1.4 FINANCIAL OVERVIEW
For the twelve months ended January 31, 2004, Wal-Mart recorded net sales of $256.3 billion, an increase of 11.6% over net sales of the similar prior year period. The Wal-Mart Stores segment, including Superstores, recorded sales of $174.2 billion, up by 10.9% from $157.1 billion in the similar period in the prior year. The SAM’S CLUB segment recorded sales of $34.5 billion in 2003, an increase of 8.9% from $31.7 billion in the previous year. The International segment recorded sales of $47.6 billion in 2003, up from $40.8 billion in 2002, a 16.6% growth. For the fiscal year ended January 2004 sales at ASDA, Wal-Mart’s primary International subsidiary, made up 45.6% of the International segment net sales for the company. Sales for ASDA included in Wal-Mart’s consolidated income statement during fiscal 2004, 2003 and 2002 were $21.7 billion, $18.1 billion and $15.3 billion, respectively.
1.5 TOP COMPETITORS:
The following companies are the major competitors of Wal-Mart/ASDA stores:
- TESCO PLC
- J SAINSBURY PLC
- BOOKER CASH & CARRY Limited
- MARKS & SPENCER GROUP PLC
- MATALAN PLC
- SAFEWAY PLC
- SOMERFIELD
-
WM MORRISON SUPERMARKETS PLC (MarketWatch, 2003)
2. COMPETITIVE ADVANTAGE:
A competitive advantage can be defined as, “any factor that allows an organization to differentiate its product or service from those of its competitors to increase market share.”
Wal-Mart’s competitive advantage begins with the business philosophy of founder Sam Walton — a philosophy that still drives the organization and is perhaps best expressed in this quote: “There’s only one boss — the customer. He can fire everyone in the company, from the chairman on down, simply by spending his money somewhere else.”
Sam Walton used to talk about Wal-Mart’s organization structure as an upside-down pyramid, with the customer at the bottom — and everybody in the organization there to serve him. And you get this sense the minute you walk into the store when you are welcomed by the now famous Wal-Mart “greeter”, a retail institution that has been copied by many other retailers. While a great deal of attention has been paid to Wal-Mart’s Retail Link system,
- WAL-MART/ASDA Competitive Advantage
2.1.1 Marketing
Ambitious Expansion plan
Wal-Mart has a very ambitious stores expansion plan. Since 1988, Wal-Mart has opened more than 1,500 Supercenters across the country, drawing opposition from a number of communities. Wal-Mart also wants to open 40 Supercenters in California over the next few years, and is taking its plans directly to voters in a state of 35 million people - representing the last major untapped market for the behemoth stores.
Always the Lowest Price
Price is the main competitive advantage that Wal-Mart utilizes. Wal-Marts slogan is, “Always the Lowest Price.” Wal-Mart also has extensive experience in procurement (logistics) and information systems. These two important factors enable Wal-Mart to lower its cost of sales and provide lower prices to its customers. Most of the time Wal-Mart will have the lowest priced goods available.
Information systems
Wal-Mart is the best example of success in the United States-the number one retailer. They use a well-designed information system that connects all its business activities nationwide and worldwide. Wal-Mart’s supporting information systems consists of a computer- based information system and satellite-based communication system connecting stores, distribution, and suppliers for managing and controlling orders, prices, and inventory. Wal-Mart offers its products online. They possesses critical advantage in this area, because it has solid background in retail industry Wal-mart uses real-time information systems to let consumers decide what appears in its stores. The Internet is also used to inform suppliers what has being sold the day before. In this way it only buys what it sells
Logistics systems
Wal-Mart’s other competitive advantage is its logistics systems. Central distribution centers are strategically located to quickly serve many stores leading to higher sales per foot and rapid inventory turnover. As a result, Wal-Mart experiences increases in store sales, decreases in inventory and in logistic cost.
2.1.2 Human Resources
Human resource’s role in selecting workers, providing training, and using compensations systems that are effective in keeping the work force enthusiastic and motivated contributes to the level of quality and cost management necessary to be competitive. Organizations can achieve sustained competitive advantage through people. It is why it is important for Wal-Mart to keep a good human resource system. Wal-Mart best capital is its human capital. Wal-Mart employs people from different backgrounds, different level of education, people with different talents and ambitions, and also disables people. Wal-Mart says: “people make the difference”. Wal-Mart is the largest private employer in the world. They has more than 1.3 million associates nationwide. Wal-Mart offer competitive pay and benefits for both full-time and part-time associates. With these incentives Wal-Mart employers keep an exciting work environment. Every day Wal-Mart employees operate according to three principles laid out by the founder Sam Walton: 1) Respect for the individual, 2) service to customers, and 3) striving for excellence. Throughout a system of training Wal-Mart prepares its team to serve customers and to make all employees feel part of the family of Wal-Mart.
2.1.3 Financial
Currently, Wal-Mart employs more than 962,000 associates in the U.S. and 282,000 internationally. Wal-Mart is diversified into grocery, international operations and membership warehouse clubs (SAM’S Clubs). This diversification has produced better opportunities for growth. The effective management at Wal-Mart is responsible for the positive financial statistics in the market. By July, 2003 Wal-Mart reported total sales of $62.6 billion, a net income of $2.3 billion, and earnings per share were $0.52. It is extremely essential for financial managers in Wal-Mart to identify the resources in which to invest in order to yield higher ratios of profitability and return on investments.
All these sources that constitute Wal-Mart’s competitive advantage lead to the leanest supply chain in the industry allowing Wal-Mart to sell a huge volume of goods while having low costs that lead to lower prices than competitors can offer.
2.2 Customer Value and Satisfaction
To be successful, many companies look for competitive advantages beyond their own operations and into the value chains of their suppliers, distributors and customers. Wal-Mart, the company is successful at maintaining its competitive advantage. The Company has great strengths in customer service and price promise. It creates a value activity and improves a certain activities better than its competitors. According to Michael Porter, the Generic Value Chain indicates a collection of activities, which identifies nine value-creating relevant activities to create value and cost in a specific business.
2.3 The Generic Value Chain
Support
Activities
Primary Activities
Source: Kotler P, (1999)
Wal-Mart has been developing the management of its business processes by following the above figure. For example, the Company has efficiency in moving goods from suppliers to individual stores and its sales information flows via computer to Wal-Mart’s headquarters and Wal-Mart’s suppliers. For support activities, Wal-Mart is clear to perform its value-creating activity by referring to procurement, technology development, human resource management and firm infrastructure. In Wal-Mart, the three basic beliefs: respect for the individual, service to our customers, strives for excellence were brought about to assure the smooth conduct of operations with its supplies which in turn reflect to Wal-Mart and its reputation. Wal-Mart treats their people with respect and dignity emphasizing the importance of customer service. In addition, the company’s basic value, customer service, comes up with a pleasant shopping experience to serve the customer; the lowest possible prices, satisfaction guaranteed, friendly, convenient hours, knowledgeable service, free parking and a good quality merchandise assortment. Those kinds of activities completely set Wal-Mart apart from competitors, making it the global leader in retailing.
2.4 World top ten retailers:
Source: Lebensmittelzeitung (Internet edition, 2002a)
Furthermore in the UK, when comparing Tesco with Wal-Mart, we can find that Tesco, is a small company with a revenue of only 15%. Even though Tesco has succeeded in maintaining a strong UK core business, building on low price to compete with Wal-Mart’s, cultivating customer loyalty, offering a range of different store concepts and expanding into retailing services, such as banking and insurance, the table above indicates that there is still a big gap between the two retailers, when compared on the world chart.
3. COMPETITIVE SENSE
Wal-Mart International was created to see the growing opportunities for the company worldwide. Since then, the International segment has enjoyed rapid growth and consumer acceptance. Using market development, which according to Kotler & Armstrong (2003) is the company’s attempt in seeking increased sales by taking its current products into new markets, Wal-Mart followed its global expansion and positioned the company for further development. With the purchase of ASDA, Wal-Mart chose the best possible ally for its assault on the UK retail market (Vaughan, 2000). According to Caplen (2000), Wal-Mart and ASDA were the perfect fit, with a similar pricing, branding and employment policy. An important difference between the two was that Wal-Mart is a general merchandise retailer that was developing its food business while ASDA was a grocer that was improving its non-food offer. With the acquisition according to Vaughan (2000), Asda would present a stronger competitive challenge to many other superstore operators as well as department and variety stores. After Asda became the subsidiary of Wal-Mart, the stock price of ASDA increased, whereas other retails’ stock prices such as Tesco’s and Sainsbury’s were decreased. However, as Wal-Mart opened in the rural area, it did not have an impact on the market share of UK superstore companies. Furthermore, much of the attention surrounding Wal-Mart’s arrival in the UK has centered on its impact on the grocery market and in particular big players like TESCO, Sainsbury’s and Safeway (Davies, 2000). ASDA at the time was already strong in some categories, but improving its buying power with the help of Wal-Mart would enable it to drop prices further and benefit from Wal-Marts merchandising and product development in areas. In addition, the UK sector was dominated by the edge-of-town superstore formats, led by TESCO and Sainsbury’s, offering good service and a high proportion of own brands. According to Myers (2000), the big emphasis was on ready meals, either chilled or counter service, Wal-Mart on the contrast, is a price-oriented retailer that offers a high level of service. By tradition, when Wal-Mart enters a new region, strong competitors thrive and focus on their placing in the neighborhood while weaker ones suffer. With the bargaining power over suppliers ASDA / Wal-Mart are effectively causing smaller suppliers and retailers out of business as they can no longer compete on their reduced price level. Strong, well-positioned stores such as TESCO and Morrison’s continued to grow, to face up to Wal-Marts ambition of dominating the UK retail market. ASDA sets to continue its strong sales growth, capturing market share not just from other grocers, but also from a wide circle of general merchandise retailers (Vaughan, 2000). According to critics, Wal-Marts entry into the UK is said to simply speed up current market trends, not change the whole direction. In addition, with the acquisition of ASDA, Wal-Marts successful innovative IT systems helped enable ASDA, adopt a safer and more productive way of organizing and monitoring its operations.
4. IMPACTS ON THE RETAIL SECTOR
The advent of an irresistible force in the form of Wal-Mart has brought about significant and rapid changes in the retail industry. The need to counter the challenge posed by Wal-Mart has forced retailers into discarding old paradigms and has brought about an openness regarding newer technologies and methods of doing business. Wal-Mart remains the UK’s third largest food retailers, but lies a significant distance behind TESCO and Sainsdburys. Intense competition existing in the UK food retailing market, suggests that retailers such as TESCO and Sainsburys have each maintained the same prices for certain core items in an attempt to maximize their revenues. Although the UK Competition Commission has voiced concerns about the power of supermarkets over their suppliers, TESCO was found to pay the lowest. However, TESCO begun reducing its prices in a similar vein to ASDA and so ASDA may continue to lie behind them for some time (Datamonitor, 2004). As far as the retail sector is concerned, an existing local retailer (ASDA) had been purchased by the overseas retailer (Wal-Mart). This is the easiest way for an overseas retailer to enter the new market, in this case, the UK retail market. Wal-Mart is by tradition, a local supermarket, described as a large store of over 200,000 square feet. It offers a wide variety of consumer products such as groceries and clothing goods. A Wal-Mart customer can find any product at the cheapest price when compared to other retail shops, selling the same product. This has provoked a price war between retail markets in the UK as Wal-Mart has the differentiate advantage in price and can attract customers of other local retails). In addition, there have also been moves into the convience store sector, in order to survive intense competition, with the rise of Tesco Metro, Tesco Express and Sainsbury’s Local stores on the High Street. In addition, TESCO has added to its power in this sector with the takeover of the convenience store chain T&S stores which includes One-Stop and Day & Nite chains.
4.1 IMPACTS ON THE UK CONSUMER
Supermarkets, wield immense power over the way consumers grow, buy and eat our food, they shape our environment, our health and the way we interact socially. Many supermarkets according to Michaels (2002), Wal-Marts entry into the UK, dictated new strategies for UK retailers, in response many supermarkets, became entertainment centres, clothes stores, newsagents and petrol retailers. According to Ernst & Young (2001), the UK social/economic profile has changed in the recent past as well as the characteristics of the consumer. As a result people in the UK are now classed as time poor/cash rich. In addition, consumers have become increasingly cynical about retailers and generally do not display any particular loyalty to one retailer. Thus, consumers will shop at the retailer that most satisfies their quality driven (and increasingly ethical) current agenda. “Value for Money” is now a key driver. As a conclusion the low price strategy that Wal-Mart has followed, in our opinion will not affected the UK consumer’s behaviour, as he will judge it on the basis of its quality standard. What may have an impact on consumer’s attitude towards Wal-Mart / ASDA is the fact that Wal-Mart operates large stores, with the offering of several other services under the same store. In this way ASDA offers a variety of benefits to its customer, within one superstore. Furthermore the consumer can follow the one-stop shop, which is Wal-Mart’s fundamental culture (Taylor Nelson, 2001
5. RECOMMENDATIONS:
The following recommendations were brought about for Wal-Mart’s future operations.
- Wal-Mart should follow the product diversification strategy not only based on price competitiveness
Wal-Mart’s can achieve a competitive strategy by reaching the lowest price differentiations. It can get a large market share when the company set a lower price than its competitors. However, the company should take into consideration the value of products and product diversification strategies. In this way the company can set a cost-effective mechanism by searching information about suppliers and its distribution. In addition it should avoid giving to much attention on its price strategy as cheapness may reflect badly on the company.
- Wal-Mart should research the buying behaviour of people in the United Kingdom
ASDA in general offers a wide range of products, under one store, thus, consumer decision making varies with the type of buying decision. It is a common fact that American people have different buying behaviour’s from people in the UK, British people seem to be more sensitive to their quality of life than American people and in addition they value the quality of products as well.
- Wal-Mart should pay more attention to its competitor analysis as far as the retail sector is regarded
Organisations need to revitalize their competitive advantage continuously as new market players enter and current competitors imitate the offerings. Marketing research on consumer’s perceptions is necessary for a Wal-Mart to meet consumer’s needs and deal with competitors effectively.
- Wal-Mart should create frameworks and marketing skills for managers
- Wal-Mart should enhance its industry image
The company can enhance its industry image by innovating customers’ service through websites and by promoting its products via the Internet. For example, the company can establish a service for providing disabled people the ability to shop from their home, with the offering of appropriate delivery methods.
- Wal-Mart should differentiate its products and services
For example, the company can provide a car service for moving disabled people from their home to Wal-Mart stores and vice-versa.
6. CONCLUSION
Supermarkets have been growing at an astonishing rate since the first ones appeared in the early 1950s. They are extremely popular with consumers, claiming to offer consumers wide variety of cheap, convenient food. Wal-Mart has over 300,000 workers outside the United States. Seventeen of the company’s sales of some 41 billion now come from international operations. Wal-Mart’s entry into the UK was not a surprise to competitors, and many retailers and suppliers already had strategies in place to meet the new challenges. By competing with Wal-Mart, UK retailers with international ambitions may have the chance to learn strategies in their home territory and become better qualified to take on different hypermarket retailers in other countries (Myers, 2000). Wal-Marts acquisition of UK retail chain Asda changed the giant retail game not just in the UK but throughout Europe. It forced rival to look for other ways of coping with its competitive advantages and retail chains such as Sainsburys, Boots and Marks & Spencer to change their strategy and in some cases their chief executives (Caplen, Currie, Shireff & Walker, 2000). As a result retail differentiation is at high levels, with retailers bringing out newer technologies and innovative methods of doing business. In a mature market such as the UK grocery market, opportunities for market share enhancement are much reduced in the core business. Companies can not rely on new store development to power growth in the same way as they previously could (Wrigley, 1998). Instead, the strategy has to be more nuanced and multi-dimensional. Finally, we conclude that, while the acquisition had created free publicity for ASDA as the consumer’s saviour, those retailers which continue to meet the needs of the customer will continue to prosper.
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ELECTRONIC RESOURCES
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FURTHER READING
Allen S. & Allyson L, (2000) “ Marketing News, 02/14/2000, Vol. 34 Issue 4, p11
Barnes R, (2004), “Tesco Complaints to ASA over Asda Low-Price Ads”, Marketing, Business Source Premier, November 2004
Hunter J, (2003) “Superstores turn to Security Technology”, Packaging Magazine, Feb 2003, Vol6. Issue 4, p4
NO AUTHOR
Company Spotlight : ASDA Group Ltd, “Tesco/Asda: Aggressors in UK Price Wars”, Marketwatch: Food, Feb2003, Vol2, Issue 2, p15-18
“Supermarkets Prove over ‘Unfair’ Supplier Practice”, Soap, Perfumery & Cosmetics, Ju2004, Vol.77, Issue 7, p.3
“Multiples Welcome in the Hillside”, food Manufacture, Mar2004, Vol.79, Issue 3, p10
“Food Retail in the United Kingdom”. Food Retail Industry Profile: United Kingdom, January 2003
http://www.ey.com/global/download.nsf/UK/Sharing_Knowledge_UK_retail/$file/9227_uk_retailweb.pdf (5 November, 2004)
http://www.kamcity.com/library/articles/asda2001.htm (6 November, 2004)
APPENDIX - COMPETITIVE LANDSCAPE
