With empty fridges, no ready breakfast on the shelves and a disastrous bag of Yorkshire pudding exploding in the freezer, all is not well at the Pudsey branch of Asda.
Britain's third-largest grocery chain has seen its performance deteriorate sharply and it is losing market share to rivals. Last week, the crisis led to co-owner Mohsin Issa stepping down from administration, after which Stuart Rose, former boss of Marks & Spencer and Topshop, stepped down as chairman of the supermarket to take charge of its day-to-day operations.
The troubles at the chain, which operates 580 supermarkets and more than 500 convenience stores, will come as no surprise to many who shop at the Pudsey branch, not far from Asda's Leeds headquarters.
“Some aisles are empty,” said Gisele, 63, as she pushed a cart out of the store. “This isn't my local store, but it's worse there. The quality is worse and the food looks less appetizing.”
While Asda's loyalty scheme has a few ardent fans, many shoppers say they now prefer to do at least some of their shopping at fast-growing German discounters Aldi and Lidl because of their cheaper prices.
The group's low-cost range, Just Essentials, has been hailed as a success following its launch in 2022, but stocks were apparently sparse in stores in Leeds even before news broke that around 40 items would be dropped from the range, with many Pudsey shoppers saying they rarely or never buy these products.
Sarah, 40, says they are “hit or miss”. “I don't buy ready meals – tinned beans are fine.” Barbara Wilson, in her 80s, is more blunt: “I never buy them – I've tried them and they're awful.”
An Asda spokesman said: “Sales of Just Essentials products are currently up 18% year-on-year.”
Shoppers' comments may shed light on why Asda has lost at least 1.2 percentage points of market share – equivalent to more than £2 billion in annual sales – in the past year, as sales have fallen in the face of increased competition and internal difficulties, according to analysts at Kantar.
Aldi is now just a few units away from taking Asda's place as the UK's third-largest supermarket, moving the Yorkshire chain further away from its ambitions of reclaiming the number two spot from Sainsbury's.
The group, which was bought by the billionaire Issa brothers and private equity firm TDR Capital in a debt-laden £6.8bn deal closed in June 2021, is battling high interest costs, a major IT overhaul needed to separate its systems from former owner Walmart, and a transformation into convenience stores that has added complexity to a previously simple business model based solely on supermarkets, with smaller stores requiring a new set of products often sold at different prices and with different delivery terms.
Reports earlier this year suggested a rift between the brothers had developed after Mohsin's marriage broke down, causing “shock” to the family – but Mohsin denied these allegations in March. He said he and his brother are “very close.”.
But Zuber Issa has said it will sell its shares in Asda to TDR as part of a deal due to close next month. Mohsin will step down from Asda to run the remainder of EG Group's petrol station business, while Rose will take over running Asda alongside current Asda director and TDR partner Rob Hattrell.
Once known as the UK's cheapest supermarket, Asda has not only been undercut by Aldi and Lidl, it has also backed away from a long-held promise to be a petrol price leader, with the RAC naming Asda the most expensive place to fill up on average this summer.
An industry veteran who knows Asda well says the management effort and costs involved in opening dozens of smaller stores takes attention away from its core stores. “The reality is the prices are not that competitive and the quality is not good enough,” he says.
An Asda spokesman said the conversion to convenience stores addresses the group's “long-standing structural disadvantage”. They added that Asda rivals Aldi and Lidl in key lines and is “consistently voted the cheapest conventional supermarket in independent price comparison surveys” run by organisations including Which? and trade publication The Limited. grocery store.
But suppliers say availability and selection issues are causing sales volumes of some fresh produce to fall. “Sales are falling like crazy but no one is making any decisions. They're totally lost,” one supplier source said.
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Then there's the legacy of debt-fueled acquisitions. The group's ability to raise capital to address its problems is being hampered by repaying £8.5 billion of net debt, including lease liabilities, that has ballooned since the acquisition, according to Almavir Singh, a research analyst at CreditSights. Interest payments are expected to be £470 million this year, up from £360 million last year and just £90 million in 2021.
Asda said its net debt, excluding lease obligations, was £3.9 billion and its total net leverage was three times underlying profit, excluding various charges.
Underlying earnings and debt were boosted by the acquisition of EG Group's UK petrol station division last year. But Singh expects expected interest rate rises to increase interest payments to £500m next year as Asda needs to refinance £764m of bonds between August 2025 and February 2027, starting with £4m next summer and a £260m refinancing in February 2026.
With finances tight, Asda is spending just 1.3% of sales on capital expenditure such as building and renovating stores from 2022 onwards, compared with an industry average of 2% to 2.5%. “This is trickling down in the form of market share they are losing – they can't afford to refresh and renovate their stores and customers walk in and find them shabby,” Singh said.
An Asda spokesman said: “We recognise there is room for improvement in our performance and we will be investing a further £30 million in our stores over the remainder of the year to improve customer service and product availability.”
The IT switchover alone has required an investment of more than £800 million, leaving less cash to refit stores and slash prices, and inevitably causing problems with its staff payment and, more recently, ordering systems, leading to empty shelves and trouble with suppliers.
Rose recently acknowledged that the work may not be completed by the December deadline, which could lead to additional payments to Walmart.
Meanwhile, staff say store standards are also being hit by the cuts. Nadine Houghton, of the GMB union, which represents thousands of Asda staff, said the supermarket has cut an estimated eight million hours across its business in recent years. Asda has promised £30 million of new investment in staff and stores, but she said it “doesn't come close to covering the savings we've already made”.
As Asda faces mounting challenges, a spate of senior departures and arrivals has distracted from the management team's focus since Mohsin took over running the business from experienced supermarket executive Roger Burnley in August 2021. In recent months, a number of 20-year Asda veterans have left, including commercial director for food Paul Gillow and chief transformation officer Mark Simpson.
The group has been unable to find a chief executive despite the supermarket advertising a remuneration package worth £10 million, according to some reports, and industry insiders say several candidates pulled out in the final stages of negotiations for fear of Mohsin interfering.
One supplier source said that while it was clear that Mohassin was dedicated and hard-working, “they have effectively been without a CEO for three years,” adding that “Mohassin Issa has no experience. The difference between running a gas station and running multiple retail stores is like the difference between driving a powerboat and driving an oil tanker.”
A spokesman for EG Group's petrol station business, which Mohsin owns, said he had helped create “one of the UK's largest and most entrepreneurial private companies”.
An Asda spokesman said the company was “undertaking an extensive international senior recruitment drive to find a permanent chief executive to lead the business in its next phase of growth” and would update customers on the situation “in due course”.
It added: “The Shareholders Group has recently made key hires from across the industry, including from competitors, to build a strong executive leadership team and we look forward to welcoming our previously announced hires in the coming months.”
Whoever Rose's replacement is will have a lot of catching up to do and a reported £10 million fee may not be enough.
