Asda losing ground to rivals Tesco and Sainsbury’s since being taken over by the billionaire Issa brothers is “hugely embarrassing for the supermarket’s in-coming owner and “extremely frustrating” for staff, according to an analyst at AJ Bell.
According to the latest available data from Kantar, the Leeds-headquartered chain‘s market share has fallen by one per cent to 13.4 per cent as of April 2024 since the £6.8bn takeover.
Over the same period, the market share of both Tesco and Sainsbury’s have risen by 0.5 per cent and 0.4 per cent respectively.
Dan Coatsworth, investment analyst at AJ Bell, added that Asda has taken “two steps backwards, not one step forward” despite being “freed from the shackles of Walmart”.
The comments come after it was revealed last week that Asda was to become majority owned by private equity giant TDR Capital after Zubar Issa agreed to sell his shares.
After Zuber Issa sells his shares, in a deal that is expected to complete in the third quarter of 2024, Asda will be 67.5 per cent owned by TDR Capital while Mohsin Issa will hold 22.5 per cent and a further 10 per cent will be held by former owner Walmart.
Now analysts have had their say on how Asda has faired since being taken over by the billionaire Issa brothers and in what state it is in ahead of control being handed to TDR Capital.
‘Hugely embarrassing’ for Asda’s new owner, ‘extremely frustrating’ for staff
AJ Bell’s Dan Coatsworth has argued that the main way to judge the success of a supermarket is to look at market share trends and said that on that basis, Asda has been “left behind” since being taken over.
Coatsworth points to Tesco increasing its share from 26.9 per cent to 27.4 per cent and Sainbury’s going from 14.9 per cent to 15.3 per cent.
He said: “Over the same period, its two key rivals have stolen a march and made leaps and bounds.
“That’s hugely embarrassing for Asda’s new owners and extremely frustrating for the people who work hard to keep the supermarket chain running.
“When a company is set free from a parent whose attention lay elsewhere, this new-found freedom has traditionally encouraged innovative thinking and created plenty of opportunities to accelerate growth.
“In theory, that’s what should have happened when Asda was freed from the shackles of Walmart as it is fair to say the UK supermarket was neglected under the ownership of the US giant. In reality, it has taken two steps backwards, not one step forward.
“For decades, Asda was the go-to place for shoppers looking for low-priced products. The rise of Aldi and Lidl presented a serious competitive challenge and then Tesco and Sainsbury’s decided to go hard on the value side of food as well.
“Even Marks & Spencer got in on the game. Asda seems to have spent the past few years treading water trying to stay afloat while its rivals swam ahead.
“Quite how it fixes that situation is another matter and it certainly won’t be easy given that momentum seems have completely disappeared from the business.”
‘Zuber Issa’s sale to TDR Capital is far from the end of this story’
According to a figure at the University of Salford’s business school, a three-month snapshot of Asda and its conclusion with the sale of Zuber Issa’s stake “all highlight the challenges of retailing and working with equity capital investment”.
Dr Gordon Fletcher, associate dean: research and innovation, points to the brothers deciding to step back from the day-to-day running of Asda and their EG Group in April this year.
At the same time, Aldi overtook Asda as the third largest UK supermarket chain and Stonegate pubs,
also owned by TDR Capital, collapsed and put thousands of jobs at risk.
In May, Asda sought to refinance £3.2bn of debt – at higher interest rates while strike actions continued while it was announced last week that TDR Capital was to become its majority shareholder.
Dr Fletcher said: “Asda carries significant debt that it must service. With majority ownership now with an equity firm there is a need to be – in some way – profitable as an ongoing concern or for eventual sale.
“The pressure to reduce costs and increase prices is painfully apparent. More concerning are the safety risks that come about in this environment.
“In its ongoing strike campaign, the GMB union has raised issues around fire safety. Reports of fires in
a range of locations this year give some credence.
“Even this Monday (10 June), the Broadstairs branch was evacuated, and four crews attended for a reported pallet fire. Zuber’s sale to TDR Capital is far from the end of this story.”
What has Asda said?
When it announced the deal between Zuber Issa and TDR Capital, Asda argued that its “growth strategy has been progressing well”, with a £3.5bn investment programme aimed at boosting the business organically and via strategic acquisitions – including the EG UK and the Co-op sites on petrol fuel stations – since the current shareholders took full ownership in June 2021.
It also pointed to the launch of Asda Rewards in July 2022 and said customers have saved £469m in Cashpots to spend in store or online.
The chain also took full control of 116 convenience stores and three development sites from the Co-op and acquired 356 predominantly freehold sites of EG Group’s UK business.
In the first quarter of 2024, Asda announced a record £150m investment in retail pay “to make it the highest paying traditional supermarket”.
For 2023, Asda reported an increase in its adjusted EBITDA after rent to more than £1bn while its total sales, excluding fuel, rose by 7.1 per cent to £21.9bn.