Strategic Analysis of ASDA

This strategic analysis delves into the detailed examination of ASDA, a prominent retail company in the UK. The analysis covers various aspects including PESTEL analysis, SWOT analysis, Porter's Generic Analysis, competitive strategies, and recommendations for the company's future growth and sustainability.

Strategic Analysis
Of
ASDA

Table of Contents
Introduction:.......................................................................................................................................... 1
PESTEL Analysis of Asda:....................................................................................................................1
Political factors..................................................................................................................................1
Economic factors...............................................................................................................................2
Social factors.....................................................................................................................................3
Technological factors.........................................................................................................................3
Environmental factors:......................................................................................................................4
Legal factors:.....................................................................................................................................4
SWOT Analysis of Asda:.......................................................................................................................6
Strength:............................................................................................................................................ 6
Weaknesses........................................................................................................................................ 6
Opportunities..................................................................................................................................... 6
Threats............................................................................................................................................... 7
Porter’s Generic Analysis of Asda:........................................................................................................8
Competitive Strategy for Asda:..........................................................................................................8
Porter’s Five Forces Analysis:...............................................................................................................9
Bargaining power of buyers:..............................................................................................................9
Bargaining power of suppliers:..........................................................................................................9
Industry Rivalry:................................................................................................................................9
Threat of New Entrant:....................................................................................................................10
Threat of Substitute Products:..........................................................................................................10
Recommendation:................................................................................................................................ 11
Conclusion:.......................................................................................................................................... 12
References........................................................................................................................................... 13
Figure 1: The UK Retail industry outlook for quarter 2 in 2016............................................................2
Figure 2: Retailer investment plan in 2014............................................................................................4
Figure 3: Estimated amount of legal spending by retailers....................................................................5
Figure 4: UK retail industry market share............................................................................................10
Figure 5: Product-wise cheapest supermarkets....................................................................................11

Introduction:
ASDA was built by a group of farmers of Yorkshire in 1965 and sold only grocery products. However
in 1999, after coming along a long path, ASDA was taken over by Wal-Mart. After this takeover,
ASDA entered into other retail sectors like- electronic products, insurances, home appliances etc
(Saunders, 2011). At present ASDA is the third largest retailing company in The UK and sells more
than 35000 products to its customers. Apart from selling core retailing products, Asda provides
financial and telecommunication services as well. Even after being a subsidiary of Wal-Mart Asda has
retained its British structure and management group since the takeover.
PESTEL Analysis of Asda:
Political factors
The political environment in the UK is much stable and has ensured the sustainability of the retailers.
The retail industry employs over more than 10% of the UK workforce, amounts for more than 5%
value generated each year and contributes almost 17.5 billion pound taxes ("UK Retail Industry:
International Action Plan by GOV.UK", 2016). The recent policies about increased taxes, especially
on alcohol, is about to bring some changes in the industry. To keep the fierce competition in control
the government have many regulations which prevent harming the industry or consumers.
Economic factors

The volatility of the political conditions global economy has faced some deep changes in the early 20th
century. Economic growth was high in the 2000s and then sharply declined after 9/11 in America
(Colin Grahame Bamford, 2002). But this volatility has hardly touched UK economy as it remained
comparatively stable. UK turned into an lucrative market to investors for many reasons – lower tax in
EU, infrastructure development, low labour cost etc.
After the Brexit and because of UK leaving the EU things are about to change a little. The short-term
outlook for The UK and the global economy both have weakened (Retail Economics, 2016). The
consumer spending hasn’t decreased yet after Brexit (the Guardian) but it is expected to fall by 1.3%
in 2016 and 2017 (Retail Research, 2016). The UK economy was weakening even before the Brexit
vote, so Brexit cannot be held liable for everything. The GDP is expected to fall by .5% by the end of
this year and levelling up of inflation and unemployment will influence retail spending and other
decisions.
Figure 1: The UK Retail industry outlook for quarter 2 in 2016
Source: Retail Economics, 2016
Situation after publishing new policies is uncertain which is making the retail industry unstable.
Retailers have to discount prices to prevent sales decline which ultimately causing them losses. In
recessions, consumer will be warier of spending cutting down extra expenditures which will make
them switch from brands to low-cost products. In such situation value for money, strategy becomes
successful which can help Asda to retain its sales and market shares.
Social factors

Even after being taken over by Wal-Mart Asda has maintained its British management structure and
retained its management team. Social trend changes the demand for products significantly. Some
recent social issues are rising in the retail industry. First one is cutting off employees. Asda cut off 750
employees in March as a part of their renewal program. The other top retailers also have been cutting
down employees in last few years to cope up with the rising cost of business rates and labour maintain
the discounted price. Tesco chief executive officer Dave Lewis stated that the jobs in the retail
industry are at risk because of rising cost. British Retail Consortium also confirmed this statement by
stating “there could be 900,000 fewer jobs in the retail industry by 2025” (the Guardian, 2016).
Another social issue aroused in the retailing industry is the low amount of pension fund. Recent
reports, published by Sir Philip Green, states that the biggest companies in the UK pay five times
more dividends than they pay on pensions. The report claimed that top 100 companies paid only
£13.3bn towards pension scheme whereas they paid £71.8bn as dividends (Ruddick, 2016). Social
issues like these need to be addressed by the retail industry.
Technological factors
A new technology promises new products and processing systems. Asda’s success can be attributed to
online shopping and computer-based systems to a large percentage. Asda has shown efficiency in
building hardcore competence in information technology so that it can support its business operations
well. Asda is constantly introducing new technology to maintain its performance and remain one step
ahead of the competitors. It launched “to you” system in January to strengthen its supply system and
to ensure better order collection and return service to customers (Retail Technology, 2016). 32% of
the UK retailers plan to install technology which enables customers to order products from one branch
to another where it’s available (Internetretailing, 2016).

Figure 2: Retailer investment plan in 2014
Source: Computer Weekly, 2014
From the above figure, we can see that Technology has been one of the most important criteria to
maintain sales and competitive advantage in the retailing industry since 2014. Major investments have
been made in developing websites and mobile sites or applications.
Environmental factors:
Doing environment-friendly business is the demand for the present world and the retailing industry is
no exception. In 2010 retailers were pledged to reduce food and packaging waste. By 2013 instead of
decreasing this rate by 5%, it decreased by 0.4% only which was equivalent to 10,000 tonnes waste
(Smithers, 2012). The retailing industry has come a long way since then. The whole industry is
working to reduce carbon emission, cut down toxic wastes etc. Asda stores are built in an eco-friendly
way which is 40% more energy efficient and keeps carbon emission at less than 50% (Asda, 2016).
All the suppliers are instructed to keep the carbon emission at least in the whole producing,
manufacturing or processing procedure.
Legal factors:
The UK government is determined to drive the industry well for which there can be seen time to time
policy changes. The retailing industry has earned some defame in handling the farmers poorly in last
few years. Also, the retailers have been accused of illegal price fixing and providing low-quality
products in the past years. In 2013 the biggest retailer Tesco had to pay 6.3 million pounds as a fine
for dairy price fixing (The Telegraph, 2013). Consumer laws are there to protect consumer right and
to ensure businesses compete fairly (The Retail Bulletin, 2016). Thus the retailers have to run a
business ethically to avoid problems. Asda can face some limitation in the time of their planned

expansion which may not be approved by the authority. Also, illegal price wars introduced by Asda
are creating rage in the industry.
Figure 3: Estimated amount of legal spending by retailers
Source: Mindtools, 2015
From the above figure, it can be seen that what amount of money a retailer has to pay every year to
comply with legal obligations.

SWOT Analysis of Asda:
Strength:
Asda is one of the oldest and reputed retail brands in the UK. It has earned reputation by proving the
fact by providing value for money, offering handiness and an extremely wide range of products all in
one place. Asda’s focus like its parent company Wal-Mart is also to save money and keep the price
low. The company has demonstrated skill in its use of information technology to execute its
operational activities. As such- by their technology they can watch each product’s performance in
every store at a glance. IT helps Asda in human resource management also. They understand
employees are important to run their business thus they invest in them in the form of training,
motivating and developing them.
Asda spread out in the non-food sectors after being taken over by Wal-Mart. The company now offers
a non-food item in more than 12000 product line. Asda can recognise the prospect of growth in the
UK and so has derived some expertise from Wal-Mart. Over the years they have introduced new
products, gone on combined business trips, and sourced worldwide and shared category management
skill on how to manage the stores well.
Weaknesses
As Asda’s objective is to sell cheap products sometimes they have to maintain this strategy even by
providing inferior goods. Another weakness is its huge and inconvenient stores. Britain, like many
other European countries such as France and Germany, has imposed strict restrictions on the building
of "big box" stores in country sides. Asda stores mostly fall into this category though other
competitors like Tesco’s almost 70% stores are small or medium sized. Even if now they are doing
well but with this structure, it might be difficult for them to expand (Matlack, 2005)
Being a subsidiary of Wal-Mart Asda has to also sell products in a broad range which deprive them of
focusing on a specific sector more.
Opportunities
Being part of the world's largest retailer, Asda has gained Wal-Mart's massive buying power,
particularly on general goods. So, Asda has been able to procure materials like Denim at such a
universal level that they have been able to reduce the cost of a pair of jeans from £14 to £4 over last
years. Food contributes the most in Asda’s turnover and this is because their low-cost strategy.
Being financially strong Asda has the opportunity to take over or merge with or form alliances with
other internationally renowned retailers to boost its growth in food and non-food market. Chairmen

have set out target for the company which includes taking over “Tesco” to become the number one
retailer in the UK and inaugurating 100 supermarkets with less space.
Asda also purchases Netto supermarkets. They plan to add 193 Netto stores into its company
portfolio. Asda has the plan to convert all these Netto stores into Asda stores and combine them into
its new supermarkets segment for less than 25000 sq ft units which will help them to reduce the gap
with their biggest rival retailer Tesco.
Threats
Supermarket business is highly lucrative and many people want to invest (Ireland and Hokissson,
Strategic Management, 1999). Asda faces fierce competition from Tesco and Sainsbury in many ways.
The operation of Tesco is vast though many available and convenient store formats. Labour cost is
rising in the UK stated by Department of Business Enterprise and Regulatory Reform, which is
adversely affecting Asda’s profit margin.
With increased tax and public sector cuts, inflation it becomes tough for Asda to maintain its cheap
price. Also because of these factors consumer spending reduces. Consumer’s disposable income
decreases as such it decreased by 5 pounds in 2009. (Cebr, 2009)
Asda has faced the biggest sales fall this year which amounts to 5.9% which is the worst performance
among the 4 major competitors and the biggest slump also (the Guardian, 2016). On the other hand,
the best and major chain Tesco faced 1.3 % fall in sales. Whereas Aldi faced sales increase from
11.5% to 13.8% and expansion in market share up to 10.5% in the meantime by offering discounted
price putting pressure on all 4 major retailers. The overall industry situation is bad now as most of the
companies are suffering from sales decline and competitors climbing up in market share percentage
making Asda’s position unstable.

Porter’s Generic Analysis of Asda:
A firm can obtain competitive advantages when they can provide the same quality products and
services as their competitor’s but at a reduced price than theirs’. Porter’s generic analysis suggests that
there are three strategies to follow in order to achieve competitive advantage- differentiation, focus
and cost leadership (Mindtools, 2016).
Competitive Strategy for Asda:
Cost leadership strategy means setting up low price compared to the competitors to gain majority
market share (Porter, 1985). Asda’s main marketing strategy is cost leadership. Its key competitive
advantage comes from its economical advertising scheme saying “Save money. Live better”. They
attempt to hold the customers and market shares by offering the cheapest price. It is very challenging
to offer the lowest price maintaining the quality and Asda has been keeping up with this tough
challenge for last many years. Other rivals of Asda such as – Tesco also opt for cost leadership
strategy. Differentiation strategy is something that makes companies stand out. This can be gained
through product/service differentiation, price or in terms of positioning (Lynch, Strategic
Management, 2008). Sainsbury emphasizes on differentiation strategy by providing quality products,
developing premium brands and targeting a different segment of customers (New Entrepreneurs
Foundation, 2014).
The cost leadership strategy is not paying off very well for Asda in last two years. So now they need
to focus more on differentiation. The cheapest cannot be the best – this thing should be kept in mind.
Asda should differentiate them in terms of quality and construct a much more attractive and better
brand image. They can develop elegant brands to deliver value to the customers and can target
customers by segments.

Porter’s Five Forces Analysis:
Bargaining power of buyers:
Buyers bargaining power is high. Customers have many other supermarkets to shop from. So when
they purchase products they consider all the factors like –low price, supreme quality, satisfaction,
customer service etc. They can shop from any retailer as per their choice. Asda tries to preserve its
customers by offering the lowest prize with quality products and services.
Bargaining power of suppliers:
Suppliers bargaining power is low. Generally, supply terms are contractual which can’t be changed
afterwards. Asda has more than 500 suppliers. They opt to keep a good relationship with them with
the intention of obtaining quality products so that they can beat the competition and survive.
Industry Rivalry:
Rivalry among the competitors is high. Asda’s biggest competitions are Tesco, Sainsbury, and
Morrison etc. Each of these companies is trying their utmost to become the market leader and capture
the largest portion of market shares.

Figure 4: UK retail industry market share
Source: Retail Economics, 2015
Retailers are constantly developing differentiation strategies, low price incentives, lucrative offers and
discounts; eye-catching promotional activities and top-notch customer service so that their customers
remain brand loyal and don’t switch to other competitors.
Threat of New Entrant:
The threat of new entrant is low. There are already 4 major market players in the industry which make
the competition harsh to the new entrants. Also to enter this industry huge capital, mass distribution
channel and market knowledge is needed which is difficult to have for a new entrant. Competition
from existing market leaders and brand loyalty of customers make the circumstances for new entrant’s
worse.
Threat of Substitute Products:
The threat of substitute products is high. Almost same products are offered by all the supermarkets
with a little difference of price and quality, so the consumer can buy from any store which h/she
thinks to be convenient (Saloner, G., Shepard, A. and Podolny, J., 2001, Strategic management).

Figure 5: Product-wise cheapest supermarkets
Source: This is MONEY.com.uk, 2014
From the above figure, we can see that how easy for a customer it is to switch to a lower costing
retailer from a comparative higher one.
Recommendation:
Asda’s low-cost strategy is no more effective to gain competitive advantage. To regain its lost market
share Asda needs to take rebrand strategy. They have to realize people want value for money. Asda
can change their logo, try new positioning, offer membership scheme, target new customers etc. They
have to make people re-evaluate and re-visit Asda.

Conclusion:
Asda seems to lose its ‘low-price” crown to competitors like Aldi & Lidl. To regain the ground they
have given a hint of price wars which has already brought the industry in retreat through the decline
of Tesco and Sainsbury’s market share (UK Equities, 2016). But offering the cheapest price hasn’t
served them well in the last two years. They have lost market shares to Aldi and Lidl. After Brexit, the
pound value has decreased and the entire pressure of changing economy has to be swallowed by the
retailers without affecting the buyers to retain their price and sales. 40% of foods and groceries are
imported which is now huge cost because of the devaluing of pound.
Cheap prices are not working for Asda. They need to re-create their image and come out of the shell
of being a retailer for middle class budgeted families. Asda needs a message to communicate to its
customers rather than low price to drive the sales. They have got an image problem not a price trouble
to tackle. Declaring a price war will only deteriorate their present situation. Asda’s nuclear price war
will not only damage it but also will impair its other 3 major market leaders – Tesco, Sainsbury, and
Morrison.
Apparently Asda boss Andy Clarke says that they would endure some short term loss for long term
benefits and they have proper strategies which will be triggered at the right time but even if situation
doesn’t improve after all these then it is wise for Asda to start investing in developing markets like-
India and China and try to capture market shares there. The UK market is saturated so investing in
those countries which have immense prospect will give them the advantage of being the first mover
and thus will be proven beneficial for their future financial performance.

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