Asda back in British Hands

Asda has recently come back under British ownership after two decades of being owned by the American Walmart. Back in 1999, Asda was bought at a valuation of £6.7bn (£11.7bn adjusted for inflation) and was sold earlier this month to the Issa brothers at a valuation of £6.8bn. When Walmart bought Asda back in 1999, is was heralded as the end of British supermarkets. This BBC article says “Richard Hyman, analyst at Verdict Research, called Wal-Mart’s move a “nightmare coming true” for UK retailers.” But Walmart’s acquired entry into the UK clearly hasn’t been the bloodbath that analysts expected.

Walmart in the US has succeeded on the backs of low prices and high efficiency, driven by regional scale advantages. The management of the US stores was different from other stores at the time – regional managers would spend most of their week visiting stores to understand employees problems and customer needs, rather than staying at a central office making phone calls. But this model, for some reason, didn’t carry over to the UK.

This might just be because the UK grocery market is more competitve than the US market, and the niche of “budget prices decent quality” had already been filled. Lidl entered the UK in 1990 and Aldi in 1994. This year Aldi has had an 8% market share, and and Lidl had a 6% share, both significantly less than Asda’s 15% and Tesco’s 27%. It is a well known fact that in markets that are sufficiently big, even the smallest players can get an equal footing with the giants by erasing the cost advantages of scale.

Another possible reason for Walmart’s failure to thrive is because their model of carefully placing distribution centers to serve as many supermarkets as possible doesn’t carry over to the UK. The US and the UK have very different geographies, and distribution networks are less important in the UK because of a much higher population density.

Can the Issa brothers succeed where Walmart have failed? Maybe. The Issa brothers have experience in convenience. They made their money with Euro Garages, a chain of petrol stations across Europe, and are planning on bringing that experience to Asda. While Sainsbury’s have Sainsbury’s Local, and Tesco has Tesco Express, Asda have nothing convenient. Future moves towards more convenience stores and better delivery services will, in my mind, help make Asda more competitive in the UK.

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