Asda’s new owners the Issa brothers have pledged to invest £1bn into the business over the next three years. Retail Week looks at the areas they should prioritise to return the grocer to former glories

  • Asda finance boss Rob McWilliam says: “We see growth in all channels… but coronavirus taught us all a lot”
  • Issa brothers’ forecourt sites offer opportunities but Asda will not “become a convenience business overnight”
  • “Quick wins” could come from the Issas’ already established partnerships with Greggs, KFC and Starbucks
  • Tie-up with Amazon possible now Asda is no longer owned by rival Walmart

Hours after EG Group co-founders Mohsin and Zuber Issa were confirmed as Asda’s new owners on Friday, the supermarket giant’s chief financial officer Rob McWilliam summed up their intentions

“This transaction is ultimately about growth,” he tells Retail Week, adding that the combination of the Issas, private equity backers TDR Capital, Asda and Walmart – which has maintained a minority stake – “will allow us to take a material step forward for customers, UK suppliers and staff.”

McWilliam pointed to the Issa brothers’ pledge to invest £1bn over the next three years as evidence of that growth focus. 

But where will the billionaire brothers from Blackburn need to spend that money if Asda is to win back shoppers from its discount and big-four rivals and start gaining market share again?

Mergers on the forecourt 

Despite the headline-grabbing £1bn figure, Shore Capital analyst Clive Black notes that such a cash injection would likely put Asda “behind the annual investment spend of its major quoted peers and the German discounters”. Just last week, Aldi revealed that its investment in the UK during 2020 and 2021 would hit £1.3bn

Issa brothers

The Issa brothers have taken control of Asda

Capital-light areas of growth are likely to be sought by Asda as a result – and there is a clear opportunity to leverage EG Group’s nationwide presence on petrol forecourts to grow a convenience footprint of sizable scale.   

The vast majority of Asda’s 630-strong store portfolio in the UK is taken up by its superstore format. Such reliance on large out-of-town sheds has not only allowed the discounters to make inroads but has seen more traditional rivals Tesco, Sainsbury’s and the Co-op steal a march in convenience.

McWilliam stresses the retailer will seek to harness the Issa brothers’ vast experience in garage forecourts and c-stores in a bid to establish fresh revenue streams. 

“We see growth in all channels, including superstores. But coronavirus taught us all a lot,” McWilliam says. “Community convenience has clearly done very well too, and we want to benefit from that”.

The retailer has already signalled its intent in that space, launching its Asda on the Move convenience fascia on three EG sites last month as part of an increased focus on “making our busy customers’ lives easier”. 

Retail Remedy partner Phil Dorrell, a former head of central operations and in-store marketing at Asda, says adding an Asda grocery offering on to EG Group’s UK estate of around 400 petrol forecourts would be one of the quickest and easiest ways to gain sales and increase market share. 

“If you’ve only got around 630 stores across the UK, it means, from a food perspective, you’re the least populous [of the big four] going,” Dorrell says. “Suddenly, you add EG’s locations to that and you can maximise that. That’s where the growth and capital investment is going to be.”

Dorrell can also see the Issa brothers repurposing some existing EG sites as Asda supermarkets to help plug gaps around the UK where the grocery currently doesn’t have much of a presence. 

“That’s the sweet spot. Looking at where, format-wise, they can come up with something that has small, medium and large from a convenience perspective: small forecourt, with a medium-sized supermarket, or a larger forecourt with a smaller convenience store.”

Catherine Shuttleworth, another Asda alumnus and chief executive at marketing agency Savvy, agrees, but cautions: “Asda’s not going to become a convenience business overnight.”

She suggests the Issas will look at each supermarket “on a store-by-store basis” and could seek to invest cash into modernising its better-performing locations. 

Working well with others

There are other ways Asda can leverage EG Group’s expertise. The Issa brothers already have long-established partnerships with the likes of Greggs, KFC and Starbucks – and Dorrell believes bringing such third-party businesses into Asda’s existing stores would help to increase the appeal for customers. 

Asda forecourt

Asda will seek to tap into EG Group’s expertise in convenience and partnerships

“That’s another quick win and way to gain extra capital and improve the profits per site from those Asda stores,” he says. 

It is a point that the Issa brothers made themselves following the acquisition last Friday. “We believe that our experience with EG Group, including our expertise around convenience and brand partnerships… can help to accelerate and execute [Asda’s] growth strategy,” they said. 

Black, meanwhile, speculates whether the Issa brothers may look to take advantage of Asda having on average “the largest average store footprint in the UK” to bring more store-within-store partnerships, like those it has with Decathlon in its supercentres. 

He says partnerships with “value-based apparel groups” would help to “bring new life, resource and investment” to its George clothing and Asda at Home brands. Black describes the latter as having been “the poor cousin” under Walmart’s ownership. 

Euromonitor International analyst Frida Polyak agrees, suggesting the Issa brothers should “focus more on non-grocery” and turn sections of its supermarkets “into variety stores such as Home Bargains or B&M”.

For Shuttleworth, it won’t just be in-store partnerships the Issas will pursue. She believes deals could also be on the cards that will help drive Asda’s ecommerce strategy, even suggesting Asda could seek to strike a supply partnership with Amazon now that it is no longer under the majority rule of its arch-rival Walmart.

“Asda has a reasonably young shopper base, so they should be thinking more digitally,” she says. “Morrisons may have cornered things with Amazon but I don’t think that would necessarily rule them out. They could never have looked to partner with Amazon under Walmart because the two are such close rivals. But now, I wouldn’t rule something like that out.” 

Ecommerce opportunities

Online is likely to become an increasing focus for Asda under the Issas. Ecommerce sales have surged during lockdown and the grocer has ramped up its online capability at pace. It can now fulfil 700,000 orders a week and has pledged to increase that to 740,000 by Christmas and to more than 1 million by the end of 2021. 

That, however, would still leave it lagging behind market-leader Tesco’s 1.5 million weekly slots. Both Shuttleworth and Dorrell suggest there is much more Asda can do in the online space. 

For Shuttleworth, the launch of a click-and-collect proposition through EG Group’s footprint presents a huge opportunity. 

“I think they’ll look to grow online through offering click-and-collect drive-thrus at petrol stations,” she says. “In Leeds, outside Asda House, there’s already a petrol station where you can drive up and collect your shopping. I think they will look to roll out more of those kinds of things.”

By contrast, Dorrell believes the new owners will look to their sprawling petrol forecourt empire to transform some into dark stores for picking and packing Asda grocery deliveries. 

“If you haven’t got an Asda store in, for example, the Isle of Wight, but the EG Group has three, suddenly you can fulfil online shopping there from a dark store and now you’ve got access to a new part of the market you didn’t have before,” Dorrell suggests. 

Supply and demand

The Issa brothers have also pledged to invest more in Asda’s supply chain, particularly to “increase the proportion of UK-based suppliers” in categories like chicken, dairy and potatoes, and a commitment to source 100% British beef. 

Black says this would provide a “boost” to domestic UK suppliers but remains unconvinced by such promises at this stage. “We will wait to see what a cash-focused and potentially deleveraging business does with its manufacturing,” he says.

Such scepticism is warranted when you consider that former parent and now minority stakeholder Walmart will also retain an influence on Asda’s supply chain, with McWilliam admitting the US titan is “continuing to give us access to innovation and sourcing”.

“If you work for Walkers, it would be a good reason to get straight on the phone to the crisps buyer at Asda, because suddenly they’d have an additional 6,000 buying points globally to add to your list”

Catherine Shuttleworth, Savvy

Savvy’s Shuttleworth, though, can see the advantages of Asda targeting more British suppliers, with the ongoing coronavirus pandemic and a potential no-deal Brexit likely to add strains to international supply chains. 

However, given Asda’s relative size compared to the likes of Tesco, which has also established a buying alliance with Carrefour, Shuttleworth wonders if the brothers may look to spend some capital on merging the buying departments of the grocer with the wider EG Group business. 

“They’re the third-largest retailer, so they haven’t got the biggest amount of clout, but they could start buying for EG as well,” Shuttleworth suggests.

“If you work for Walkers, it would be a good reason to get straight on the phone to the crisps buyer at Asda, because suddenly they’d have an additional 6,000 buying points globally to add to your list.”

The ink is barely dry on the £6.8bn cheque, and the seal of approval from the Competition and Markets Authority is still to come, but the Issa brothers will already be plotting their growth strategy for the business.  

With work to do in stores, online and in the supply chain, the biggest question may not be where to spend the £1bn, but how far that money will go.