SWOT is a technique for analysing the internal and external environments of an organisation through the identification and assessment of its Strengths, Weaknesses, Opportunities, and Threats. 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).
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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.
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.
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
Asda Living 25
Asda Supermarket 26
Sixty percent of Asda’s sales are currently in grocery items, although it intends to build on the growth of non-food products in store, which may well change this balance. Asda sells six own-brand labels: Asda Smartprice, Asda, Good for You!, Asda Organic, Asda Extra Special and More for Kids.
Non-food is the fastest growing area of supermarket retail, with a 15% year on year growth. The George fashion range was launched in 1990 by George Davis, founder of the Next chain of high street stores. From five outlets, the label has grown into a £1 billion business. Asda has now overtaken Marks and Spencer as the UK’s biggest clothing retailer.
Many stores also have petrol stations; Asda is very proud of the low cost of its petrol.
Asda’s speciality businesses division includes pharmacies, opticians, jewellery and photo departments. Asda acquired an in-house pharmacy through buying Moss Pharmacies from Alliance UniChem for £100m in 2000. In 2004 Asda operated 83 in-store pharmacies, and estimates it can open another 80 in the next five years as licensing laws have recently been changed. The new rules have been criticised for their potentially damaging effects on community and hospital pharmacies18. Many Asda stores now have opticians, who provide ‘free NHS eye tests for those who are eligible’.
Board Of Directors
Andy Clarke, CEO
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.
Andrew Bond – Part-time Chairman
Harold Scott Jr
Company Secretary is John Longworth
Andrew Bond is also chairman of property developer Gazeley, also owned by Wal-Mart. http://www.grocertoday.co.uk/gra_article.aspx?articleid=75186
John B Menzer is also a senior officer of Wal-Mart, holding the positions Executive Vice-President and President & CEO of the International Division
Auditors Ernst and Young.
Subsidiaries and alliances
1. Asda Employee Share Schemes Trustee Limited
2. Asda Quest Trustees Limited
3. Asda Storage Limited
4. Asda Stores Limited
5. Corinth Services Limited
6. Gazeley Holdings Limited
7. McLagan Investments Limited
8. George Davies Holdings Limited
9. APS (Estate Agencies) Limited
10. Asda (Number 1) Limited
11. Asda Financial Services Limited
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
Corinth, a Wal-Mart group company
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.
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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.
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.
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.
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.
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.
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
There are many factors in the macro-environment that will effect the decisions of the managers of any organisation. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. To help analyse these factors, managers can categorise them using the PESTEL model.
According to the conservative government ‘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.
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 impact on the demand for a firm’s products and the availability and willingness of individuals to work. In the UK, for example, the population has been ageing. Some firms such as Asda have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on demand: for example, demand for sheltered accommodation and medicines has increased.
Technological factors: new technologies create new products and new processes. Online shopping, bar coding and computer aided design are all improvements to the way that Asda do its business as a result of better technology. 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 growth in the use of the Internet. They have capitalised on the use of online shopping and provide a delivery service through their website at 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’s are also instrumental as a retailer in supporting carbon reductions. 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.
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 its corporate responsibilities seriously in relation to environmental issues it could have dire consequences for its reputation.
Legal factors: these are related to the legal environment in which firms operate. In recent years in the UK there have been many significant legal changes that have affected firms’ behaviour. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organisation’s actions. Legal changes can affect a firm’s costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service).
Planning permission is an issue that Asda seriously need to be aware of due to their continued expansion. Planning permission is heavily regulated in the UK. A thorough PESTLE analysis would help to identify the relevant laws on planning permission and whether any resistance to planning was on lawful grounds or merely local people’s dissent. The analysis would therefore initially assess the potential success of a store in a new area.
There are issues about Asda driving out the competition from other retailers. There are policies as well as laws and regulations governing monopolies and competition, which would be identified though a PESTLE analysis. This is potentially one of the main issues that Asda are faced with. Protecting consumers and ensuring that entrepreneurs have the opportunity to compete in the market economy are important within consumer law. Under EU law, there is presumption that an organisation with a large market share is dominant. The concerns with this are that quality of products and services will slip and there is a risk of paying higher prices. Asda to date has not been assessed as posing a risk of exploitation but should bear this in mind.
Managers must decide on the relative importance of various factors and one way of doing this is to rank or score the likelihood of a change occurring and also rate the impact if it did. The higher the likelihood of a change occurring and the greater the impact of any change the more significant this factor will be to the firm’s planning.
It is also important when using SWOT/PESTEL analyses to consider the level at which it is applied. A SWOT/PESTLE analyses are therefore vital to the development and the success of Asda in addition to the day- to-day management of each store in line with strategic decisions.
Kotler, P., Armstrong, G., Saunders, J. and Wong, V. (2005) Principles of Marketing, 4th ed, Prentice Hall.
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