Asda Group Strategic Management Analysis

Introduction

This paper purposes to provide an analysis of Asda Group plc, which will lead to a provision of recommendations for a client on the appropriate steps to take, whether to invest in the business or acquire it. In this regard, this paper will apply various tools, framework, models, as well as concepts whilst conducting the analysis. These will include the PESTEL framework, SWOT analysis, Porter’s five forces model, and the Resource-Based View (RBV) analysis. The overall objective for conducting this analysis is to assume the role of consultant, in order to provide a description, evaluation, and recommendation to Asda, of its strategic management plan. This paper will first provide a brief overview of Asda Group Plc. Thereafter, it will provide the theoretical underpinnings of the tools, frameworks, models, as well as concepts for conducting the analysis, and this will begin by providing the PESTEL analysis, followed by the SWOT analysis, then Porter’s five forces analysis, and finally the RBV analysis. Following these, this paper will provide significant recommendations to a client on whether or not; Asda is fit for investment or acquirement. This will be followed by a provision of the limitations of the analysis and finally, a conclusion that summarizes the paper content.

Brief Overview of Asda Group plc

Asda operates as one of UK’s largest food retail companies and has a large distribution channel. The company began in the 1920s but has been diversifying and expanding since 1949. It has its headquarters stationed in West Yorkshire, England (Asda, 2018). In the year 1999, Wal-Mart acquired Asda and presently, it is regarded as the 2nd largest supermarket in Britain. Asda deals in grocery marketing, general merchandise, as well as financial services. The company has a slogan, which goes by “Britain’s lowest-priced supermarket.” The major promotional activity of the company is in its strategy of imposing low prices on its products (Asda, 2017). Moreover, it is worth noting that Asda has an estimated annual revenue of $26.7Billion, and has 165,000 employees. In 2017, Asda had 631 retail units, located in the UK as provided in the figure below:

It is also significant to note that Asda had been endowed thrice for emerging amongst the top ten UK employers in 2001, 2002, and 2003. The mission of the company is to be Britain’s best valuer by purposing to exceed the needs of the customers always. On the other hand, its purpose is to make foods, as well as services more reasonable for all individuals and it has values, which include the following: to respect all individuals, to serve all customers and to strive for excellence (Asda, 2018).

Theoretical underpinnings of the analysis

PESTEL framework

Political factors

The UK’s predominant economic system is its market economy. In this regard, private property ownership is guaranteed, and the forces of demand and supply purpose to regulate production, consumption, as well as resources allocation. This then provides Asda with a suitable economic environment, owing to the fact that it guaranteed a market economy that entails the protection, of various rights such as contractual rights, and also private property rights (Vignali & Vignali, 2009). Moreover, the UK’s governance is democratic, in which case, there is strict observance of the accountability to citizens, as well as the rule of law. As such, Asda has a suitable environment for conducting business, compared to a constitutional monarchy system. In addition, it is evident that the UK has always had a peaceful regime, with low levels of political violence. It is regarded as the world’s most stable countries, which then translates to lower levels of political risks, thereby, minimizing Asda’s costs of conducting business (Asda, 2015).

Economic factors

The UK is the world’s sixth largest economy. By 2013, its GDP was approximately $41.8 trillion. The country’s GDP has constantly been expanding, as it grew from $38.4 trillion in the year 2010; in the year 2011, the GDP was $41 trillion; in 2012, it was $41.1 trillion; and then in 2013, it was $41.8 trillion (Asda, 2017). The growth rate of the UK’s annual GDP is as provided in the figure below:

Notably, an increasingly growing GDP, when all factors are constant increases the per-capita, as well as disposable incomes, which consequently increases the demand for products sold by Asda. Having the GDP grow by 1.9% in 2010, it decelerated to 1.6% in the year 2011, then in 2012, it decelerated to 0.7%, and in 2013, the rate of GDP growth was 1.7% (SAS & Verdict, 2012). It is also worth noting that UK’s interest rate remains historically low, thus implying that customers can be taking credit to finance consumption, thereby boosting the demand for various retailers like Asda (Lambert, 2015). Moreover, the inflation rates remain significantly low, thus making goods cheaper, as consequently increasing the product demands for Asda. However, there were fears related to deflation, which could hit Asda’s sales in the coming months, owing to the fact that consumers are holding back their rate of spending, whilst anticipating for cheaper products (Thompson & Martin, 2010).

Social factors

There are socio-cultural trends within the UK, which are affecting Asda’s operations. One of these trends is UK’s rate of rapid ageing, which is brought forth by an increase in the levels of life expectancy, and a reduction in fertility rates. The fraction of individuals aged above 65 is relative to the entire UK population constitutes approximately a fifth of the entire UK population (UK Government, 2013). This corresponds to the reduction in youthful population percentage in the UK, as provided below:

The consumers in the UK also demand for increased convenience, and this is triggered by the increasing complex lifestyles. As such, retail shopping is becoming increasingly fragmented. Another socio-cultural trend, which can impact Asda is that there is a significant increase in households that are headed by singles (Beynon-Davies, 2013). Overall, these socio-cultural trends can influence Asda either positively or negatively. Notably, the elderly segments can trigger increasing demand for various anti-ageing products, thereby providing increasing opportunities for Asda sale of anti-aging products. Similarly, the youth demand for technology and fashion products could decline, and this could reduce Asda’s retail opportunities. Moreover, with the increase of single-person households, the number of consumers could decline and consequently affect the sales volume of Asda (Asda, 2015).

Technological factors

The advancement in online technology and increasing uses of the internet in the UK, coupled with the increasing growth of e-commerce provide a significant opportunity for Asda. These opportunities include expansion of Asda’s market scope and an increase in its sales volume. By 2012, the total online sales in the UK were worth an approximate of £29 billion, and 9% was totalling to retail sales (CIA, 2015). As such, Asda can save substantial costs, owing to disintermediation of various distribution channels. However, it is notable that increased internet popularity allows retail customers to compare products and run for bargains. In this regard, Asda could lose many of its price-conscious customers. The establishment of RFID tags imposes a positive effect on the competitiveness of Asda, as it will easily track a variety of its promotions, as well as inventory, thereby, enabling it to have better practices, based on promotion and inventory (Jenkins & Williamson, 2015).

Environmental factors

The UK has developed an awareness of the significance of the environment, and as such, it necessitates the need for focusing towards preserving the environment. In this regard, Asda obliges in responding to the “green” demand for more organic products. Asda stocks these products in its outlets and this increases its sales, owing to the fact that it purposes to satisfy the market segment (Drummond et al., 2007). However, it is notable that the need for environmental protection has increased the need for reduction of various food miles. Consequently, most of the “green” consumers prefer buying them from local outlets, and markets, thus shifting away from purchasing from Asda, as well as other retail chains, and this impacts negatively on the sales of Asda. Moreover, the UK government plans to reduce packaging wastes come 2020, and as such, Asda has a challenge of adapting to recyclable product packaging (Asda, 2015).

Legal factors

Asda is falling subject to various UK, as well as EU laws. Such laws include food labelling, as well as packaging laws that require that the front-of-pack should have labels with colour and coding, which amounts of daily guidance, as well as openness to the used ingredients, amongst other requirements. Significantly, the Food Standards Agency effected these laws, as well as some regulations such as the Commission Regulation 41/2009 (Jones et al., 2007). Asda as well faces employment-related laws, including the Equity Act 2010. Additionally, it faces employee health, as well as safety laws, for instance, The Workplace Regulations (1992). Other laws such as the environmental protection laws increase Asda’s compliance costs.

SWOT analysis

A SWOT matrix aids in identifying the strategies that a firm can utilize when exploiting external opportunities, in countering threats, building on and protecting its strengths and eradicating its weaknesses (The Economist, 2017). Whilst referring to Asda, they are as analysed below:

Strengths

Asda poses as a strong retail brand. The company has a reputation for valuing money, convenience, as well as production of various products in one store. Just like its parent organisation, the primary focus for Asda is to save money and to keep low costs. Asda has a vital competence, which involves using information technology in supporting its operations (Asda, 2015). For instance, it is able to see how its various outlets are performing at a glance. Human resource is regarded as key to Asda, and it purposes to train, retain, and develop them. The expansion of Asda in non-food products had been propelled by its parent company, Wal-Mart, and in the past 5 years, Asda has quadrupled its offerings to non-food products, to approximately 12,000 merchandise lines. This has enabled the company to accelerate its growth in the UK, and it has used Wal-Mart’s expertise in this area (Asda, 2018).

Weaknesses

Asda has not been able to tackle some of the challenges presented by the entry of new firms in the industry, and as such, it has lost some of its market share in various niche categories. Additionally, the company needs to invest more in new technologies, owing to the scale of expansion, as well as the different company geographies, which it is planning to expand into. It needs to put more money, in order to integrate various technological processes on board. Finally, Asda has gaps in various product ranges that it sells to retail consumers. The lack of choice could give a new competitor a significant foothold in the retail market (Centre for Retail Research, 2015).

Opportunities

Notably, the adoption of advanced technology, as well as the government agreement on free trade provides an opportunity for Asda to expand and enter new markets. Secondly, owing to the fact that the UK has free cash flows, Asda then gets the opportunity to invest in various adjacent product segments (Asda, 2018). The company can as well invest in newly advanced technology. Thirdly, the new policy that is concerned with taxation can impact the manner in which Asda does business and as such, provide it with an opportunity of increasing its profitability. Finally, owing to the fact that there is an increase in consumer spending in the UK, Asda is provided with the opportunity of capturing more customers and increasing its market shares (Wood et al., 2010).

Threats

It is evident that various countries have varied liability laws. As such, Asda may be subjected to liability claims, whenever there is a change in polities in such markets (World Bank, 2015). Moreover, the rising costs of raw materials may be a threat to the profitability of Asda. It is also notable that the demand for profitable products is often seasonal. As such, any unlikely event in the course of the peak season could influence the profitability of Asda, in either short or medium term. Finally, owing to the fact that Asda operates in numerous countries, it is often exposed to fluctuations in the currency, especially when there is volatile political climate, existing in various markets across the globe (Wood et al., 2010).

Porter’s five forces model

Porter’s five forces analysis perceives an organisation to be subject to five varied forces (Porter, 2011). The five forces are analysed whilst referring to Asda, as provided below:

Rivalry

In 2012, there were about 190,000 retail outlets in the UK. This posed an extreme competition in the industry, which was also imposed on Asda. Moreover, the growth in the UK’s retail market is projected to be slowing down, as it was 2.3% in the year 2014, and in 2015, it was 2%. This further declined to 1.6 in the year 2016. A rate of market growth suggests that the retail forms in the UK industry have the obligation of fighting harder, in order to maintain their sales or grow them, and this leads to high levels of rivalry (Porter, 2011). Moreover, the rivalry is further intensified by higher levels of differentiation amongst the retail brands. However, it is in some way, muted by the higher degree of consolidation in the entire industry. The top four UK’s retail chains are Tesco, Sainsbury, Asda, as well as Morrison. They control about 74.1% of UK’s retail market. Overall, it can be deduced that Asda faces a high rivalry imposed by the industry (Asda, 2015).

New Entrants

The entry into UK’s retail industry is noted to be free and also free. However, there is a high level of consolidation in the industry (represented by the “big four” retail chains), high brand differentiation levels, as well as huge economies of scale, which are possessed by the four retail firms (Fagerhult, 2015). It is evident that the increase in online technology penetration, as well as e-commerce, has lowered the amount of capital required, and has also enhanced the access to various distribution channels, thereby, making entry of new firms into the industry to be easier (Porter & Heppelmann, 2014). As the industry is continually slowing down, the large retailers use pricing strategy as a weapon of competition. In this regard, there is a retaliation threat against new entrants, owing to the pricing strategy. Overall, it is evident that the threat imposed on new entrants is moderate.

Substitution Threats

It is evident that competitive retail stores are not offering close substitutes for various products. However, the growth of various retail platforms, as well as applications are touted to have potential substitute threats on the already developed retail industry. Most of the UK retailers focus on having strong offerings on online platforms, and as such, the threat is noted to be weak (Porter & Heppelmann, 2014).

Suppliers’ Power

The UK suppliers are many and also fragmented. Owing to their bug number, various dominant retail chains always take advantage of price advantages from various suppliers, approximately as much as 11%. In this regard, the bargaining power of the suppliers is weak (Vining, 2011).

Buyers’ Power

The development of online shopping enables retail consumers to compare various product prices whilst they are searching for bargains, thereby, increasing their power of bargaining over the retailers. However, there are many buyers and also fragmented, thereby reducing their power of bargaining over the retailers. In this regard, the buying power is moderate to low (Dobbs, 2014).

RBV analysis

RBV analysis aids a firm in identifying its potential key resources and evaluating them using the characteristics of VRIN, standing for Valuable, Rare, Inimitable, and Non-Substitutable. An organisation’s resources are categorised into tangible, and intangible. Asda’s tangible resources include its employees, consumers, suppliers, IT-based software and websites, as well as its infrastructure (Gellweiler, 2018). On the other hand, its intangible resources include low-priced policy, reputation, as well as brand recognition. VRIN aids in evaluating these key resources.

Tangible resources

Human resource management

Asda employs the best candidates whenever it has vacancies. Notably, the company works hand in hand with Remploy, as well as Stonewall in recruiting employees, and encourages applicants having different culture, as well as background (Asda, 2015). Owing to the fact that Asda recruits the best employees in the market, they purpose to retain them, in order to enhance quality customer service. In 2013, Asda engaged its employees in a survey, and the result of the survey were opportunities for every individual, respect for one another, equality at workplace, as well as pride to be a part of Asda (Fagerhult, 2015).

Technology integration

It is evident that Asda uses technology in performing all its functions. During 2010, the company purposed to implement its resource planning, in order to ensure that it achieves effectiveness. Apart from it having physical stores, Asda has a website that enables its customers to conduct online shopping. Moreover, the company uses Asda direct as the software for integrating its products. It is also notable that the company has approximately 25% of its workers in R&D, thus aiding to create value for its customers (Gohel & Gondalia, 2013).

Inbound and outbound logistics

Asda is noted to be UK’s cheapest retailer, and it has a major objective of selling its products at a cheap rate. It is evident that the company works with its suppliers whenever a gap exists in product supply. For instance, Asda worked hand in hand with L’Oreal in bridging the gap between various inbound services to various consumers, and as such, they implemented plans for improving the services. As such, this aided Asda in reducing its stock-holding days by approximately 39%, which is noted as one of Asda’s major cost reductions (Fagerhult, 2015).

Service

The main aim of Asda is to provide an experience, which is pleasing to its consumers. In conjunction with its parent organisation, Asda follows a 10-foot attitude, towards serving its customers. Moreover, it is also notable that whenever consumers return the products that they purchased from Asda, the organisation accepts them back without question.

Marketing and sales (Pee & Kankanhalli, 2016).

Marketing and Sales

Asda uses a low-price strategy on its customers. Moreover, the company uses a word of mouth strategy in marketing its products. Satisfied customers often spread their experiences to their relatives, as well as neighbours, which poses as the best way to market. Owing to the fact that the company’s main strategy is through word of mouth, the company has been able to reduce various costs in promotion, as well as marketing (Wood et al., 2010).

Intangible Resources

Analysis of competitive advantage

Notably, when competitive advantage arises, especially when competing firms provide similar services, as well as products to their consumers at reduced prices. Asda has a competitive advantage, owing to the fact that it has a major strategy of reducing the prices of its products and also services. There are three strategies used in analysing competitive analysis. They include differentiation, focus, as well as cost leadership (Wu & Chiu, 2015).

Differentiation

The major focus of Asda is on the standards that customers use in choosing a product, or even a service. In this regard, Asda should focus on the criteria, which the customers use and purpose to improve on them when there are similar products or services in the market. In a bid to succeed in terms of differentiation, Asda should consider having internal strengths such as involving primary scientific research, brand imaging for the sake of quality, a strong marketing team, as well as an efficient team for R&D (Pee & Kankanhalli, 2016).

Cost leadership

Owing to lower pricing strategy, Asda looks into becoming a cost-effective leader in the market. When price has been reduced in the market, the sales increase, and also, the profits can be achieved at a high rate. Asda follows this strategy, and it is regarded as a cost leader in the UK’s retail market. Asda should consider following this strategy continually in its distribution channels. Moreover, it should be efficient whilst selecting its suppliers and purpose on having a good relationship with them (Gohel & Gondalia, 2013).

Focus

Asda focuses on different market segments. In an instance where a segment fails, assistance can be derived from another segment. It is evident that when there is segmentation in the market, more customers can be attracted, as there would be a production of varied products and services. An advantage of focusing on different market segment is that more people would be targeted (Wood et al., 2010)

Recommendations

Owing to the above analysis on strategic management plan for Asda, a consultant would recommend that a client should acquire Asda, rather than investing in it. This is owing to the fact that acquiring the business is accompanied by a lot of benefits, which outweigh those involved in investing in the business. For instance, the client would benefit from economies of scale, purchasing economies, higher investment in technology, as well as potential dominance, as Asda is already a strong brand in the Industry (Wood et al., 2010). In this regard, the following recommendations would assist the client in making this objective effective:

It is evident that whilst acquiring Asda, the integration of its supply chain and that of the client would inevitably result in redundancy in distribution, supply, as well as delivery. As such, it would be vital that the involved parties have to be involved in the early stages of acquisition, in order to ensure that their vital relationships do not fracture (Pee & Kankanhalli, 2016). The client and Asda will be concerned about the acquisition, and how it would affect their business, which then implies that they will have to be informed in the early stages, prior to making any critical decision.

Secondly, the client and Asda would have a challenge whilst redesigning a distribution network. As such, the two parties would have to explore the best distribution locations, which would lead to long-term growth, as well as achievement of business goals, and not just purposing to optimize on the already existing networks, which Asda has. It would be significant to consider distribution through the omnichannel, thereby, ensuring that business in the online platform is significantly supported (Fagerhult, 2015).

Thirdly, successful integration of technology, as well as systems behind varied logistic operations of that of the client and Asda is a significant task, as it will support various critical functions. In this regard, the client, and Asda will have to be obligated to standardize and unify the ERP, CRM, and also the transportation management (Gohel & Gondalia, 2013).

Finally, aligning organisational structures through acquisition should be regarded as a priority, whether there would be similarities. The client and Asda will have to focus on this, in order to address any differences, and also take any advantages that come with optimization. As such, the two parties will have to leverage the sellers’ experiences with the buyers’ vision (Asda, 2018). This will require the involvement of employees and resistance to change will have to be addressed appropriately. Overall, it is clear that when the client follows these recommendations, there would be ease in acquiring Asda.

Limitations of the analysis

Based on the PESTEL analysis, it is evident that most of the data presented in the analysis are not up-to-date. For instance, instead of using the latest data for analysing Asda, the analysis has been derived from data established between 2010 and 2017. Additionally, whilst considering the RBV analysis, it is clear that this analysis does not provide a way of predicting the future core competencies of Asda, based on the resources, which it possesses. Moreover, on SWOT analysis, it is clear that this analysis identifies critical issues, without providing significant solutions of alternative for them. Moreover, it does not provide a priority to any of the identified issues. Finally, regarding porter’s five forces it is evident that this analysis fails to take into account, the market dynamics, as well as new business models. This is contrary to the main objective of Porter’ five forces model, which enables managers to consider the current situation of the industry structure, which should be understood easily, and aid in forming an easy starting point that can aid in further analysis.

Conclusion

Based on the analysis of Asda using the PESTEL analysis, SWOT analysis, Porter’s five force, and the RBV analysis, it is evident that a consultant would recommend that the client should acquire Asda, rather than invest in it. This is owing to the fact that acquiring the business is accompanied by a lot of benefits, which outweigh those involved in investing in the business For instance, the client would benefit from economies of scale, purchasing economies, higher investment in technology, as well as potential dominance, as Asda is already a strong brand in the Industry. It is also clear that this analysis has limitations in each of the analytical tools used. However, it is evident that despite the limitations, the tools have aided in providing a significant analysis for strategic management plan for Asda, which is also beneficial to the client.

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