Walmart’s ‘cash cow’
Not all of Asda’s financial problems can be laid at the door of its current owners.
The official line from head office is that the Americans were a benevolent owner and Asda continues to benefit from Walmart’s retail nous in its capacity as a minority shareholder.
Yet in their increasingly desperate quest to deflect from TDR’s record, insiders highlight the frequency with which Walmart extracted billions of pounds in dividends from its UK outpost over the years.
“They treated it as a cash cow,” one Asda source said.
One of the largest payouts came just months before the sale to TDR and the Issas. Financial filings show that in 2020, with the pandemic in full swing, Walmart sanctioned nearly £3bn of one-off awards.
It was part of a firmly established pattern in which Asda’s profits were routinely redirected through a convoluted corporate structure back to its paymasters more than 4,000 miles away in Bentonville, Arkansas.
During the 2000s alone, Asda was the source of a total of £2.5bn of one-off dividends for Walmart, according to a trawl of corporate filings. In 2015, Walmart extracted a single £500m payment at a time when Asda was attempting to hold its own in a vicious new round of food price wars.
That costly legacy continues to weigh heavily as Asda has fought unsuccessfully to untangle itself from Walmart’s IT systems.
The embarrassing saga has so far cost Asda £800m and caused multiple problems with self-checkouts and stock-picking systems, as well a payroll crisis that left thousands of workers out of pocket and some having to rely on food banks.
Meanwhile, concerns have been raised about Walmart’s remaining 10pc shareholding, which is held through so-called preference shares, a form of debt.
Under this agreement, Asda could have to repay as much as £900m to Walmart by 2028, which analysts at ratings agency Fitch Ratings say could force a refinancing of its entire debt pile.
An Asda spokesman said last year: “We acknowledge Fitch’s view; however, it should be noted this reflects their opinion and is not a statement of fact.”
German threat
lidl warehouse
Lidl recently opened a 1.2m sq ft warehouse just outside Luton
On the outskirts of Luton, a stone’s throw from the M1, Lidl recently cut the ribbon on its largest ever warehouse.
Spanning 1.2m square feet and half a kilometre in length, the opening of the vast £300m distribution hub lays down the gauntlet to rivals who claim that the growth of the German discounters has already peaked.
The breakneck expansion of Aldi and Lidl’s no-frills, bargain food proposition across Britain has created a grocery market that has never been more fiercely competitive.
The most recent industry figures underline the scale of the challenge facing Leighton. Led by a resurgent Ocado, nearly every major supermarket registered significant sales gains over the vital Christmas period – except Asda.
“Asda is in much worse shape now. It’s really tough and the competition got better. The only consolation perhaps is that Morrisons is equally in the s--t too,” one retail chief said.
Yet even Morrisons, which has been forced to juggle the crippling costs of its own multibillion-pound private equity buyout, has staged a comeback of sorts.
The supermarket hailed its strongest period of trading since the beginning of 2021 following “a year of urgent reinvigoration”, boss Rami Baitiéh declared as Morrisons took back market share.
As the competition ups its game, things go from bad to worse at Asda. Having recorded its biggest year-on-year market share loss since records began in 1995, Asda experienced its worst Christmas since 2015 following a near-6pc sales slump.
Its slice of the market has tumbled from 14.8pc when TDR first invested to 12.6pc, and the retailer’s troubles have continued after another 5.2pc fall in like-for-like sales during the three months to the end of January.
Shabby shops and empty shelves have been blamed on repeated rounds of cost-cutting. “The stores are dirty, availability patchy … and checkout services have at times been non-existent. It’s not unreasonable to ask whether there was even a manager in some stores – if there was, Christ knows what they were doing,” Shore Capital’s Black said.
At times, even basic shopkeeping has been a struggle.
In 2024, Asda received a £250,000 fine for selling out-of-date food in its Sinfin store, on the outskirts of Derby, despite two previous warnings from Trading Standards officers. Some of the food, which was as much as six months out of date, was aimed at children. The store has since been awarded a five-star hygiene rating.
A former long-serving senior employee lays much of the blame for Asda’s demise at the door of the Issas.
“So many good people have left because of them. It has gone from being a really open and engaging business to … ‘do as you’re told’,” he claimed.
Staff morale appears to have been severely affected by job losses and the introduction of longer hours. In a recent staff survey, fewer than half its workers expressed confidence in management’s strategy.
Asda’s obsession with slashing overheads has even extended to the music that is being played in its shops. A shift to playing cheaper, unlicensed music in shops is the result of yet more penny-pinching, fed-up employees believe.
“I’d rather listen to the souls of the damned screaming at me,” one quipped.
While Leighton scrambles to arrest Asda’s decline, the Issa brothers have already moved on, albeit in separate directions.
Zuber, the younger of the two, is now attempting to cement his personal fortune by building a new petrol forecourts empire, EG On The Move, having sold his 22.5pc stake to TDR last year.
He is doing so without the help of Mohsin, who instead is attempting to recast himself as a champion of Northern start-ups.
While he remains a minority shareholder in Asda, the reclusive billionaire has emerged as a key investor in businesses such as Liverpool-based protein powder brand Applied Nutrition.
He has been joined in this quest by his new partner Victoria Price. The pair have set up a Jersey-based private fund whose first investment was in secondhand clothing website GoThrift.
Meanwhile, Asda’s setbacks have done little to damage the brothers’ rule over Blackburn.
Despite talk of a falling out, they continue to build five identical mansions in a rural corner of Lancashire, and a 95ft high mosque on the site of a former primary school. Next on their list is the revival of controversial plans to build Britain’s biggest Muslim cemetery, and plans for a £3m dentist in their home town.
TDR appears similarly unaffected by the troubles at its most high-profile investment. In December, the firm distributed a £44m payout to its top bosses. The windfall was shared between 17 partners, with the highest earner receiving nearly £3m.
Restoring ‘Asda’s DNA’
Leighton’s return has already lifted the gloom among Asda rank and file. The hope is that he will bring the energy and ideas of old that he and Norman deployed to great effect previously – even if at times some thought Leighton’s enthusiasm got the better of him.
“Sometimes things were lost in the execution,” said a former employee.
On one occasion in the 1990s, sources claimed Leighton ordered the trial of American drive-through store blueprints to wow visitors.
The prototype suffered from a fatal flaw, however. “They were in such a rush to build this thing to impress Walmart that they did it the wrong way around,” the source added.
There is no suggestion that Leighton was personally responsible for the mistake, which had no damaging consequences. An Asda spokesman declined to comment.
During Leighton’s previous tenure at Asda, former employees claim his enthusiasm sometimes got the better of him
Upon taking over last November, Leighton sought to quickly establish his authority via a flurry of Zoom calls with senior managers.
He has vowed to “restore Asda’s DNA” by cutting prices and improving product availability. The “pocket tap” advert that first hit TV screens in the 1970s has been revived again, this time fronted by fitness guru Joe Wicks, as has its Rollback price cut initiative as part of an aggressive fightback.
The prices of more than 4,000 products have been slashed by a quarter on average and Leighton has pledged to make Asda’s entire product range cheaper than rivals within two years.
An Asda spokesman: “We are refocusing on what Asda is famous for by helping hard-working families save money and providing a good experience for customers.”
Supporters of Leighton believe if anyone can engineer a revival it is him.
