Swot And Pestle Analyses Of Asda Marketing Essay

“SWOT analysis entails a distillation of the findings of an internal and external audit which draws attention, from a strategic perspective, to the critical organisational strengths and weaknesses and the opportunities and threats facing the organisation. Whereas PESTLE analysis is an audit of an organisation’s environmental influences with the purpose of using this information to guide strategic decision-making. The assumption is that if the organisation is able to audit its current environment and assess potential changes, it will be better placed than its competitors to respond to changes”. (Kotler et al 2005).

This study will analyse the impact of political, economic, social, technological, environmental and legal factors on Asda. It will also identify the key forces that represent both opportunities and threats to its profit. Data is supplemented with details on the company’s history, key executives, business description, locations and subsidiaries as well as a list of products and services and the latest available company statement.

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Overview

Asda Group (Asda) owned by Corinth, a fellow Wal-Mart group company, is a grocery and general merchandise retailer in the UK. In 2008, Asda recorded a profit before tax of £520.4m, down slightly from £532.7m but exceeded arch rival Sainsbury’s. Asda’s sales hit £18.57bn, up from £16.7bn, ranking the chain third in the supermarket hierarchy after Tesco and Sainsbury’s.

Since 1999 Asda has been wholly owned by Wal-Mart -the biggest company in the world by value, Asda is the second biggest supermarket chain in the UK with 17% of the market share. This includes sales of non-food items. Asda overtook Sainbury’s in July 2003 (they are now floundering with 16.2% of the market) although it is still a long way off Tesco’s almost unassailable 28% market share. The takeover of Asda by Wal-Mart has far-reaching consequences for British retail as other companies react to it and find new ways to compete.

Earlier this year, Asda was named Britain’s Best Value Retailer for the twelfth consecutive year in the annual Grocer 33 awards, compiled and presented by Britain’s top supermarket trade publication. Asda was named in the Sunday Times Best Green companies as well as being voted as one of the Top 50 places for women to work by the Times newspaper.

Asda has also been recognized for its environmental welfare credentials, winning ‘Best large retailer’ at the RSPCA ‘Good business’ awards for animal welfare and a ‘Business Commitment to the Environment’ Award for its efforts to reduce packaging and literally hundreds of prestigious awards for our wines and cheeses.

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As of June 2010 Asda operated 377 stores and 19 depots and employed 165,000 associates. Asda’s total retail units is made up of

Asda Supercentre 29

Asda Superstore 297

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Asda Living 25

Asda Supermarket 26

http://walmartstores.com/AboutUs/275.aspx?p=246 [20/08/2010]

Asda’s sales in grocery accounts for 60% of its turnover and efforts are being made to increase the share of its non-food products in its stores, which may well help it to challenge Tesco’s dominance in the very near future. Asda’s own brand includes Asda Smartprice, Asda, Good for You!, Asda Organic, Asda Extra Special and More for Kids.

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As part Asda’s strategy to grow its non-food business, its George fashion range was launched in 1990 by George Davis, founder of the Next chain of high street stores. George fashion range now accounts for over a £1 billion of its turnover. Asda is the UK’s biggest clothing retailer.

It has over the years increased the number of its stores with petrol stations. Asda sells its petrol and diesels cheaper than the likes of BP, Shell and Texaco.

Asda’s other non-food businesses include pharmacies, opticians, jewellery and photo departments. As part of its strategy to quickly grow its in-house pharmacy, Asda acquired Moss Pharmacies from Alliance UniChem for £100m in 2000. Asda has 83 in-store pharmacies, and plans to open around 80 more in the next five years as licensing laws have made it easier for the supermarket to open more in-house pharmacies. Some have criticised the change of the law as potentially damaging for community and hospital pharmacies. Many Asda stores now have opticians, who provide ‘free NHS eye tests for those who are eligible’. http://www.grocertoday.co.uk/gra_article.aspx?articleid=75623&wordstohighlight=asda [20/08/2010]

Board Of Directors

Andy Clarke, CEO

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He joined Asda in 1992 and has worked in a variety of roles, including store manager. He has also been a business unit director of categories such as frozen, bakery and produce and retail managing director for Asda’s central division. He was named A

sda’s chief operating officer in 2007.

Other board members include

Andrew Bond – Part-time Chairman

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Judith McKenna

John Longworth – Company Secretary

Andrew Bond

John B Menzer

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Auditors Ernst and Young.

Subsidiaries and alliances

1. Asda Employee Share Schemes Trustee Limited

2. Asda Quest Trustees Limited

3. Asda Storage Limited

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4. Asda Stores Limited

5. Corinth Services Limited

6. Gazeley Holdings Limited

7. McLagan Investments Limited

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8. George Davies Holdings Limited

9. APS (Estate Agencies) Limited

10. Asda (Number 1) Limited

11. Asda Financial Services Limited

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12. Burwood House Developments Limited

13. Company Chemists Association Limited

14. The Burwood House Group Limited

15. The George Davies Partnership Limited

16. Wal-Mart (UK) Limited

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http://amadeus.bvdep.com/ [20/08/2010]

Shareholder

Corinth, a Wal-Mart group company

SWOT Analysis

Strengths

Asda/Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store. Like its parent company, Asda’s primary focus is saving money and keeping costs low. The company has a core competence involving its use of information technology to support its operations. For example, it can see how individual products are performing store-by-store at a glance. IT also supports its efficient procurement. People are key to the company’s business and it invests time and money in training people, and retaining a developing them.

Its expansion in non-food has been propelled by Wal-Mart. In the last five years the supermarket has quadrupled its non-food offer to more than 12,000 general merchandise lines. Asda recognised it was a great way to accelerate growth in the UK and has drawn on the expertise of Wal-Mart in this area. They have taken product, gone on joint buying trips, sourced globally and shared category management expertise on how to space and display.

http://www.talkingretail.com/news/industry-news/326-store-level-asda.html [22/08/2010]

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Wal-Mart/Asda challenge

Since the US shopping giant Wal-mart purchased Asda, Tesco’s rank as the top UK

supermarket has been threatened. Asda can now compete extremely well on price

and range of goods. Asda is the second largest supermarket in the UK just behind Tesco. Tesco is well aware of this, and has so far been quick to keep up with price cuts or special offers at Asda. Wal-mart may also decide to wield its buying power more heavily in the UK, and this could spell the end of Tesco’s brand dominance in the future.

And while Asda, unlike its rivals, do not participate in the convenience market with small stores and its not in the company’s real estate strategy to develop convenience stores. It remains a big challenge for the supermarket giant to make stores easy to shop, and therefore delivering against peoples’ requirements for increased convenience” and industry analyst fear that Asda may loose customers to its main competitors, as customers choose to shop in stores nearest to them.

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Weaknesses

A key Asda weakness is its lack of smaller supermarkets and convenience stores. Britain, like many European countries, has placed sharp restrictions on construction of “big box” stores in suburbs and rural areas. While most Asda stores fall into that category, two-thirds of Tesco’s outlets are small or midium stores.

Wal-Mart is the World’s largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control.

Since Wal-Mart sell products across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.

Opportunities

As part of the world’s largest retailer, Asda has harnessed Wal-Mart’s enormous buying power, especially on general merchandise. Here, its ability to source materials like denim on a global scale has helped drive down the price of a pair of jeans from £14 to £4 over the last five years. But food still accounts for the largest part of Asda’s turnover and it is here where its low pricing model has really fuelled sales.

Asda has opportunities to take over, merge with, or form strategic alliances with other global retailers, focusing on growing both its food and non-food markets. According to Andy Bond, part-time chairman of the company, set out a series of key targets for the chain, including overtaking Tesco to become ‘number one’ in non-food retailing in the UK and opening 100 smaller format supermarkets.

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Asda buys Netto supermarket. The move signals supermarket chain’s commitment to smaller store format, as it plans to incorporate 193 Netto stores into its portfolio. The sale, which remains subject to regulatory approval, will see Asda convert all of Netto’s UK locations into Asda stores and integrate them into its new supermarkets division for units smaller than 25,000sq ft. Asda expects the transaction, which will see it close the gap between rival chain Tesco, to finalise after approval from the Office of Fair Trading later this summer.

http://www.diyweek.net/news/news.asp?id=13419 [23/08/2010]

Threats

Consumers, worried by the coalition government’s measures to rein in record debt with tax increases and public sector cuts, are also becoming more wary in their spending. Britain’s grocers are facing more moderate food price inflation and a jump in petrol prices that has left shoppers with less to spend on groceries. According to Asda, research carried out on its behalf by Cebr showed UK families’ disposable income in December is forecast to be 172 pounds, 5 pounds lower than 2009.

Asda’s second-quarter to June 30 report shows flat underlying sales, impacted by subdued food price inflation and consumer worries over prospective tax rises and employment uncertainty. That compares with a decrease of 0.3 percent in the first three months of the year, the first fall since early 2006, and a rise of 4.6 percent in the final quarter of 2009. http://uk.reuters.com/article/idUKLNE67G01620100817 [24/08/2010]

PESTEL analysis of the macro-environment

The following factors in the macro-environment (tax changes, new laws, trade barriers, demographic change and government policy changes) will affect the decisions of the managers of Asda. To help analyse these factors, managers can categorise them using the PESTEL model.

Political factors.

According to Ian Duncan Smith, Secretary of State for Work and Pensions, ‘an across-the-board tax’ was needed to increase the costs to all drinkers. Increasing taxes has been announced as part of the Conservative’s alcohol policy, but questions have been raised about how effective it will be ‘to find a fair formula that could be used to judge whether a product is being sold below cost’, as outlined in their Green paper. Alcohol Concern have previously commented that increased taxes are a start, but that minimum pricing is the most effective policy and prevents supermarkets from absorbing tax increases on alcohol as loss-leaders. Asda strategic planners will be watching this closely and would want to study the impact it will have on their policy of keeping prices low.

Economic factors. With the budget looming and coalition economic policy still awaiting definition, the call for a new, stricter approach to competition has come under elliptical attack from both the political right and left. Asda like its main competitors Tesco and Sainsbury have been accused of tax avoidance, depriving farmers of a livelihood and functioning as modern-day monopolies that drive local businesses out of communities. There is increasing pressure on the conservative government to bring a stricter approach to competition to bring the big companies under control. This may have very serious implications for the long term operations of the supermarkets especially Asda that prides itself on keeping prices low. The question to ask is how important are grocery prices compared with long-term market competitiveness, small business ownership and the livelihood of agricultural producers? The average family spends 11 percent of their income on food, and this rises to 15.9 percent for those on the lowest incomes. There is suggestion that decreases in food prices considered in isolation over the past two decades have increased the standard of living for the poorest by approximately 2.75 percent, before inflation is taken into account.

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Consumers, worried by the coalition government’s measures to rein in record debt with tax increases and public sector cuts, are also becoming more wary in their spending. Identifying markets that are likely to be resilient and potentially growing during the recession requires analysing what people and businesses are likely to do more during the recession. This leads to several general ideas that may be applicable to a wide range of business. The most evident growth potential exists in the low price segment as many consumers shift from premium brands to budget substitutes. Consumers will always need to satisfy their basic needs, and during recession they do so with tighter budgets. Evidence of successful value-for-money strategies exists in the low price section of retail sector. For instance Asda has been reporting sales growth.

Social factors. Changes in social trends can affect the demand for Asda’s food and non-food products and the availability and willingness of individuals to work for it. In the UK, for example, there is a growing pool of retired workers willing to work to supplement their pensions. Asda have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on the demand for both its food and non-food products such as medicines and glasses from its optical stores

Technological factors: new technologies create new products and new processes. Online shopping and computer aided design are all improvements to the way that Asda do its business. The company has a core competence involving its use of information technology to support its operations. For example, it can see how individual products are performing store-by-store at a glance. IT also supports its efficient procurement.

Technological factors that have perhaps had the most impact on Asda have been the Internet. More and more people are using the Internet and a company like Asda have seen a very significant growth in its online shopping and provision of service through its website (www.asda.com).

Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products. Technology has been used to support and realise Asda’s primary focus of saving money and keeping costs low.

Environmental factors: Asda supports carbon reductions in most of its stores. Asda’s stores are eco-friendly, 40% more energy efficient and emits 50% less carbon dioxide than a standard new build store. Over the past couple of years Asda have been working with their suppliers to reduce the amount of carbon emitted during the manufacture, growing and processing of their products – something that’s known as embedded carbon.

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Asda is also part of the Institute of Grocery Distribution, a think-tank and research organisation for the sector, working with the British Standards Institute to find a method by which all retailers can measure the amount of embedded carbon in their supply chains.

If Asda did not take environmental issues seriously it could have dire consequences for its reputation.

Legal factors: Asda need to be aware of planning permission regulations and make sure that continued store expansions complies with planning regulations.  Planning permission is heavily regulated in the UK.  A PESTLE analysis would help Asda to identify relevant planning laws and comply with them to reduce any disruption to his store expansion programme by local people’s dissent or the local authority refusal.  The analysis would assess the potential success of opening a new store in an area.

There are issues about Asda having unfair competitive advantage over other small retailers and potentially driving them out of business. PESTLE analysis will help identify policies, laws and regulations governing monopolies and competition.  This is one of the challenges facing Asda in its quest to expand its business.   Consumer law helps to protect consumers by ensuring that businesses can compete fairly in the market economy and competition drive down prices and improve quality of goods and services.  Under EU law, there is concern that unfair competition or a large share of the market (dominant) can result in low quality product and services and consequently increase in prices of goods and services. Fortunately for ASDA, it is not considered to be exploitative but should bear that in mind as it continues to expand its stores.

Conclusion

It is important for managers to consider factors such as tax changes, new laws, trade barriers, demographic change and government policy changes, opportunities to enter new or emerging markets, their perceived weaknesses and competitions that can impact on the operations of Asda and rank such factors in the order of their likelihood of occurring and also rate the impact if it did. The higher the likelihood of it occurring, the greater the impact of any change and the more significant this factor will be to the firm’s planning. A SWOT/PESTLE analyses are therefore important to the day- to-day management of Asda stores. 

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