Walmart’s UK retreat leaves Asda with its ‘old problems’

Bloomberg

Walmart Inc’s 1999 acquisition of Asda looked set to disrupt the UK supermarket business, with the US retailer using its deep pockets to shake up entrenched players like Tesco Plc and J Sainsbury Plc.
The purchase never quite lived up to the hype. Asda struggled to defend its market share against bigger rivals and the German discounters Aldi and Lidl. The world’s largest retailer began a retreat, selling a majority stake in Asda to buyout firm TDR Capital and the Issa brothers, who made their wealth in gas stations.
Walmart hailed the deal as creating the “right ownership structure for Asda, whilst bringing a new entrepreneurial flair” to UK retailing. Yet the buyers will face the same challenge that frustrated Walmart: Finding a winning strategy in arguably the world’s most competitive grocery market at a time when the way people shop is changing and the pandemic and Brexit are making food security more vital than ever.
“The deal raises more questions than answers,” said Clive Black, a retail analyst at Shore Capital. “Whether or not the raw entrepreneurship and ambition of the Issas is enough to drive greater same-store sales and cash flows per square foot on a sustained basis remains to be seen.”
TDR and the Issa brothers — Mohsin and Zuber — plan to invest more than $1.29 billion over the next three years to expand Asda’s UK suppliers and drive more online sales, while using their expertise in convenience retailing to expand the grocer’s customer base. Asda’s management team, led by Chief Executive Officer Roger Burnley, will stay, while Walmart will keep a minority stake and one board seat and continue to supply the stores. The transaction, which values Asda at 6.8 billion pounds, is Walmart’s second attempt at a sale after a merger of the chain with rival Sainsbury was blocked by antitrust regulators last year.
The self-made Issas are touted by Walmart as the secret sauce of the deal, who will recharge a business that has seen its market share fall to 14.5% from 17% in the past five years, based on data from Kantar, a research and consulting group.
The two brothers grew up in Blackburn, an old mill town outside Manchester. They started their Euro Garages business in 2001 with a single gas station, before building it up through a series of debt-fueled acquisitions into an empire with more than 6,000 sites on three continents. In 2016, they merged Euro Garages with TDR Capital’s European Forecourt Retail Group to create EG Group. EG Group has grown by opening food outlets and convenience stores that sell higher-margin goods at gas stations and highway service areas in partnership with brands like Starbucks, KFC, Subway and Spar.
It’s not clear how Asda’s new owners plan to further drive online growth. The buyers, who are funding the purchase with debt and equity, could put Asda’s large property portfolio to work.