Asda’s billionaire Issa brothers race to overtake Sainsbury’s

The supermarket’s owners reveal ambitious plans to take on their rival in their first interview since buying the chain

More than 3,000 Asda store managers and head-office staff descended on the First Direct Arena in Leeds last Wednesday morning for a long-awaited briefing. They tucked into a buffet of bacon and sausage sandwiches and then took their seats for the grand unveiling of the strategic plans drawn up by the supermarket’s new owners, the billionaire brothers Mohsin and Zuber Issa.

After taking to the stage with synth-heavy electro-pop blaring through the speakers, Mohsin laid out his ambition for Asda to reclaim its spot as the nation’s second-largest supermarket.

“We are happy to commit whatever we need to get to that position,” Mohsin told The Sunday Times backstage later that day. “It’s not like we have got a clear five-year ‘get out’ plan; we and TDR have bought this business for the long term.”

Speculation over Asda’s future direction has swirled around the retail industry ever since the Issas and London-based private equity firm TDR Capital bought the supermarket from Walmart in a £6.8 billion leveraged buyout almost 18 months ago. Now, in the new owners’ first interview since the purchase, a clearer picture is emerging.

Asda, which has been locked in a price war with discounters Aldi and Lidl, is shifting its focus towards improving product quality. The brothers want to inject greater vibrancy into Asda’s 581 supermarkets and, longer term, open a chain of standalone Asda convenience stores.

The Blackburn-born brothers made barely a ripple in the public consciousness during the two decades spent building their EG forecourt empire into a global giant — only for the Asda deal to thrust them into the limelight. Now the colossal scale of their ambitions is clear.

Since buying Asda, the Issas have snapped up the healthy fast-food chain Leon and the bakery chain Cooplands. In among those deals were unsuccessful tilts at Topshop and Caffè Nero. Now they are bidding for the high street giant Boots in a deal that would create a sprawling, debt-laden empire. So, are the brothers out of control?

“If we thought we were spreading ourselves too thin, we would shut up shop and focus on what we have. But we’re ambitious. We’ve got a real opportunity to build on some of the good stuff that we are doing to address customers’ evolving shopping habits,” Mohsin said. “It’s not two guys running an army of 200,000 people; there’s a lot of infrastructure and management within the organisation.”

The Issas learnt the ropes of forecourt retailing in their father’s petrol station, before striking out on their own with the acquisition of a filling station on the outskirts of Bury in 2001. They steadily expanded and in 2013 rebuffed a takeover approach from TDR — only to end up joining forces in 2016 by merging their forecourt business with TDR’s European chain to form EG Group.

EG embarked on a debt-fuelled global acquisition spree, growing sales by more than 20 times to $26.5 billion (£20 billion) over a five-year period. Today, EG operates more than 6,300 sites across America, the UK, Europe and Australia.

After growing up in a modest terraced house, the Issas now own a Knightsbridge mansion that is 25 times the size of the average British home, as well as a collection of Bugatti sports cars. They still live in their native Blackburn, where they own neighbouring mansions and several hotels. Their combined wealth climbed by £1.1 billion to £4.7 billion last year, according to The Sunday Times Rich List.

The Issas have taken drab forecourts and turned them into destinations by adding popular food and drink brands, typically via franchise deals. The right combinations ensure that EG’s forecourts are busy in the morning, when commuters can get their Starbucks coffee, and in the evening, when KFC fills with diners.

Now the brothers are aiming to repeat the trick in supermarkets. In Asda’s huge Milton Keynes store, for example, the Issas have opened a beauty bar and a “food quarter” featuring a Leon cafe, a bubble tea bar and a pizza café. From there, customers can order their grocery shopping on a tablet, have a member of staff do their shopping for them and collect it from an agreed location.

“Asda is the most innovative supermarket out there at the moment — they are genuinely trying to give people reasons to visit,” said Bryan Roberts, director of the Shopfloor Insights consultancy.

Industry grandees remain sceptical, though, that the Issas’ forecourt blueprint will be as effective in the intensely competitive supermarket industry, where shoppers are more price conscious.

“You can’t just hike prices like you can in a petrol station. Shoppers will just go down the road to Aldi if you’re out of line,” a senior industry source said.

Asda has been in need of a new identity since its long-held status as Britain’s cheapest supermarket was usurped by Aldi and Lidl after the financial crisis. The Leeds-based grocer was also the UK’s second largest until being leapfrogged by Sainsbury’s in 2015 — and today, Asda has a 14.6 per cent market share compared with Sainsbury’s 15.5 per cent.

To regain second spot, the Issas will have to engineer some serious improvements. Asda’s sales fell 5.5 per cent in the 12 weeks to February 20, according to researcher Kantar Worldpanel. On a two-year comparison, which strips out the impact of Covid lockdowns, Asda’s 4.3 per cent growth is barely half that of the wider market.

Asda and Sainsbury’s, which sought to merge only four years ago, are now on very different paths. Sainsbury’s is closing fresh-food counters and turning the screw on costs to go toe to toe with the discounters on price. The Issas, meanwhile, are giving store managers more autonomy on stock ordering and staff hours. By next month, 250 Asda stores will have dedicated “greengrocers” working in fruit and veg departments.

Asda has become less aggressive on fuel pricing and there is now also little difference between its grocery prices and those of market leader Tesco. Inflationary pressures across energy, shipping, wages and commodities have sent supermarkets’ costs rocketing and added to the pressure, but Mohsin Issa insists they are not abandoning Asda’s heritage of low prices. From May, the supermarket’s entry-level “Smart Price” range is being revamped and broadened to cover more than 300 products, up from 200 today.

The Issas are intent on establishing Asda in the convenience market, too. The brothers have opened 31 convenience stores on EG forecourts and plan to have more than 300.

To deliver on their separate plans for a standalone convenience store business, they may require another big acquisition to build scale in a saturated market. The Issas recently considered bidding for the cornershop chain McColl’s, which is fighting to stave off collapse.

Despite underwhelming sales — and a failure to find a suitable chief executive to run Asda, following the departure of Roger Burnley last August — the Issas and TDR are bidding for Boots, which has been put up for sale with a £7 billion price tag. On the one hand, a deal would yield big savings and give the brothers another strong brand to fill up Asda’s supermarkets. On the other, it would face scrutiny from competition authorities and, most likely, heap more leverage onto an empire already carrying more than £11 billion of net debt. Asda and EG are held separately from one another.

“The markets dictate how much debt we can raise. We have been oversubscribed at every raise we have had over the last three or four years because we have a proven track record of acquiring businesses and operating them with a growth mindset,” Mohsin said. “Asda is not a highly leveraged business at all; it’s hugely cash generative and so will naturally de-lever over time.” After raising £1.7 billion by selling Asda’s distribution centres, the Issas have no plans to sell off any more of its real estate.

The markets have, though, been a little more queasy over the Issas’ approach to governance, which had not kept pace with the growth of their empire. EG recently told investors it needed to delay publishing audited accounts for a third year running. A source close to EG attributed the hold up to the knock-on effect of last year’s delay.

To soothe concerns, the Issas have appointed former BP executive John Carey and City heavyweight Dame Alison Carnwath as non-executives on their board, which is now chaired by the retail grandee (Lord) Stuart Rose.

“Mohsin and Zuber have their lights hidden under a bushel, but it’s a great story of entrepreneurship,” said Rose. “There’s been 20 years of very hard graft, and I suspect there hasn’t been a day that they haven’t been discussing one deal or another. That’s just the way they are.”

Nobody could deny that the Issas are formidable entrepreneurs, but the jury is out on whether they can crack the intensely competitive grocery market. Either way, it’s unlikely to be dull watching them try.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: