What went wrong at Asda? | Business News

While attention has inevitably been focused on the first rise in food price inflation since March last year, the latest data from Kantar Worldpanel also contains valuable insights into the food market itself.

The numbers highlight in particular the continued success of the two biggest players on the market, Tesco and Sainsbury’sin terms of moving away from the rest of the group.

Money blog: Greggs wants to dominate the dining market

Sainsbury’s, under chief executive Simon Roberts, appears to be in particularly good shape. Its share of the food market during the 12 weeks to August 4 was 15.3% – up from 14.8% in the corresponding period last year.

Much of the shareholding that Tesco and Sainsbury’s have been gaining has come from the other two traditional members of the ‘big four’ – Asda and Morrison – although the latter, under his new chief executive Rami Baitieh returned to sales growth and appears to have stabilized its market share.

Tesco executives in particular are said to regard Baitieh, a former French Air Force colonel who previously ran the domestic operations of French supermarket giant Carrefour, with great respect.

Asda, on the other hand, appears to be doing very badly.

A surprising fall from grace for Asda

Its market share during the period fell to 12.6%, down from 13.7% the previous year, representing a surprising fall from grace.

It doesn’t seem that long ago that Asda overtook Sainsbury’s to become the market’s second biggest player – an event celebrated by Tony DeNunzio, then chief executive of Asda, by giving all 125,000 UK employees a day extra time off.

In reality, however, this was as early as August 2003 – when Asda, then owned by US giant Walmart, had a 17% market share and Sainsbury’s was on 16.1%.

However, after a turnaround under then-chief executive Justin King, Sainsbury’s regained second place in 2013.

The pair remained tied for most of the following years, but Asda has not been in second place since the end of 2019 and since then Sainsbury’s has been at the top.

What happened?

So what went wrong at Asda?

In short, a great hustle.

In October 2020, while the pandemic was still raging, Walmart sold a majority stake in Asda – at a value that values ​​the business at £6.8 billion – to private equity firm TDR Capital and brothers Mohsin and Zuber Issa who, at the time, were best known for building a global convenience and fuel station retailer called EG Group.

With Walmart maintaining a strategic 10% stake in Asda, allowing the retailer access to its purchasing power, there was initial optimism.

But the financial engineering that underpinned the deal – the buyers raised £2.75bn for the purchase by selling a bond backed by Asda’s property assets and put just £780m of their own capital at risk – meant Asda became a business heavily leveraged as a result.

The warning signs

You didn’t have to go very far into the city to meet worried people that Asda would lose its competitive advantage as a result. The Financial Times, no less, described the brothers as embarking on a “risky financial act”.

A first warning sign came when, in August 2021, the highly regarded Roger Burnley stepped down as chief executive of Asda after allegedly falling out with his brothers over strategy.

Asda was unable to name a successor despite making proposals to several big names in the sector, and in early 2022 the search was suspended. The search is back on, led by headhunters Spencer Stuart, amid reports that a £10m-a-year salary is being offered to the right person.

Read more business news:
Ofgem approves UK’s biggest single grid investment for ‘electricity superhighway’
Surprising drop in unemployment rate as wage growth slows

A series of reviews

Meanwhile, Asda’s high debt burden has weighed on it, something that did not go unnoticed by the Competition and Markets Authority which, in an investigation last year into whether drivers were being overcharged for fuel, identified a loss of competitiveness at Asda – previously seen as an industry leader when it comes to reducing petrol and diesel prices.

There was further embarrassment when, in July last year, the Business Select Committee criticized the brothers for its “opaque” accounting following an excruciating hearing during which Mohsin Issa refused to answer several questions about whether Asda had increased its profit margins on fuel since the takeover.

Stability was further undermined by constant speculation that the brothers had fallen out.

This was vehemently denied, but in June of this year, Zuber Issa agreed to sell its 22.5% stake in Asda to TDR – giving the latter a controlling 67.5% stake. Reinforcing the feeling that the brothers were going their separate ways, EG Group sold its remaining UK yards to Zuber for £228 million, while the latter left the EG Group board in the process.

Many of the problems with Asda’s operational performance have been attributed to Mohsin Issa and his relative lack of experience in supermarket retailing.

There were several clashes with unions over staffing levels at the company, with long-term employees complaining about having to do too much, while a push to separate Asda’s IT systems from Walmart’s has also created turmoil.

Losing patience

Trying to keep the show on the road and bring order to the chaos is Lord Rose of Monewden, chairman of Asda since 2021 and Michael Gleesonthe financial director.

But even Lord Rose, a figure lauded in retail for his leadership of Marks & Spencer in the 2000s, appears to be losing patience, telling the Sunday Telegraph at the weekend: “I’ll be perfectly honest with you. I’ve been in this industry for a long time. time and I’m a little embarrassed, I won’t deny that.

“I don’t like coming in second, third or fourth. And if you honestly look now at the comparative numbers from Kantar or any other index, we’re not performing as well as we should. And I don’t like that.”

Stating that Mohsin needed to step back from day-to-day management of Asda, Lord Rose added: “We need a full-time, fully experienced retail executive… we have always said that Mohsin was a particular horse for a particular course.

“He is a disruptor, an entrepreneur, he is an agitator. We added a significant number of stores and changed a lot, but now it needs a different approach.

“In the best way possible, Mohsin’s work is as good as done.”

Follow Sky News on WhatsApp

Keep up with the latest news from the UK and around the world by following Sky News

Tap here

Discouragement

Adding to the sense of dismay that Asda’s long-time admirers must be feeling is the fact that Morrisons, whose Bradford headquarters is just 10 miles from Asda’s in Leeds, appears to have turned a corner – despite, as its rival, having been acquired by private equity and loaded with debt shortly after Asda itself.

And that’s because Morrisons has enjoyed more stability than Asda and, in Mr Baitieh, has a talented supermarket operator at the helm and another – former Tesco chief executive Sir Terry Leahy, now senior consultant at private equity firm Clayton Dubilier & Rice, owner of Morrisons – in background.

The Grocer, the industry bible, wrote last week that Baitieh had “galvanized Morrisons with a back-to-basics approach that embraces the spirit of its founder Ken Morrison”.

He continued: “Just this week, Baitieh was in Cornwall at the opening of a £12m sardine factory in Redruth – the latest sign of a leadership-from-the-front approach that has seen him meet staff on numerous visits to stores and waxes lyrical about Morrisons’ 125-year history in speeches to workers.

“In contrast, critics say Mohsin Issa appears ‘icy’ and ‘indifferent’ when he meets with his troops.”

Ominously, the article quoted Nadine Houghton, GMB Union national officer, as saying: “Asda has a real problem with its brand and its identity.

“It has lost its sense of being the retailer it exists for working class families. I represented Wilko workers when it went into administration and there are worrying similarities. The owners seem to have lost sight of what they stand for.”

Hopeful signs

All is not lost for Asda.

It has a number of high-level new recruits expected to join in the coming months. And it also appears to be listening more to its customers, with Gleeson last week announcing an increase in the number of staff at checkouts.

It’s impossible to avoid the feeling that the country desperately needs a full-time chief executive, quickly.