Blunt call for change at the top exposes struggles at stumbling giant Asda

Time was when Asda was the “go-to” supermarket, when it had the rest of UK retail in its thrall.

It was a brand of “firsts”. The first where staff wore badges bearing only their first names: “call me Tom”.

First to have a shoppers’ radio station, playing music and announcing price cuts. First to open giant “hypermarkets”. First where the workers wore baseball caps and sporty uniforms and held motivational team meetings in the aisles during opening hours. First to launch in-store restaurants and pharmacies.

The list went on. With that, too, came stellar results. Asda rose to become the second-biggest UK supermarket group, behind Tesco.

Not any more. This week, Stuart Rose, Asda’s chairman, said he was “embarrassed” by the chain’s recent performance.

This was after Asda reported a decline in quarterly sales of 2.2 per cent and a 5.3 per cent fall in like-for-like sales. The retailer’s market share shrank from 13.6 per cent to 12.7 per cent, behind Tesco, Sainsbury’s and Morrisons. It lost ground, too, to discounters Aldi and Lidl.

Said Rose: “I don’t like being second, third or fourth. And if you look honestly now at the comparative numbers of Kantar or whatever index, we are not performing as well as we should be. I don’t like that.”

Public criticism of 'disruptor' co-owner

It’s rare for a chairman to be so publicly critical of their own company – normally they keep their powder dry for the privacy of the boardroom.

What caused eyebrows to shoot higher, however, was what Rose said next, that Asda co-owner Mohsin Issa should step away from the day-to-day running of the business. Asda is 67.5 per cent owned by private equity firm TDR Capital, with Issa holding a 22.5 per cent stake.

Earlier this year, Zuber Issa, Mohsin’s brother, sold his 22.5 per cent stake to focus on his other business interest, boosting TDR Capital to majority owners.

The chain was previously owned by Walmart, the US retail behemoth, which still retains 10 per cent. The Issa brothers and TDR Capital purchased Asda for £6.8 billion ($8.72 billion) in 2021.

“I wouldn’t encourage him to [intervene in operations] and I am the chairman,” said Rose of Mohsin. “We always said Mohsin was a particular horse for a particular course. He is a disruptor, an entrepreneur, he is an agitator.

“We’ve added a significant number of stores and we’ve changed a lot, but it now needs a different animal. In the nicest possible way, Mohsin’s work is largely complete.”

It’s quite a declaration from Rose: “I am the chairman.” He’s going head-to-head with the main man.

Be careful what you wish for

How the mood has changed from November 2021, when Rose was appointed. Then, Mohsin and Zuber said in a joint statement: “We are committed to ensuring this iconic business has the right governance and management framework in place to set it up for long-term success.

“The appointment of Lord Rose and Dame Alison [Carnwath, also a new non-executive director] mark an important step forward in this ongoing process …”

Be careful what you wish for has to be the advice to Mohsin. You don’t appoint someone of the calibre of Rose, with his experience of running Marks & Spencer and other groups, and expect them to sit silently while this firm goes down.

They’ve got their personal reputation to protect if nothing else.

It always was going to be an awkward fit. Mohsin and Zuber made their names and fortunes from managing petrol pumps and forecourts.

Golden era

In March 2001, the pair from Blackburn purchased a BP petrol station in nearby Bury for £150,000. By February 2009, they had 73 sites across the North of England and Midlands. They introduced Subway, Starbucks and Burger King concessions. Then they picked up a further 43 Esso petrol stations.

That was followed by another 48, plus an additional 104, all from Esso, and 68 from Shell. They bought Little Chef locations and struck a deal with Greggs to supply food-to-go.

The duo were kings of the trade, adding Sainsbury’s Local, KFCs, Travelodge hotels and Krispy Kreme counters to their sites. On they went, expanding overseas and now backed by TDR Capital, buying thousands of sites in Europe, US and Australia. Then came Asda.

Even since acquiring Asda, the deal-making has not ceased. They’ve since added the fast-food chain Leon, the UK’s second-largest bakery Cooplands and yet more petrol stations.

While part of the attraction in Asda was its petrol business, something the brothers knew backwards, there was also the not-inconsiderable matter of the supermarket operation. Here, they inherited a brand that had lost its way.

There was that golden period in Asda’s history when Archie Norman, aided by Allan Leighton, transformed what had been a sinking company, blessed with large, mostly northern out-of-town premises, but with little idea as to how to make them sing. Norman and Leighton stuck to a simple formula. Walmart was the world’s largest, most successful retailer, so they set out to see what made it tick and then they aped it.

Leighton went to Bentonville, Arkansas, home of Walmart and the location of its most advanced store, and analysed and photographed what they were doing. The result was all those UK “firsts” and more.

Walmart repaid the compliment by buying the group in 1999. Ironically, that was when Asda’s troubles largely began. The arrival of Walmart galvanised the sector in the UK, and Sainsbury's and Morrisons both stepped up.

Asda cannot continue the way it is

It became clear that while Walmart had its domestic US audience sewn up, it was not so adept at translating that success overseas, nor battling in a ferociously competitive market. Asda was slow to change, sticking resolutely to a low-price offer, but unable to match the interlopers Aldi and Lidl on price, and unwilling to move upmarket.

The leader, Tesco, proved to be smart at aiming both high and low at the same time; so, after a while, did Sainsbury’s. Asda became less attractive to those with money who were prepared to pay extra for well-sourced food, while its core shoppers were attracted by better bargains elsewhere.

Along came the Issa brothers. There was no doubting their ability at striking deals and operating what in essence is a single-product retailer in a petrol station, where their scale alone gave them the best prices on fuel. But a supermarket, with a vast range of products and different types of customers, from the quick, convenient purchase to the weekly, family shop is another proposition completely.

It cannot be coincidence that Rose fired his broadside while Asda embarks on investing in a recovery plan, which entails employing more people in the shops (in recent years Asda has become associated with poor industrial relations, disputes, lay-offs and staff shortages), replenishing shelves and manning checkouts (and reducing the reliance on faceless, self-service), refurbishing stores to make them feel cleaner, brighter and lighter, and promoting customer loyalty schemes.

It might not play to Mohsin’s instincts or be to his liking but something has to happen. Asda cannot continue the way it is. The wise, veteran chairman has spoken.