Strategic Analysis of ASDA


Introduction

Organizations use the tools of strategic planning at the top level management in order to achieve their goals, objectives and long term sustainability in the market.  This planning is extremely important and crucial for the organizations no matter whatever their nature of work is and how big the company is. ASDA is the grocery chain in UK. It is the fourth largest grocery chain of UK and this paper is based on the study of ASDA. The strategic plan consists of key issues like internal and external analysis, business tactics and marketing strategies that help ASDA to achieve its financial, operational business and corporate goals and objectives. There are also methods to control the proposed strategic plans that are discussed in the end of this research papers. Two strategic models are used for strategic analysis of the organization that will be discussed also.

Retails industry is growing rapidly and the competition in the industry has risen in the UK in the present century. Although the businesses in the supermarkets are growing but retail industry is growing rapidly as well along with supermarkets. ASDA plc’s marketing strategies will be discussed so that opportunities in retailing field could be evaluated. These opportunities are important to provide high value products to the consumers at the economical yet competitive prices. ASDA was acquired by Wal-Mart in 1999 and its status changed from regional North Britain player to National Retail Business. It was important for the company to have comprehensive strategic marketing plan to evaluate the recent profits in UK irrespective of the recession time period.

Company Description

ASDA when started had the vision. That vision was to make it that one shop which fulfills all the needs of consumers. ASDA is a very well known chain of superstores in UK. It offers variety of products like clothing, food, merchandise items etc. for consumers etc. Wal-Mart acquired this company in the year 1999.

History of ASDA starts from the year 1920. The family called Asquith was the owner of the butchers shop Knottingely located in West Yorkshire. The two brothers called Fred and Peter took over the business and was also the founder of ASDA. During the same time another company called Craven Dairies Ltd was founded with the support of a group of West Riding Dairy Farmers. This company merged with another company in the year 1949 and another store was founded called Associated Dairies & Farm Stores Ltd. In the year 1965 ASDA name was given to the company when Asquith and Associated Dairies came together. Currently the company holds 16.8% of the shares in the UK’s grocery market (ASDA website 2012).

ASDA stores have simple format and their color scheme is white and green. After the acquisition by Wal-Mart both the companies opened many super stores jointly. Currently only UK has 21 supermarkets. The first general store of the company was founded in 2003 with the name “ASDA living” (ASDA website 2012). That store used to sell different products that include toys, home electronics, home wares, health products, clothing, beauty products etc. The company is now joined with other company called Compass Group that has coffee shops in some of the stores of the company.

ASDA Essentials were introduced in the year 2006 by ASDA Company. ASDA Essentials was used to stock the products of the company. After emergence of ASDA Essential, the competition in the supermarkets especially related to discounted products increased in the region. But the store stopped its operations in the year 2007. The option of online shopping was also available for the consumers as they started their online operation in 1998. They targeted different categories like travel, furniture, gifts, mobile phones, entertainment, electrical devices and flowers as well. They started selling their own brand of clothing called George. ASDA Electrical was launched in the year 2007 that used to sell electrical products.

The relative positioning of ASDA’s market share is largest as compared to other leading stores chains in the UK retail market.

ASDA has a famous name in the market. 10% discount is given to the staff of ASDA. In the month of December they offer double discount packages and 20% discount is given to staff members (ASDA website 2012). The company works harder to attract customers and provide family-friendly services to its different outlets. They make sure that they are able to cater different customers according to their needs and requirements.

Retail Sector Analysis of UK

The current recession condition was actually started in the year 2008 that affected many countries including UK and other European countries. This recession has become a challenge in terms of endurance and productivity of big companies of UK and other international companies of the world. The recession has affected the industries worldwide.

There is a drastic impact of recession on buying behaviour of consumers of UK in the current financial crisis. It was found out from the survey that future as well as current challenges can be divided into two categories called direct and indirect challenges (Raithel et al (2010). Direct challenges consist of factors including decrease in disposable income, job insecurity and problems related to credit financing. According to Economist (2008), companies are facing indirect challenges like they have to produce products that are economical for consumers providing them financing facilities so that customers’ behaviour towards purchasing gets changed in a positive way.

This research focuses on the consumer buying behavior process in the current recession time especially in the UK region. Consumer perception and specific attributes are identified in this research. The signs of recovery around the globe have appeared in the year 2010 and for UK it is considered as the recovery period for the economy. The prevailing downturn is the main reason of UK economy, the increase in unemployment level and decrease in the disposable income of UK region, according to Datamonitor (2010). Companies that work in retail industry have also changed their policies to gather more consumers and increased lucrative offers, low cost food products, online sales and discount coupons. These offers are now the latest trend in UK.

 

According to Euromonitor (2010), Britain was severely affected in the year 2008 and 2009. In 2009, the GDP of UK fell by 5% and inflation rate increased to 2.2%. The unemployment rate also increased to 7.7% that was approximately 2% higher than the year 2008. The British Pound was also affected and its value decreased to almost equal to the value of Euro in the year 2009.

According to Mintel (2009), the economic downturn can be evaluated with the help of the figure 4.2 that represents GDP growth graph. The financial crisis that started in 2008 has affected the UK resulting in increase retail expenses and affected the consumers spending manner also. Many big names in the retail industry like Woolworths stopped their operations and it was a common sight to view the empty retail outlets in the cities. The retail industry was badly affected during that era and consumers’ purchasing power was highly decreased. Retail industry is very much strong in the UK region and plays important role in the strong economy of UK.

ASDA PESTLE Analysis

This analysis PESTLE is use to analyse external environmental factors for ASDA in UK retail sector. This analysis shows the factors affecting the operations and strategies of the company in macro environment (Barney and William 2006).

Political and Legal Factors

There are various political and legal factors are involved. Political and legal implications are faced by Morrison. For example to open the store they needed the local council permission to open a store, to work with government agencies so they could get the employment opportunities, health and environmental standards etc.

Operations of ASDA are also affected by national factors including political and legal decisions that occur at national level. National policies are about the employment, educational provision and economy of the country that affects the ASDA decision making process. There are other factors also called European factors that have affected ASDA. These factors are the acceptance of European minimum wage rate, number of working hours per week etc. European Union has also put national barriers to entry to the competitive markets of Europe to foreign employees from other countries of Europe. ASDA is also affected by other global factors like terrorism, warfare, and political stability of US, Japan etc.

Economic Factors

Council rates, local economic development schemes are all the economic factors that affect the independent supermarket stores operations. There are other national factors that also affect the ASDA like inflation rate, level of employment, GNP rate of growth and other decisions related to budget. It is possible for the company to carry on its expansion plan in this time due to the fact that UK economy is in a better and stable position as compared to other European countries’ economy.

European factors also affects the ASDA such as stability of pan European economy, policies regarding investments etc. one example is that the policy regarding subsidizing local farmers that supports ASDA to keep the low cost of its supplies. Although ASDA competed only in the UK market but global factors also affect the company. The most recent example is the World Trade Organizations’ conference that was deadlocked. European farmers were given subsidies and the developing nations protested against it (Kotler 2009). That is any decision in this particular scenario would have influenced ASDA.

Socio Demographic Factors

ASDA is specifically affected by the aged population. It is of utmost importance for ASDA to provide them their necessary products that satisfy their needs. It is also important for ASDA to provide friendly and comfortable environment for shopping for mature and aged customers. The availability of employees is another factor that implies to the aging population. Very few young people will be left for employment in the future and as a result people will retire late.

Different types of customer targeting, segmentation and positioning is needed in UK due to slow eradication of the class system. A late opening is the requirement now due to busy lifestyle of UK region. UK is considered as a multi-cultural society as it has capacity to accept different culture system. There are varieties of foods available in the UK that belong to Indian, Chinese and are of other indigenous goods. The different variety of food industry is growing and has influenced ASDA in a way that now their menu includes the mentioned category of food (Mintel Oxygen 2008).

Technological Factors

One of the most famous marketing strategies is implementing E-Commerce or Electronic Commerce. It has become a major distribution channel and very important marketing aspect. The competitor of ASDA has embraced online marketing and distribution in a very well high profile way (Keynote 2010). And this is the reason why ASDA has started investing in this category of marketing.

Due to the development of IT technologies there is improved in the service provision and customer transaction. Customer excellence is achieved by updating the technologies like EDLP. Technology has improved so much that automation of processes have implemented already which has reduced the number of staff.

There is a increase in the usage of internet technology, intranet and extranet that have improved the processes of internal as well as external communication. Competitive advantage is achieved by organizations by integrating the supply chain and value chain activities. It is indeed an area to be focused to get competitive advantage.

Ecological and Ethical Factors

Ethical as well as environmental issues have risen in the past few years. It is easy to gain both positive and negative publicity in this regard. People are giving more importance to ethical issues and involved in ethical buying. People are more aware regarding greenness issue and other environmental factors. They are more involved in environment friendly activities and the whole spectrum of value chain is embraced.

ASDA’s SWOT Analysis

SWOT analysis is presented below to clear the concept regarding the strategic position of ASDA.

Strengths

  • ASDA has the share of 16.6% in the retail industry of UK that makes it the third largest grocery chain in UK retail industry according to Datamonitor (2010).
  • ASDA is financially strong organization and has shown the study progress. The turnover of ASDA is £54billion which shows the increment of 14.9% from last year figure. This shows the strong and effective strategic policies of ASDA.
  • ASDA’s products are of high level quality and offer customization in products and services according to the requirements of customers.
  • ASDA offers customer card to retain loyalty of customers. This loyalty card has increased number of customers and a very large number of data is collected which helps in direct marketing tactics like promotion and advertising.

Weaknesses

  • According to Mintel (2010), ASDA’s performance was not very good in the last couple of years that is 2009 and 2010. And this performance affected the brand image and sales of ASDA drastically especially in 2009.
  • According to ASDA (2009), the other weak factor of ASDA during that time was the concentration factor of retail industry of UK compared to other global destinations. In 2009 75%of revenues were earned by UK retail sector.
  • There was a lack of global expansion strategies and diversification that affected the brand name of ASDA in the global market and increased the risk factor in the retail industry of UK.

Opportunities

  • There are opportunities available in the markets of Africa and Asia for ASDA. According to et al (2003)., financial support services and online retailing for grocery is becoming popular which opens the new business opportunities and reducing the operating cost of the company.
  • .The world ranking of ASDA can be improved if the business rises in India and China. The food crisis in developing countries can also increase the chances of export business. There is a lot of opportunities available in ASDA to expand overseas food market, expanding their stores in these countries and get the place in Africa and Asia.

Threats

  • The threats of ASDA are economic recession of UK markets and decrease in consumer purchasing power. Financial constraints can further be raised if ASDA limits itself to UK market only which is actually the current situation.
  • Increase in unemployment level and decrease in buying behaviour of consumer has also affected ASDA in terms of sales of luxury items and non-food items. ASDA has seen a decrease in sales in the past three years.
  • Competition has increased in the retail industry of UK and market share is changed for ASDA in the recent years. It could be the factor of affecting the sales condition of ASDA in the next few years.

Porter’s Five Forces Analysis

This analysis of ASDA is based on Michael Porter’s competitive forces theory and its framework (Mishra 2007).

Industry Competitors

There are although four major players of supermarket retailing industry but they are considered as highly competitive. The four key players are TESCO, ASDA, Sainsbury and Morrison.  The position of ASDA can be improved if they increase their number of stores by collaborating with Wal-Mart, the parent company. TESCO is leading among the three companies and Sainsbury is following it. These two companies are threats to ASDA because of their sizes, cost efficiencies and strong financial position.   Morrison is the owner of subway and is the local market leader as well is also a threat to ASDA but to lesser extent because of the recent financial crisis of the company and inefficient operations (Gramley 2008).

Threat of New Entrants

There is always a threat of new entrant because of the growing retailing industry of UK. Big players from the countries like France and Germany are always ready to enter in the UK market. Lidl which is the supermarket chain of Germany is already opened in the major cities of UK. There is a possibility of major North American markets to enter in Britain which will weaken the UK markets’ key players and could be a major threat to home markets of Britain.

Threat of Substitutes

ASDA’s substitutes could be off license specialist outlets and franchises chains like Londis, Budgens, cost cutters, various different groceries etc. the threats are subdued at the moment. Smaller franchise chain is the most famous chains that is gaining the popularity nowadays and there is a chance of it becoming a threat in the near future.

Bargaining power of Buyers

Customers and consumers of ASDA are called buyers. There are various alternatives of every product is available in the market therefore the bargaining power is quite high. Switching cost is very low and if the buyers are not satisfied with the product then there is a chance of switching. Also there is a factor of knowledge and information. According to King and Grace (2010), nowadays customers have complete details about the products pricing and they are aware of the details therefore this factor also increase the bargaining power of buyers.

Bargaining power of Suppliers

Up till now ASDA has not threatened by the bargaining power of their suppliers. The reason is the in house sourcing and policies regarding proportions of its products. However it is a known fact that market is continuously expanding geographically which increases the search for new suppliers. So it can be said that there is a possibility of bargaining power of suppliers in future (David 2008). Although, ASDA can use its advantage of economies of scale to subdue the suppliers, but suppliers can increase the future buying power as new entrants in retail market of UK are very frequent now.

Ethical Considerations

ASDA is a completely possessed subsidiary of Wal-Mart USA in United     Kingdom; therefore the company follows the universal ethical opinions and principles of Wal-Mart for guidance in all ethical affairs. These guiding principles are originated by Sam Walton, entrepreneur who established Wal-Mart Stores, Inc, always worked as a values-based, justly guided corporation. There are three points ethical guidelines available for all companies of Wal-Mart Inc., ADA also follows these guiding ethical principles, they are as follows (ASDA website 2012):

  1. Customers need to be first preference every day.
  2. The care for the colleagues should be there every day.
  3. Striving to achieve the best every day.

Also, being a subsidiary, ASDA is promoting Wal-Mart ethical culture in UK to all stakeholders. The company treats its suppliers, associates, customers under a specific and caring ethical context. There are certain challenges faced by the company in UK in recent years. These challenges are of diverse workforce gue to high proportion of immigrants in UK population, customers attitudes due to rapid change in values of society, violent and uncontrolled youth behaviour in slum areas. Keeping the personal integrity and sense of responsibility is a big task for the company in deteriorating social values environment.

The employees at ASDA are encouraged and free to speak or to take appropriate actions in case of any unethical practice they observed. Human resource department regularly arrange trainings for employees to cope up with the ethical challenges. ‘Global Ethics Helpline’ and ‘Open Door’ policy is used by the company to welcome ethical concerns and suggestions from employees and customers (ASDA website 2012).

Conclusion

The above strategic analysis of ASDA shows that the company is operating successfully in highly competitive retail sector of UK. The environmental challenges like recession, unemployment, and decrease in consumers’ spending have forced the company to cut costs and became more competitive in its operations.