S Poddar
As for the search for that kind of experience, Walthamstow High Street might not be on top of many shopping lists. Still, amidst payday lenders, pawn shops, bookmakers, and budget cafes, the state of the local Asda does look especially depressing.
Not a shock, given the store has already been subject to a blistering zero rating out of five by food hygiene inspectors in 2023 – the lowest grade, indicating there were major flaws in every operation at the premises. Following rectification, its later inspection managed to upgrade the shop to three stars, but reputational damage was done.
On a bleak January afternoon, the store’s entrance is eerily quiet, giving the impression it might be closed. Inside, a handful of shoppers browse the aisles, but the usual hustle and bustle of a supermarket is missing. The emptiness is striking.
Cardboard cartons littered with boxes of storage metal and full aisles filled with undelivered packaged items stand amidst other aspects which remain open without packaging. Fresh bread sections look quite depleted and have empty spaces at the halal food area. At the opposite ends, the store still carries unopened goods from the pallet, even as plastic packaging drenches these supplies waiting on an elusive delivery to finalize it.
For many, the state of this store reflects a broader crisis within Asda. The supermarket giant has been struggling ever since it was acquired in a heavily leveraged £7 billion deal by Blackburn-based petrol station tycoons Mohsin and Zuber Issa, along with private equity firm TDR Capital, in 2021. Critics argue that the financial burden of this takeover has left the chain unable to invest where it matters most.
“Asda’s problems aren’t just due to poor management. Paying off its mountain of debt strips cash from the business that would be better used elsewhere,” said Nadine Houghton, national officer for the GMB trade union.
Years of underinvestment have told on the chain. Stores are run down, and frustration over poor pay and long hours has driven many employees away. Customers, too, have made their views known through their purses and wallets, leaving competitors to exploit a supermarket group’s erstwhile loyal customer base.
Since the sale to 2021, Asda has seen its market share decline to 12.6% from 14.8%, said a report by Kantar. Thanks to the supermarket’s decline, Tesco and Sainsbury’s have strengthened their hold on the grocery sector, with Aldi waiting in the wings as a swelling threat that could eventually surpass Asda to become Britain’s third-largest supermarket.
The retailer’s woes are now so severe that its management has been turned upside down. There have been rumors of an internal feud between the Issa brothers, with Zuber ultimately leaving the company. Mohsin is still a shareholder but no longer involved in the day-to-day running of the business. The company is now on its fourth year without a permanent chief executive.
Even Lord Rose, the former chairman, has admitted that he felt “embarrassed” by the situation. Frank remarks from the former chairman have apparently prompted TDR Capital to take drastic measures—bringing in former CEO Allan Leighton to steady the ship.
Leighton has a long retail pedigree, and his first real success came at Asda in the late 1990s. Working with then-chairman Archie Norman—he is now in charge at Marks & Spencer—the pair helped save the supermarket from near-collapses. Not only did they stabilize the business but also engineered its eventual sale to Walmart for nearly £7 billion.
This is the stuff that sparks optimism in some of his employees. “Allan coming back and throwing Mohsin out is a twofer,” quipped one former senior staffer about the worker’s mood.
During Leighton’s tenure from 1992 to 2000, Asda’s turnover almost doubled from £4.53 billion to £8.2 billion, while profits soared from £86.8 million to £422.9 million. In his farewell letter to staff, he famously stated that Asda had gone from “basket case” to “one of the finest companies in the world.”
More than two decades later, however, the challenge he faces is formidable. Leighton has already set expectations, cautioning that a full turnaround could take up to five years—by which time he will be approaching 77 years old.
Some industry observers question whether he can pull off another rescue act without his old partner Norman. “The best double act I’ve ever seen,” one City insider remarked about the duo. “But if you’ve only got one half of the partnership, can you repeat the trick? That would be my question.”
With Asda rapidly losing market share and sales continuing to struggle, the bigger question might soon become: What happens if he can’t?
Thus, the financial burden of the 2021 takeover is looming over Asda’s future. When the Issa brothers and TDR Capital acquired the business, they used a highly leveraged structure, financing the deal by giving billions in loans and bonds placed on Asda’s own balance sheet. The timing couldn’t have been worse, coinciding with the end of the era of low-interest borrowing.
At the point of sale, Walmart had delivered a business nearly debt-free. The books indicate Asda’s borrowings included an unused £30 million overdraft, standby facilities of almost £100 million, and a separate £30 million credit line. Its finance costs were just £67 million annually—£66 million of which was interest on leases, with only £900,000 in external interest. In addition, Asda had a cash reserve of £1.2 billion.
Fast forward to today, and the numbers paint a drastically different picture. Under Issa and TDR’s ownership, the company is now saddled with nearly £6 billion in debt, resulting in enormous interest payments. With inflationary pressures and rising borrowing costs, the financial strain on the retailer has only intensified, forcing it to restructure existing debts at increasingly unfavorable rates.
The vision once painted by the Issa brothers of bringing an “entrepreneurial air” to Asda has clashed with the harsh realities of leveraged buyouts. Mohamed’s testimony and answering questions from MPs, speaking of how he used to work for one petrol station, formed an inspiring narrative. Such stories now, however, seem far removed from the present crisis as the supermarket struggles under the weight of debt.
Even the political grandstanding that has surrounded the announcement of the deal is now abating. Rishi Sunak, the finance minister, has even tweeted : “Great to see @asda returning to UK ownership.”. The words can only be laughed at in a backdrop of this story of continuing failure.
As Leighton sets out to revive Asda to its former glory, he finds himself working for a company that is miles away from the one he had helped save years ago. “The DNA of the supermarket needs to be restored,” he says. But the challenge ahead is anything but easy: mounting debt, an eroding customer base, and leadership instability.
