The Issa brothers have split, but what does that mean for Asda?

It was confirmed on Friday that Zuber Issa would be stepping away from Asda and selling his 22.5% stake to co-owner TDR Capital. The move comes after months of speculation and tawdry tales of a personal rift between the brothers.

The announcement leaves TDR Capital as the retailer’s majority stakeholder, with 67.5% of the business.

Mohsin Issa will remain as co-owner of the business, retaining his 22.5% stake, while former majority owner Walmart retains a 10% stake.

When the brothers completed the £6.9bn purchase of Asda alongside private equity firm TDR Capital in 2021, the move was heralded in some circles – a British brand back in the hands of British entrepreneurs.

However, in the years since, Asda has struggled, losing market share not only to the likes of big-four rivals Tesco and Sainsbury’s, but also to the discounters Aldi and Lidl.

For its part, TDR Capital says it remains committed to growing Asda.

Following the announcement, managing partners Gary Lindsay and Tom Mitchell said: “We remain focused on investing in Asda’s stores and online, as well as its colleagues through the highest pay in the traditional supermarket sector, to drive sustainable, long-term growth.

“As majority owners, we will continue to work closely with the Asda management team and colleagues across the business to support the ambitious strategy, which we believe is the right one to continue to move Asda forward.”

So, how will Zuber Issa’s departure affect the retailer? And what issues will TDR Capital face in turning Asda around?

Silent partner

Speaking to former Asda insiders and analysts, the general consensus is that Zuber Issa has always been the less hands-on of the two brothers when it came to the day-to-day running of the brand.

“It’s not come as a surprise to anyone in the business that Zuber has decided to step back,” says one insider.

“Indeed, he’s been distant from Asda for quite some time.

“It’s always been Mohsin who has been the driving force. He’s always been more interested in the grocery side of the business.”

Zuber’s long-term commitment to Asda was in question early on. Observers were left confused when Zuber announced he was launching Euro Grocers, a standalone grocery store in his hometown of Blackburn, in February 2022 – without any input from his brother or Asda.

While the Euro Grocers trial never seemed to go anywhere, one Asda insider at the time described Zuber’s decision as a “strange” one that “raised some eyebrows” among staff at Asda House.

Those close to the business say Mohsin has always been the one with his hand firmly on the Asda tiller. Too firmly, some might suggest.

There is a story, perhaps apocryphal but still telling, that not long after acquiring Asda, Mohsin Issa visited his local Blackburn store on a Saturday night. Shocked to find that there were availability issues, sources say that he immediately rang the then chief executive Roger Burnley on his one day off to demand answers.

The story goes that this call went some way to helping Burnley make his mind up, with his departure from the business confirmed not long afterward.

Asda has been without a chief executive ever since, but that is set to change.

It was announced in March this year that Mohsin had begun the process of looking for Burnley’s replacement. However, despite the rumoured £10m pay packet on offer, that role has yet to be filled.

The Asda insider says that, in the past, the prospect of working under a hands-on owner like Mohsin had proved to be a roadblock for attracting candidates.

However, with Mohsin now looking to “reset” the business, the insider suspects the process of hiring a new chief executive might speed up.

“No one with the ability to take on that size of job would have been willing to work with someone like Mohsin breathing down their neck all the time,” they said.

“He’s now showing a willingness to step back from the day-to-day, so I don’t think they’re going to hang around finding a new CEO.”

The insider added that, once a new boss is found, Mohsin could also look to sell his stake to TDR Capital as well.

“I think, once they do find a new CEO, at that point you could see Mohsin disappear from the business as well,” they said. ”I think that would allow TDR Capital to do that now.

“From some of the conversations I’ve been having, that’s what a lot of people are expecting”.

Keeping things private

The future of Mohsin aside, all eyes will now turn to majority owner TDR Capital. While the private equity firm has always had a more than 40% stake in the business, it has seemed more than happy to let the brothers be the public face of the partnership.

Now as the majority owner, TDR Capital will not only have to take more of that limelight but possibly also answer for the grocer’s chequered performance over the last few years.

“Asda produced a disappointing set of results for FY2023,” says GlobalData senior retail analyst Eleanor Simpson-Gould.

“The grocer has been unable to make significant market share improvements, with like-for-like sales up 5.4% for the year.

“Asda’s efforts to improve price and quality perception during the cost-of-living crisis have been slow to make an impact.

“Asda, which has always appealed on price in the past, has been left in limbo as Lidl and Aldi have encouraged shoppers to switch to the discounters amid the cost-of-living crisis.”

Pointing to the fact that both Tesco and Sainsbury’s have increased their grocery market share since 2021, while Asda’s has shrunk, AJ Bell analyst Dan Coatsworth is less diplomatic.

“That’s hugely embarrassing for Asda’s new owners and extremely frustrating for the people who work hard to keep the supermarket chain running,” he says.

“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 to have completely disappeared from the business.”

Asda has also been beset by rolling strike action over the last 12 months or so. Union GMB has lambasted new majority owner TDR Capital, saying that the private equity firm has “serious questions to answer about their asset-stripping of Asda”.

Despite the criticism, though, TDR Capital has been investing in Asda. Since May, £50m has been earmarked to invest in 50 larger Asda stores.

The business has also launched a new 500-product premium own-brand range, continued with the rollout of its Asda Express c-stores and appointed former Lidl executive Matt Heslop as its new chief operating officer.

“TDR Capital is a good partner,” says one source with understanding of another retailer owned by the private equity firm. “They ask the intelligent questions before they ever press on with an idea.

“They are data-led and want to be clear about what a retailer’s strategy is before they make any decisions.

“They’re a proper retail investor, who knows the sector inside out, and they bring a lot of insight into any business they work with.”

Whatever happens, though, TDR Capital will one day have to face up to the mountain of debt heaped on Asda back in 2021.

In early May, Asda kicked the debt can down the road when it managed to refinance more than £3.2bn.

While most of the debt will mature after 2030, the new majority owner of Asda will be focused on trying to turn around the grocer’s profitability – either to maintain it as a going concern or with an eye to an eventual sale themselves.