Tesco And Abbey Grorcies Business Analysis

I will investigating about two businesses. I will be talking about their ownership, liabilities, main industrial sectors, their core business activities, location, stakeholders, and conflicts of interest.

BRIEF DESCRIPTION ABOUT TESCO The tesco I am investigating about is located at Beckton. It is a public limited company that is can sell its shares to the public. This tesco branch has over 150 staff. The reason why I have chosen this tesco is because it is big and many people do their shopping at this particular branch.

The main aim of tesco is to make profit, expand, get famous, maximise sale and also compete with their competitors (ASDA, SAINSBURY’S). Tesco at beckton opens 24 hours a day.

BRIEF DESCRIPTION OF ABBERY GRORCIES Abbey grorcies that I am investigating about is a sole trader business i. e. a one man business. All the activities of the business is carried out by the owner, the sole trader bears all the risk, shares all the profit alone, make decisions by himself and shares the loss alone.

Abbey grorcies main aim is to provide goods and services to the local community, make profit, to survive as a business. Abbey grorcies sells newspaper, food and drinks. Abbey grorcies opens the shop at 8. 00pm and closes at 11. 00pm.

TYPE OF OWNERSHIP AND LIABILITY OF BOTH BUISNESSES TESCO: is a public limited company (plc) this means any person can buy shares in a public limited company and they are identified by their (plc) after their name. Public limited companies have limited liability. This means that if tesco goes bankrupt, the owners loose what they have invested into the business only.

ABBEY GRORCIES: is a sole trader and it’s an individual trading in his or her name. This business is owned by one person and got an unlimited liability this means if the owner cannot pay its debts, he loose all his investment in the business and also his personal assets.

WHY THIS TYPE OF OWNERSHIP DOES SUITS THESE TWO BUSINESSES? First of all sole traders business is easier and quick to set up; because it is a small business, therefore it only needs small capital to start-up and less amount of space.

The owner shares all the profit alone this means the owner is entitled to all his profit that the business gains while running the business, so the sole trader chooses whatever he wants. The owner also works flexible hours, abbey grorcies owner chooses whatever time he wants to open and closes up his business. He also makes decision quick i. e. there is nobody to disagree with him with the decisions taken about the business. The sole trader also bears all the risk of the business.

Firstly plc can raise money through selling of shares of there business. The business can also sell its shares to the public i. e. sell it to anyone that is interested and has the money to buy it. The plc also share its profits to the share holders, there is also continuity of the business i. e. if any of the shareholder dies the business still continues.

THE MAIN INDUSTRIAL SECTORS

1. THE PRIMARY SECTOR: This involves the extracting of raw materials from earth, such as oil; and growing foods and other crops.

2. THE SECONDARY SECTOR: This involves manufacturing of goods and semi-finished goods; such as metal sheets and rod; building; and supplying water, gas and electricity.

3. THE TERTIARY SECTOR: It provides services of all kind to consumers and organisations . e. g. transport and communication, education and financial services.

DESCRIPTION IN WHICH MY BUSINESS FALLS UNDER Tesco, which I am investigating about, is under both the secondary and tertiary sector. It falls under the secondary sector because it processes and manufactures raw materials into finished goods like bread and cookies.

Also read about success factors of Woolworths

While Tesco is under the tertiary because it renders services like home delivery, financial services, wholesale and retail and restaurant. Tesco has decided to fall the tertiary sector because over the last 50 years the population of the United Kingdom has become better off financially because many people are working under this sector. Tesco has also chosen to belong to this sector because of the rise in income which will enable the company expand. It has also chosen this sector because it also provides financial services like loans, mortgages and insurance.

So the amount of revenue and profit that tesco is getting will enable them to expand and be able to provide people with jobs.

The following organisations are also under the tertiary sector ASDA, SAINSBURYS, SOMERFIELD, WOOLWORTH, and NHS. All this are example of organisation that provide services and fall under the tertiary sector. This tertiary sector is really growing because many foreigners are coming into the country, many babies are been born, many people are buying goods and services from tesco.

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How to Write a Job Description

A job description is developed to state basic information about the job itself and the role of the employee for that job. A copy of the job description is usually sent to all applicants so they are aware of what they are doing and to make sure that they are fit for the job before they apply. It is vital to add the following information in the job description; job title, department and location, responsibilities, position within the organisational structure and scope of post.

Person specification

A person specification is also known as a job specification. This lets the applicant to form a description of his or herself. This description made by the applicant examines the applicant’s personal attributer including physical attributes, qualifications, experience, training, competence, personal circumstances, attitudes and practical and intellectual skills. This shows a proper profile of the type of person the business needs to do the job.

A person specification is a summary which provides knowledge relating to the skills needed which are essential to the post or desirable. There are several ways of advertising a post. Certain businesses use newspapers, posters, emails and fax as a method of advertising a vacancy. The internet is becoming more and more popular for advertising jobs. Jobs can also be advertised through agencies or job centres. Very few vacancies are advertised within a business.

The reason for this is because the business feels that they already have the expertise available. All organisations have to advertise their vacancies as wide as possible; this is because they have to comply with equal opportunities legislation. Businesses have to also recruit internally and externally. The reason for this is because if they only recruit internally then they may no find t the most suitable person for the job; also if they decide to recruit externally, it can be expensive. This can take a lot of time and there may be fewer and better applicants compared to a job advertised externally.

One of the best ways of advertising a job externally is to place an advertisement in the newspapers. Depending on the size of the advert, the cost of an advert can vary from ½ 40 to ½ 8,000. Advertising online has started to become much popular amongst organisations. Each organisation which publishes adverts online has their own house style for their advertisements meaning they are likely to use the same layout for the vacancies they advertise in and out of an organisation. This allows the public to recognise a job vacancy in the organisation.

McDonalds and Asda McDonalds McDonalds was founded in 1940 by Dick McDonald in San Bernardino, California. This organisation is the largest chain of fast food restaurants selling fast food. More recently, with the successful expansion of McDonalds into many international markets, the company has become a symbol of globalisation. McDonalds opened its first restaurant in 1974 in the Auk. Today more than 2.5million people in this country place their trust in McDonalds each day, trusting the company to provide them with food of a high standard, quick service and value for money.

Asda Asda is a huge supermarket chain. It retails in food, clothing, toys and general merchandise. It actually became the subsidiary of the American retail giant Wal Mart., the world’s largest and successful retailer in 1999 and is the second largest chain in the UK after Tesco overtaking Sainsbury’s. Asda is Wal-Mart’s largest non-U.S subsidiary, accounting for almost half of the company’s international sales.

The employees of McDonalds are transferred from one department to another according to their efficiency and experience. Promotions The employees of McDonalds are promoted from one department to another with more benefits and greater responsibility based on efficiency and experience. Retired and retrenched employees The retired and retrenched employees of McDonalds may also be recruited again in case of shortage of qualified personnel or increase in load of work. Recruitment with such people saves time and costs of McDonalds as the people are already aware of the organisational culture and the policies and procedures.

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M Analysis

Introduction Marks & Spencer is a British retailer with over 800 stores in more than 30 countries around the world. It is the largest clothing retailer in the UK, as well as being a food retailer. Most of its domestic stores sell both clothing & food, and since the year 2000 Marks & Spencer have started to expand into other ranges such as home wares, furniture & technology. Marks & Spencer became the first British retailer to make a pre-tax profit of over ?  billion “BBC News online 1998” Though a few years later Marks & Spencer were hit by the “credit crunch” which has had a dramatic effect on the company as they struggle in the current economical climate. M&S is a successful company. In macro-environment, M&S obeys the government and protects the natural environment. Moreover, M&S is influenced by the factors of economic, social, and technological to make its business strategies. On the other hand, in micro-environment, the M&S has created a good and long-term relationship with the suppliers and customers.

From the SWOT analysis, the most important factor for M&S is to satisfy customer needs. On the other hand, the main disadvantage is the lack of clothing market segmentation that causes M&S to lose its brand awareness among the existing customers. The significant strategies of M&S are creating potential customers and maintaining the existing customers. To sum up, the analysis of M&S has found that its business structures follow the trend of society, keep the position in the market, and increase its potential market share. Mission

The mission of the M&S is to make as high quality accessible to all. Marks & Spencer is a leading British retailer of clothing, food and household goods. They prefer to call themselves “Marks & Spencer,” using an ampersand instead of the word “and. ” Their logo is a style form of the characters “M&S. ” They have a “Plan A” for tackling environmental issues “because there is no plan B. ” M&S outlines its core business as clothing and Food. Its’ financial objectives is to deliver shareholder value in terms of increase returns, but also in terms of increase sales and market share in retailing.

It beliefs and values are outlined as “Our customers continue to see Marks & Spencer as the place to shop for special food, produced to exacting standards”. M&S also sees its workforce as an important part of its plan and also considers modern its stores as a key corporate objective. Vision The vision of the M&S is to be the standard against which all others are measured. They sells clothes, food and home wares at more than 650 stores in Britain and about 300 shops abroad, said it expected to achieve annual benefits of around 250 million pounds by 2015-2016 from upgrading its supply chain and information technology systems.

They will supply chain and IT improvements. The improvements will include shrinking the firm’s network of 100 warehouses, which are run by third parties, to just four. And also to revamp its website and said it would expand its business abroad, including at least 50 stores in India over five years. They have established a long-term vision for where we want to take the business which they believe will create long-term sustainable growth. At the heart of this vision is moving the business from being product focused, store centric and UK dominated to being customer focused, multi-channel and international.

M would conduct a review of its UK store network in the light of fast-growing online retail sales, with future new store likely to be offset at least in part by closures. They plan to cutting prices, stepping up promotions and introducing new products, add 800 new lines to sustain the recent improvement, including extending a trial to sell a small number of brands. They think the strong growth potential in children swear and footwear as well as home wares. PESTLE Political Factors

The government sets regulations for companies to abide by such as Health & Safety British Standards such as, planning for hazard identification, risk assessment and risk control. If companies do not abide by these regulations they will be fined or even in some cases be forced to close down. Marks & Spencer did not abide by the British Standards as they were charged for neglecting health & safety regulations after a door fell on an employee. George Blair was allegedly injured after a warehouse door in their store near Glasgow was left hanging on loose fixtures.

Marks are alleged to have ignored repair requests, allowing the door to fall in to disrepair. Marks & Spencer pled not guilty to this; there is still no outcome of this trial. Also according to “BBC News 30th January 2006” Marks & Spencer would be the first major retailer to go down the Fair-trade route on both clothing and food. The fair-trade policy, which they have launched will include, cut salt and fat in M foods, recycled packaging and animal welfare protection. Marks & Spencer Chief Stuart Rose stated, “Customers want good value, but they care more than ever how food and clothing products are made”.

Economical Factors Currently the economic outlook is very uncertain and this is more than likely to affect retail sales, as people do not have the spare cash to spend on luxury items such as clothing and food luxuries. Marks & Spencer have been hit by this and have recently closed a number of stores and have had to make job cuts of 2% of their 70,000 staff. And also to show what affect the recession has had, they took the decision to have two days of 20% discounts in the run-up to Christmas.

They have also recently introduced a 20% of all Wine and Champagne to keep up with their competitors. Marks & Spencer have had to change the way they market themselves so that they can try and stay ahead of the recession. Sociological factors In the last few years society has changed. In 2006 as stated by the Guardian, Chief Executive of Marks & Spencer Stuart Rose wanted to stretch the company brand, for example he considered selling food online as part of a plan to become a multi-channel retailer, this was obviously to keep up with the competitive market such as Asda.

Asda and Marks & Spencer appeal to different markets in terms of social class and other demographics; this has a major influence on the way they respond to current issues. In response to the current cheap clothing industry supermarkets have increasingly over the last few years caught up with fashion trends, helping them to rival the high street clothing stores with their less expensive versions. Marks & Spencer is no exception to this and they have bought their clothing ranges up to date to keep up with the latest trends and to keep their customers interested.

Consumer purchases are influenced by cultural, social, personal and psychological characteristics. For the most part, marketers cannot control such factors, but they must take them into account. Technological Factors Technology is vital in the retail market. Companies must manage their brand scare. First the brands position must be continuously communicated to consumers. Major brand marketers often spend huge amounts on advertising to create brand awareness and to build preference and loyalty.

For Marks & Spencer to continuously communicate to consumers they need to be heavily into advertising, which they are. They have Celebrity icon Class as the Face of Marks & Spencer who appears on the adverts on the TV and she is also on their website model the M clothing, so their adverts appeal to women not only in their 20’s but also to the more mature lady so they are covering all areas with their advertising campaign. Also their website is very appealing with bright and very easy to use, it is also constantly updated with the new M brands. Legal Factors Legislations are always changing.

Marks and Spencer carry out re-training & update every year, they keep up to date with new laws or legislations, and with issues regarding Health & Safety they also ensure that their legal protection is updated. For re-training Marks & Spencer invite business changes to the business, tax changes to the business & products changes amongst many other things. Marks & Spencer invite objectives/methods that need to be changed and new training, and also on going development. An example of legislation is the “Fair Packaging and Labeling Act (1996) – Provided for the regulation of packaging and labeling of consumer goods.

Requires that manufacturers state what the package contains, who made it, and how much it contains”. Here is an example from Marks & Spencer’s website to show that they are adhere to this legislation, “Packaging helps to protect the product between being produced and used by the customer. It prevents product wastage, carries important instructions and information on ingredients and helps the product look its best in the store”. Environmental Factors With the current environmental climate as it stands, issues are being promoted daily on the television, in magazines and newspapers and on the radio.

All companies, industries and organizations are being pressured to change their ways when it comes to the materials they use and how they manufacture. Marks & Spencer have established their own Green Policy which they call “Plan A” The chief executive of Marks & Spencer states that it is called this because there is no “Plan B”. Marks has today announced a 100-point five-year plan to re-engineer itself to become a carbon neutral, zero-waste-to-landfill, ethical-trading, sustainable-sourcing, health-promoting business SWOT 3. 1 Strengths 3. 1. 1 High Quality

High quality is the major strength that makes M successful. Customers always find high quality goods such as fresh fruits, vegetables, and other superior goods in M food hall (Ciao, 2002). With many people turning to eat vegetarian meals. M grasps the consumers need. M has high quality of products that are the food and other products, such as baby products and women under wears. 3. 1. 2 Customer Services M has high reputation for focusing on customer service. (Christie, 2002). This is one of the most important methods to make a good relationship between customers and M.

For example, when women want to buy under wears for themselves, the shop assistants will help them to measure sizes and give them good suggestions. 3. 1. 3 Shopping Environment M tries to make customers feel more convenient and comfortable. It makes stores brighter, and uses modern designs (Rung 2001). All goods in the shop can be seen immediately. Furthermore, customers do not worry about being drowned in many shelves and avoiding multitudinous people. 3. 1. 4 Manager Training One of M strengths is its strict and excellent manager training system (Retail Technology,1999).

Every manager of M must be familiar with duty of every post. In fact, managers of M are arranged practice of every post. It helps them to improve both work experiences and management skills. 3. 2 Weakness 3. 2. 1 Clothing Lack Segmentation The clothing market of M has many segments. In fact, especially ladies outer wear, is outmoded design and cut. In addition, affluent younger consumers prefer purchasing brand-labels, such as Gap, Next and Top shop (Jobber, 2001: 149). 3. 2. 2 Stock Control The non-performance of the home delivery/shopping service even sometimes involves wedding lists.

Customers were told that items were out of stock (Jobber, 2001). Customers complain the defect of e-shopping and delivery services. To some extent, M suffers from the unbalance between the stock and Information Technology System. 3. 2. 3 Waste Store Spaces Another problem is that M has many store spaces. In fact, it has added 75 percent of square foot age since the early Eighties, but its market share in clothing has not increased (Stewart, 2000). M needs to find some new products to stuff its extra spaces. 3. 3 Opportunities 3. 3. 1 Internet Technology

Internet technology has developed fast, it offers an opportunity to increase the demand for the online products (Zakon, 1999). In terms of this circumstance, buying products online became a new trend. Customers are getting used to accept the model and adapt it to their daily lives, and the demand for this kind of products would be increased in the future. 3. 3. 2 Healthy Eating Healthy eating offers an opportunity that the demand of specific food will be increased (Leyshon, 2002). People pay attention to the life quality, they request companies to offer varied products to satisfy their needs.

For example, in the food market, M does good segmentation in providing the vegetarian, low fat or organic food. This is the advantage that the competitors have not aware of it. 3. 3. 3 Marketing Extending The Company owned stores in the Republic of Ireland and Hong Kong and has 131 franchise stores in28 countries operating through a network of successful partnerships (Marks & Spencer, 2002d). In the future, the company will expand its business beyond the existing area. 3. 4 Threats Although M has its own strengths, opportunities and weaknesses, it still occurs some threats from itself and other competitors. . 4. 1 Strong Competitors Strong competitors are the most threat to M. For example, in the food market, there are four main supermarkets, such as Tesco, Asda, Safeway and Sainsbury (Oct, 2002). They provide not only high quality but also value-added products to build customers loyalty. In the clothing market, Gap, Next, Topshop and other fashionable brands may compete with M (M shuts, 2001). 3. 4. 2 The Change of Social Environment Except other competitors, M will be influenced by social environment.

Since the social environment changes at any time, the customer tastes are also changed. For example, people move to other countries, and their culture will affect the local people lifestyles, such as eating, and dressing. M can adjust its products to satisfy different needs. 3. 4. 3 Chemical Pollution Environment pollution is a threat for M. An environmental systems manager of M claimed. Every one of the 30,000 product line that M sells is dependent on chemicals (Friend of the Earth,2002). Governments are taking measures to protect natural environment and reduce pollution.

This potential risk will affect its development of M in the future. Invest strategy Focusing on improving its operations to save costs, expanding the options for customers to buy products – especially online – and driving its business outside of the U. K. The U. K. ‘s biggest department store operator told attendees at an investor day that was webcast on its website that it would improve its supply chain and implement new IT systems which would save it GBP250 million by 2015/2016 through capital expenditure over the same period of GBP1 billion.

Some of those changes would include consolidating distribution sites which would mean further warehouse closures on top of the 21 already closed, sending products directly to the country of sale rather than routing everything through a central U. K. hub, and refreshing stock systems and data collection. The second stage of the company’s strategy calls its 2020 program. It is to offer more choice of when and how to buy M products, with online sales a particularly large growth area especially as more people turn to shopping on the Internet.

Store sales are expected to shrink slightly by 2020 to GBP206 billion from GBP212 billion this year, while online sales are expected to almost triple to GBP57 billion in 2020 from GBP21 billion this year according to research by Verdict, Forrester and Javelin Group provided by M at its investor day. Marks & Spencer aims to target some of its 8 million customers who shop online elsewhere but not at M. There is also an untapped 21. 5 million M customers who don’t shop online at all.

The final plank in ITV’s strategy is to grow its international business which currently accounts for 15% of M profits through 296 international stores and its online presence. The growth is expected to come from increasing the group’s central and eastern European operations as well as building on its business in China and India. The company expects to open 50 stores in five years in India, and identify key regional growth areas in China where the company will focus on property, products and local sourcing.

Marks & Spencer unveiled its new strategy program under the banner “2020 Doing The Right Thing” in May, which received a lukewarm reception from investors. At the time, the retailer outlined its targets but gave few details on how exactly it would implement the plans. A bellwether for British consumer sentiment, Marks & Spencer has been hit hard over the past 18 months by the economic downturn as shoppers either cut back spending on nonessential items or sought less expensive food and clothing elsewhere. As a result, the company has revamped its food offer and availability and introduced a budget range of grocery products.

It has also cut capital spending, laid off 1,230 staff and closed some stores. At the start of the month, Marks & Spencer reported better-than-expected fiscal second-quarter sales, buoyed by the introduction of less expensive food and revamped clothing and house ware ranges. Still, it cautioned that business will remain difficult well into next year due to the economic downturn. Second-quarter group sales rose 2. 7%, due to a 9. 6% rise in international sales and a 30% jump in online sales. The company also raised its outlook on annual profit margin thanks to better stock control, sourcing and supply chain management.

Targeting strategy Targeting approach used by Marks & Spencer (M&S) is more multi segment targeting than a concentrated targeting approach. When we look at the segmentation statistics, middle aged women are the prime revenue generator for the company but even the 80% of customers who bring the 20% of sales according to the 80/20 Pareto’s rule can be developed to increase the sales. Therefore M has been more focused on targeting multi segments of people with good educational socio economic class and who some high income urban populations as well.

M has been previously focusing on women gender only but now environmental variables are changing and M has entered into the men market with high quality products as well that has increased the brand image in the clothing and accessories industry. M cannot follow undifferentiated or differentiated approach as the product pricing techniques are such that it is targeted to limited segment of higher socio economic class, who have high demands and can afford luxury and pleasure easily. Positioning strategy M, as now has become an international brand, therefore the company needed to position its brand in variable manner.

The promotion in South East Asia region needed to be very different from what it was positioned in Britain. The company has focused a few important parameters that lift the brand in clothing industry. M has positioned its clothing and accessories with relaxation and high quality, moreover when it comes to international market specially in India where people are more in lower socio economic class and the consumer purchasing power is not equal to other international markets where M has been making profits, therefore in such regions the company has also focused on flexible pricing strategies in order to retain and add new customers.

The competitors of M in the international market are large in numbers and in order to be differentiated from the others the positioning strategy currently adopted by M is well suited to the situation. The comfort and quality has been a prime concern for the clothing industry and positioning the product with such parameters requires M to provide constant results on long term basis so that the company is able to build the brand equity and customer loyalty.

Positioning is promises that a company makes to its consumers and fulfilling this promise is not only the toughest task but it also need great sacrifices and unpopular decisions at times. However it is fact that if the positioning of the brand is well justified by the company with sincerity the increase in customer level is significant. In the world of similar products and services retaining customers is not easy and therefore M as a brand has to strive harder to get to the top clothing positioning.

Financial position |  |Notes |As at |As at | | | |3 April |3 April | | | |2011 |2010 | | | |? m |? | |Assets |  | |  | |Non-current assets |  |  |  | |Investments in Group undertakings |C5 |9,179. 8 |9,168. 6 | |Total assets |  |9,179. 8 |9,168. | |Liabilities |  |  |  | |Current liabilities |  |  |  | |Amounts owed to Group undertakings |  |2,591. 8 |2,603. 5 | |Total liabilities |  |2,591. 8 |2,603. | |Net assets |  |6,588. 0 |6,565. 1 | |Equity |  |  |  | |Ordinary share capital |  |396. 2 |395. 5 | |Share premium account |  |255. 2 |247. | |Capital redemption reserve |  |2,202. 6 |2,202. 6 | |Merger reserve |  |1,397. 3 |1,397. 3 | |Retained earnings |  |2,336. 7 |2,322. 2 | |Total equity |  |6,588. 0 |6,565. 1 |

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Tesco Annual Report

Table of contents

Introduction

This report will conclude the performance of Tesco Plc. over the previous 5-months. The performance will be based on the share-price performance, company reports as well as a comparison between J Sainsbury Plc, Morrison Plc, and U.S rival Wal-mart.

Price Competition

Given the current environment, aggressive competition in the UK grocery market is the greatest headwind to continued growth. According to Kantar Worldpanel. Tesco continues to lose market-share as aggressive competition from discount brands Aldi and Lidl pushes greater emphasis on Tesco’s marketing and price strategy to retain custom as both competitors plan major expansion plans in the coming years. To add, major price competition from the likes of ASDA and now Morrison’s is gaining momentum once again. Morrison’s’ aggressive plan to spend GBP1bn on cutting prices over three years will put pressure on Tesco and other supermarket operators to respond in order to protect market share. This could accelerate margin erosion across the sector in 2014. Morrison’s price cuts are likely to be funded by planned cost savings and potentially by accepting a lower margin. They are more aggressive than the GBP1bn initiative Asda announced in November, which at the time was to be spread over five years. To limit the impact on margins, retailers will probably respond by accelerating cost-cutting initiatives and investment in product ranges and store formats. Tesco has the strongest margin, but this has been shrinking for several years. It may now be pushed to rethink its pricing in order to defend market share, which has come under pressure as evidenced by weak 2013 Christmas trading. Furthermore, the above could dampen CAPEX plans for the coming years.

Rise of Discounters

As mentioned, the recent Kantar Worlpanel (2014) report cemented the rise of Aldi and Lidl; however recent reports from Tesco have attempted to downplay the threat, with little success. The CEO referred to them as ‘niche’ players. However, these players control 45% of the affluent German market and are market leaders in several other large countries. We would not compare the effectiveness and the threat posed by Aldi in 2014 with that posed by Kwik Safe (disappeared) in the 1990s. It is not an informative chart in our view.

CAPEX remains strong

CAPEX guidance was cut to a maximum of  2.5bn per annum, in line with market expectations. Tesco plans to cut new space additions in the UK to 700,000 sq ft in 2014/15 from 1.4mn in 2013/14. CAPEX is shifting from new space to maintenance. Having invested ?400mn in the UK Refresh program in 2013/14, the company plans to invest 500mn per annum in each of the next three years. This is close to the total to complete the program. The priority for next year is re-modeling the Extra format where the sales performance is the weakest.

Online growth Mixed

A lot of focus, as expected, has been put on the increasing movement online. With Morrison’s considering and online platform, while Waitrose moves in with more products and free delivery. Tesco announced it will reduce the fee it charges for home delivery and click & collect. While it is good that the company aims to be competitive, excessive cuts in the delivery charge would reduce margins and also incentivize the customer to order smaller quantities more frequently, making the economics a lot less attractive.

A delivery charge is a tool used to distribute demand among the different time slots and days of the week. Tesco unveiled 127Million of trading profit from online grocery, suggesting a 5% margin. According to the company, all direct costs are fully charged, which is the cost of the pickers and the delivery. This would not include things such as store depreciation, store energy costs, rates, etc. Given this, on estimated 25 Million annual orders of 100 each, the delivery fee (4-5 per order) would account for the great majority of the profit. If this delivery fee is substantially cut, so will the profit obtain?

Share Performance

Graph – Share Price Performance of Selected Companies – 6-Month. Data obtained from Bloomberg. Focusing on share performance (Graph 1), over the previous 6-months, Tesco Plc is down by 18.3%, however, performance is still between W.M. Morrison and J Sainsbury, whose shares have fallen by 24.2% and 19.9% respectively. Given this; the grocery sector has been a weak performer on the market, given that the FTSE 100 has risen by 2% over the same period. Weakness in the sector was seen on the 12th March (circled), after the market release from Kantar Worldpanel. According to Kantar Worldpanel, Tesco’s market share dropped to 28.7% in the 12 weeks ended March 2. That compares to 29.6% a year ago and is the lowest level since late 2004. Adding to the company’s woes, Tesco’s sales were down 0.6 percent in the three-month period. The main issue for investors was the movement of these sales to discounters Aldi and Lidl, plus upmarket grocer Waitrose.

Morrison’s also loosened further to a share of 11.1% from 11.8% a year earlier, while ASDA, a subsidiary of Wal-Mart Stores eased to 17.5%, a 0.3 point fall Y-O-Y. Sainsbury was the only grocer among Britain’s ‘big four’ to hold on to its market share in the period, reaming at 17%. The report noted that the big-four were competing for more for a shrinking ‘middle-ground’ as consumers move to either discounters or upmarket retailers – over the past 3-years, Waitrose, Aldi, and Lidl have taken a combined 3.5 points from the competition, equating to ?4.4Billion in sales per year. Taking an international look, while Wal-Mart did record a small drop on the 12th March, over the 6-month period its shares are up 3%, given its exposure to the U.S economy, which has been performing strongly, supported by consumer spending.

Summary

While the recovery in the UK economy will present opportunities for Tesco Plc, given its exposure to consumer spending through an extensive product offering, major headwinds remain as the continued expansion of discounters pose a real threat, contrary to the thoughts of Tesco management. Furthermore, the price-wars between major retailers commence once again for the shrinking middle-ground of the market, margins are expected to be hit. This has the potential to derail Tesco’s expansion plans, which will impact on a future performance given aggressive competition.

Reference

  1. BBC Business (2014) [Online]: Morrison’s restructuring sparks fears of a new price war, UK, BBC News.
  2. Bloomberg (2014) [Online]: Share Price Data, Available at http://www.bloomberg.com/markets/, Accessed 27/03/2014.
  3. Financial Times (2014) [Online]: Tesco Plc, Available at http://markets.ft.com/research/Markets/Tearsheets/Summary?s=TSCO:LSE, Accessed 27/03/2014.
  4. Fitch Rating (2014): Morrison’s price cuts to pressure Tesco; margins at risk, UK, Fitch Ratings Agency.
  5. Kantar Worldpanel (2014): Unprecedented change in grocery retailing, UK, Kantar Worldpanel.
  6. Tesco (2013): Annual Review 2013, UK, Tesco Plc.

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SWOT and Accounting Analysis of ASDA

Table of contents

Introduction

BACKGROUND OF ASDA

ASDA stores limited was founded as Associated Dairies and Farms Limited in 1949 and it is basically an abbreviation of Asquith and Dairies (ASDA). In 1965 ASDA gets merged with the Asquith chain of three supermarkets and Associated Dairies. ASDA introduced its first concept of the superstore in 1965. In the mid of 1980s, ASDA started to expand its warehouse stores to face the fresh food selection sets by its competitors. In the late 1990s, the ASDA had its 220 superstores in Britain which helps ASDA to become famous and popular. The basic origin of the ASDA is that it was formed by the English dairy farmers to protect themselves from the falling milk prices after the first world war. After First World War when the price of milk gets in control a dairy farmer from Yorkshire named J.W.Hindell made Hindell Dairy Farmers Limited which deals in a both wholesale and retail outlets of milk. In March 1949 it becomes a public company as Associated Dairies and Farm Stores Limited. Includes some 26 farms, three dairies, two bakeries, 42 retail shops, and pork-butchering facilities (referenceforbusiness.com).

Product of ASDA

ASDA stores deals in almost every product which comes under daily life. The products of ASDA are highly trusted in quality. ASDA sells food item which includes milk, fruit, vegetables, meat, frozen foods juice, music CDs, pharmacy and drinks. The quality of their products is the best in the entire market of UK. ASDA has also included electronic product like laptops, music players, mobile phones, and other electronic gadgets. They also sell jewelry item. Its product is available at low price from the market which makes ASDA a leading grocery store globally. Competitors

ASDA has many competitors in the market such as Tesco, Safeway and Sainsbury are the main competitors of ASDA. ASDA has still maintained its status in the market by maintaining the quality of the product and the lowest price which makes ASDA on the top list of the UK market. They maintain their status so well that they didn’t change the quality of their products. They believe in giving 100 % customer satisfaction and they even don’t take it lightly.

Process

ASDA only deals in supermarkets not in the manufacturing of products. The company buys the product from the farmers directly and sells those products in its stores by maintaining their quality. The customer selected the product which is placed in the food stalls, and take those products to the cash counter for payment. If the customer is not satisfied with the product he can replace it at the same store. ASDA not only deals with food items they sell textiles, from where they earn the majority of their revenue, they basically out sourced their textile products from Pakistan, India, and Bangladesh. ASDA also does produce their own valued item in foods and confectionery.

Policies

ASDA Company had policies that follow the law and regulations. Their laws and regulations are very strict in the terms of quality of their product. If the customer is not happy and satisfied with any product which they brought from ASDA like home and leisure, grocery, fresh or frozen items they can return the product and they will offer a full refund or replacement of their product. The receipt or proof of purchase is preferred but not essential in ASDA stores. There are some more rules and regulations applied for their different products like Electrical products, entertainments items (music, Films, and games), fashion items range and in pharmacy also. If the customer is not happy with these items they have to return these items in 20 days from the date of purchase (your.asda.com).

Management Accounting Techniques:

Methods and techniques

There are many methods and techniques in which we understand management accounting some of them are as follows.

Activity-based costing

Activity-based costing is basically used for measuring activities and the cost of consuming resources. Activity-based costing is an activity that is generally based on the capacity of the manufacture. It is used to calculate the unit price of the product, cost of activities in the terms of variable and fixed cost.

ASDA is good in calculating its Activity-based costing which helps in calculating cost at each activity such as supply chain cost, warehouse cost, etc. which ultimately helps in minimizing cost at each activity and helps in maintaining overall cost.

Budgeting

Budgeting is a very important technique that organizations adopt for their management accounting, whether it is a small or big organization in terms of planning, coordination, motivation, coordination, control, communication, and performance evaluation. It helps organizations to control their expenses and cost. It is very helpful for the company to make a rough comparison between the income and expenditure of the company on monthly basis. For the budgeting manufacture of the ASDA, they include production, administration, and sales budgeting. Budgeting is prepared in two ways (David Hobbs; Management Accounting).

  • Periodic budgets
  • Continuous or rolling budgets

Periodic budget:

Periodic budget is those which are made for a period of time, that period can be of one year, or either for quarters, it depends on how big the organization is and how vulnerable its sales figures over the year.

Continuous or rolling budget:

Continuous or rolling budgets are those budgets in which there is a master budget, which is usually for a year, and after each quarter or four months the budget for the next quarter is added into the master budget (David Hobbs; Management Accounting).

As far as ASDA is concerned ASDA adopts the continuous or rolling budget, where they maintain the master budget for a year and to be competitive with other major competitors rolling budget should be revolved around their master budgets which helps in maintaining the plans according to change.

Job Ordering Costing

The job order costing method is basically the production in each time period. It is calculated by dividing the number of units in a job by the total cost of a job.

ASDA is a big organization where job ordering costing doesn’t apply as much they are basically supplying products in large quantities.

Recommendations for ASDA (Budgeting):

ASDA adopts the budgeting technique which is explained above their major focus is on rolling budgeting, which helps in estimating costs for each quarter. Budgeting is that one tool that makes relevant information and estimation about each department. It also creates a motivational factor among all the stakeholders.

Budgeting has an internal and external influence on the growth of an organization and it helps in overviewing their plan to grow in the international market such as in South Asian countries (Pakistan or India).

Rolling budgets help analyze financial control decisions and help in estimating overall cost for the whole year which can be changed according to sales figures of last quarter.

A job order is the least demandable for the ASDA because the allocation of prices to every single thing is difficult such as overhead costs, direct costs.

According to the ASDA continuous growth showing to us that the job ordering costing system is excellently managed by ASDA.

Activity-based costing (ABC)

Activity-based costing is a useful technique that is used to allocate cost according to product and services which helps in planning and monitoring.

ASDA should follow (ABC) because it is a new system for allocating prices to products and services. The usual accounting system is now obsolete and nowadays ABC is now mostly adopted as it has good control over pricing and costing.

A capital investment decision is also least concerned for ASDA because in its financial planning it is already settled and as proof of the ASDA’s balance sheet is showing continuous growth for the last 3 years. ASDA has overall managed its budget quite well because its continuous expansion and growth showed the credibility of the budgeting system. Budget is the key element for ASDA to manage its global operations.

SWOT analysis:

SWOT analysis is used for identifying potential strengths and weaknesses for the organization. SWOT analysis is done accordingly.

This report is overall based on the personal reflection which I obtained from data related to ASDA which was easily accessible to be. This report doesn’t only deal with fact and figures related to ASDA but give the recommendation relating ASDA management accounting technique. The major focus is on the budgeting technique that how ASDA is implementing budgeting technique to it its company and explains why the rolling budgeting concept applies to ASDA and why it is the point of focus.

The other major technique which was considered for management accounting of ASDA is Activity-based costing and how it helps an organization to maintain its costing. It also does explain why Job order costing does not apply to ASDA.

The weakness which one might think about this analysis is the resources were quite limited and all consideration was made on personal observation and knowledge which I possess. The job order costing could be implemented but as my scope was limited so, I didn’t able to job order costing, and it’s also not applicable for big companies like ASDA.

References:

  1. History of ASDA group plc; Reference for Business, http://www.referenceforbusiness.com/history2/77/ASDA-Group-plc.html [Accessed on 26th May 2011]
  2. Exchange and Refunds; Your ASDA, http://your.asda.com/2010/7/7/exchanges-and-refunds [Accessed on 26th May, 2011]
  3. ASDA Direct; http://www.asda.com/ [Accessed on 26th May, 2011]
  4. David Hobbs & Hugh Coombs; Management accounting: principles and application (book), 2005 SAGE Publications Limited [Accessed on 25th May, 2011]
  5. Peter Atrill & Eddie McLaney; Management Accounting: An active learning approach, Blackwell Publishing 1994 [Accessed on 25th May, 2011]
  6. ASDA History; http://www.nowthen.org/asdas-history [Accessed on 25th May, 20

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