place at the expense of dairy farmers, right across the retail sector on liquid milk and cheese, in particular mature cheddar. The recent cut in the retail milk price by Asda is another example of Wal-Mart gearing up to resist increases in the milk price paid to farmers for as long as possible -- increases that are driven by real market forces. (Kolk 2000) Asda is rapidly heading for direct confrontation with farmer groups and consumer organizations. Bibliography Barnes, Rachel., Asda urges labeling unity. Marketing (00253650), 7/7/2004, p12-12 P.C.Tripathi , P.N.Reddy, Principles of management , Third Edition, Page no- 313 to 317 DesJardins, Joseph R., Business, Ethics and the Environment: Imaging a Sustainable Future, 2006 Fisher, Colin and Alan Lovell Business Ethics and Values: Individual, Corporate and International Perspectives 2nd edition, FT- Prentice Hall, 2006 Gorman, Matthew., Asda's Rick Bendel takes on 'consumer champion' role. Marketing Week (01419285), 6/28/2007, Vol. 30 Issue 26, p3-3 Jack, Louise., Asda to take on Unilever with eco detergent range. Marketing Week (01419285), 8/23/2007, Vol. 30 Issue 34, p8-8 Kolk, Ans., Economics of environmental Management, Pearson, 2000 Quilter, James., Asda fights back. Marketing (00253650), 3/15/2006, p19-19 Quilter, James., Asda marketing director reopens own-label rift. (cover story) Marketing (00253650), 5/10/2006, p1-1 Quilter, James., Asda takes on Tesco as mobile network operator. Marketing (00253650), 3/21/2007, p3-3 Ritson, Mark., Boasts lose Asda its no-claims bonus. Marketing (00253650), 8/24/2005, p19-19 Sweney, Mark., Asda nets Owen for footie snacks push. Marketing (00253650), 5/26/2004, p14-14 Thomas, Daniel., Asda RFID trial shows efficiency gains are key benefit for business. Computer Weekly, 6/24/2003 Read More