Asda - market structure.

University Degree Business and Administrative studies

1. Introduction

Asda, was formed in 1965 by a group of Yorkshire farmers, over the years Asda became Britain’s best value food and clothing superstore. On 26th July 1999 Asda superstore merged with one of the largest food retailer’s in the world, Walmart. Throughout the UK, Asda has 245 stores, 19 depots, 109,000 colleagues and 2,800 different suppliers. Asda’s customers not only benefit from cheaper prices but receive an unmatchable mix of fresh food, grocery, clothing, home, leisure and entertainment goods.

2. Structure of the market

A market structure is the characteristics of the market which determines the behaviour of a firm within a market.

Asda superstore operates within an oligoplistic market structure; as there are many firms within the market but only a few dominate. Majority of the goods produced by Asda are homogenous goods to that of their rivals. For this reason, promotion and advertising of all products have to be carried out well in order to encourage brand loyalty.

In order to prevent other firms from entering the market, there are a few barriers, which the new firm has to face. These include:

The heavy start up costs such as machinery, labour and material to make the building
Advertising and promotion strategies. These would have to be excellent in order to influence customers to purchase their product.

The more barriers created, the healthier it will be for Asda because the supermarket is in a very competitive market, which is always troubled by price wars.

3. Changing Consumer tastes, Social attitudes

Asda superstore operates within a food industry. For this reason consumer tastes are always changing. However, over the past few years’ consumers have had to change their tastes a great deal. For example, the ‘Foot and Mouth’ crisis caused beef eaters to totally change their diet as consuming these products would have been a risk to their health. However, Asda coped with the crisis very well as they told their customers that they wouldn’t put their health at risk and would purchase beef from abroad. Also, many people began to purchase organic products, as there was a scare that many suppliers were producing Genetically Modified (GM) products, which again would be a hazard for the consumer.

Social attitudes of consumers are always changing too because the consumer prefers to shop in a place where they are satisfied. Majority of the market shops for cheap prices however there is a minority people who don’t go for price but would like to shop in a place where there is outstanding service. A successful supermarket is that which satisfies all the market catering both, cheap quality goods with an excellent service.

4. Demographic Factors

Asda’s consumers differ, as they have to satisfy a wide market. They have to cater for different ages, gender and ethnic diversities. If ...

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4. Demographic Factors

Asda’s consumers differ, as they have to satisfy a wide market. They have to cater for different ages, gender and ethnic diversities. If all sectors of the market are not satisfied then a loss of certain customers may occur.

Asda have launched their web page over the internet making shopping convenient for the elderly and for those customers who cannot come into the store to shop.

As the UK is a very multicultural country, the demand for continental food as gone up. For example, there is a very high demand of ‘Indian’ food, and with a minority of the UK’s population being from the sub-continent Asda has decided to stock the full range of ‘Indian’ food. Asda stock big brands like Pathaks, Rubicon and Pride. This was stated in the Asian newspaper called ‘The Eastern Eye (2nd July 2002)’.

5. Globalisation & Internationalism

By merging with Wal-Mart, Asda has become well known throughout the world. Since then the growth of Asda has increased. Purchasing products which are from America have become even cheaper to purchase as the other half of the company (Wal-Mart) is situated in the U.S. However, prices of goods sold at the Wal-Mart outlet are cheaper in the U.S than in Asda, UK. This could well be due to the power of the £ (sterling) in comparison to the $ (dollar).

6. Current & predicted political, economic & environmental factors

6.1 Current & Predicted Political Factors

Currently, in the UK there have been a numerous number of strikes by the fire fighters for an increase in their salary. However, a conclusion (by the government) hasn’t been reached to whether or not they get a 40% pay rise. Gordon Brown (MP) stated if a pay rise is negotiated then it would cost the taxpayers an extra £1billion to satisfy the demand of the fire fighters. Eventually this will affect the growth of Asda, as people will have less money to spend because the amount of tax deducted would have been increased.

6.2 Economic Factors

Over the past few years the issue about UK joining the ‘Euro’ has occurred. If the UK decides to join the Euro then Asda would benefit a great deal as transaction costs would reduce whilst buying from Europe. Also, Asda could decide to diversify and set up their business in Europe. This would be beneficial for all customers in Europe, as the prices throughout Europe of all goods would be the same.

6.3 Environmental Factors

Environmental issues have always been concerning. Asda has introduced new strategies, which can reduce congestion and protect the environment. These include:

Reduction of the environmental impacts associated with the siting and construction of our stores.

Recycling Approximately 70% of all cardboard used to pack products coming into store
Have recycling banks

reduce waste sent to landfill sites

To reduce noise pollution, this includes refrigerated trailer units having low noise refrigeration equipment fitted and vehicles having reversing warning lights (not bleepers)

Reducing supplier deliveries by 25% by collecting from suppliers with our vehicles after store deliveries. This has saved over 15,800 tonnes of CO2 emissions.

7. Macroeconomic indicators that may influence expectations.

7.1 Inflation

Currently, the economy is facing a rapid increase in house prices. Eddie George (Bank of England) stated “If the house prices rise in exactly the same it won’t be long until the country will face inflation”. Some people feel better if the economy is facing inflation. The reason being because it sustains consumer booms and this increases consumer spending.

Also, if inflation increases it will not affect Asda as much as it will other firms because (from a non-food industry) food is a necessity and it will be purchased at all most prices.

7.2 Levels of Employment

‘In May-July of 2002 the percentage of working age people in employment had increased than that of 2000 (quoted on web-page Increased levels of employment would lead to an increase in average consumer spending. In the long-run Asda will benefit from high levels of employment as the shoppers will be interested in purchasing alot more than they came out to do.

8. Analysis of the current situation Asda superstores are in

Below, I have analysed Asda’s position in the market by constructing a Porter’s 5-forces model. A Porters model states that the structure of an industry and the ability of firms in that industry to act strategically depend upon the relative strengths of five forces. These include:

Current Competition

Although in the UK the supermarket industry is limited, the competition is very intense. Even though Asda is the market leader for catering products at cheap prices they still need to be aware of what prices their rivals are charging.

Even though many of Asda’s rivals cannot keep up to date with their prices, they have begun to offer their customers other services. For example, Tesco have diversified into providing financial services to their customers. Asda need to be aware of this.

Potential Competition

The degree of potential competition depends on the existence of barriers of entry and exit in the market. Asda needs to be aware of the firms coming in and going out of the market. Although Asda is in an oligopolistic market, the market is restricted. This is an advantageous factor as not every firm can enter into the market. Another barrier of entry Asda benefits from is economies of scale. As Asda is a fairly large firm their average production is reduced and not every firm can benefit from large amounts of economies of scale.

The threat of substitute products

Asda along with their rivals cater a wide range of substitute products. For this reason the supermarket industry faces a lot of competition and all rivals have to fight to achieve a great deal of market power. Although many of the products sold in supermarkets are the same, what Asda has to ensure is that their products differentiate from the rest.

The Power of buyers

Asda has a greater degree of power in comparison to that of their customers. However, they mustn’t take advantage of this fact because this could create a loss for them. If Asda begins to charge higher prices this would only cause them to lose their customers.

The Power of Suppliers

Asda (like many other retailers) purchase direct from the manufacturer. In this case, both the supplier and the buyer have a certain degree of power. The buyer (being Asda) has some sort of power because the Asda being a large company can purchase alot of stock from the supplier. On the other hand, the supplier has some degree of power because if there is a shortage of a particular product then the supplier can take advantage by charging the price they like.

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