For over two decades, the fate of one of the UK‘s largest supermarket chains, Asda, was closely tied to that of an American retail behemoth: Walmart. In a bold international expansion move, Walmart acquired Asda in July 1999 for £6.7 billion (around $10.8 billion at the time), marking the start of a tumultuous era for the British grocer.
Walmart‘s Grand Ambitions for Asda
Walmart had grand ambitions for conquering the UK market through Asda. At the time of the acquisition, Asda was the UK‘s third-largest supermarket chain with 229 stores and healthy financials, generating £8.2 billion in annual sales. Walmart saw immense potential to transplant its hugely successful US retail model across the Atlantic. The company envisioned transforming Asda‘s large-format supermarkets into American-style "Supercenters" selling everything from fresh produce to clothing to home goods at rock-bottom "everyday low prices."
Then-Walmart CEO Lee Scott touted the deal as a "major step" in its international expansion strategy, declaring that "England is a great fit for us. We are excited about the opportunity to serve customers, grow the business, and provide new opportunities for the associates at Asda." Walmart viewed the UK as a highly attractive market with similar customer demographics and shopping habits to the US as well as a favorable regulatory environment.
For the first several years, Walmart‘s gambit seemed to be paying off. Under Walmart‘s ownership, Asda expanded rapidly, growing its market share and store count. By 2002, Asda‘s sales had increased by 8.3% and operating profits by 11.5% compared to pre-acquisition levels, outpacing rivals Tesco and Sainsbury‘s. Asda‘s store count also swelled to over 260 locations by mid-decade.
Cracks Emerge in Walmart‘s UK Strategy
However, cracks soon began to show in Walmart‘s grand UK strategy. British shoppers, accustomed to the steep discounts and sales promotions frequently offered by local grocers, found Walmart‘s "everyday low prices" model off-putting. Asda struggled to shed the perception that its focus on low prices came at the expense of quality and store experience, limiting its appeal among more affluent consumers.
As the 2000s wore on, Asda found itself steadily losing ground to competitors. Its market share declined from a peak of 17.5% in 2006 to 15.3% by 2015 as discount chains Aldi and Lidl on one end and higher-end players like Waitrose on the other squeezed it from both sides. By comparison, market leader Tesco held steady at around 28-30% share during this period. Asda‘s large-format stores also proved ill-suited for the changing tastes of British consumers who increasingly favored smaller local shops and online grocery delivery.
| UK Grocery Market Share | 2006 | 2010 | 2015 |
|---|---|---|---|
| Tesco | 31.5% | 30.5% | 28.3% |
| Sainsbury‘s | 16.3% | 16.3% | 16.7% |
| Asda | 17.5% | 16.9% | 15.3% |
| Morrisons | 11.1% | 11.6% | 10.9% |
| Aldi | 2.1% | 3.1% | 5.6% |
| Lidl | 1.8% | 2.4% | 3.8% |
| Waitrose | 3.9% | 4.3% | 5.1% |
Source: Kantar Worldpanel
Amid slumping sales and declining profitability, Walmart started looking for a way out as early as 2018. That year, UK regulators blocked a proposed £12 billion merger between Asda and rival Sainsbury‘s that would have created the country‘s largest supermarket chain. Walmart was set to receive £2.98 billion in cash and retain a 42% stake in the combined entity under the merger plans. However, the Competition and Markets Authority (CMA) concluded that the deal would lead to higher prices and reduced quality for consumers.
In 2020, Walmart again proposed spinning off Asda, this time in a £6.5 billion sale to UK private equity firm TDR Capital and gas station billionaires Mohsin and Zuber Issa. However, that deal collapsed over concerns about how Asda would meet its long-term pension obligations to 13,000 current and former employees.
Walmart‘s Retreat from the UK
Finally, in October 2020, Walmart announced it had reached an agreement to sell its controlling stake in Asda to the Issa brothers and TDR Capital for £6.8 billion (around $8.8 billion), while retaining a minority ownership share and a seat on Asda‘s board. After a lengthy regulatory review process, the deal closed in February 2021, bringing Walmart‘s tumultuous two-decade reign over Asda to an end.
So why did the world‘s largest retailer ultimately choose to cut ties with Asda after investing so much time and capital into the British market? In the end, it came down to a sober assessment that Walmart‘s grandest ambitions for UK domination were unlikely to be realized and that its resources were better allocated elsewhere as the retail landscape rapidly evolved.
Walmart CEO Doug McMillon acknowledged as much in a statement announcing the final sale to the Issa brothers, noting that while Asda had been "a good business for Walmart," the deal would allow the company to "focus on strenghthening our portfolio" of higher-growth international ventures such as India‘s Flipkart (acquired for $16 billion in 2018) and China‘s JD.com (in which Walmart holds a 12% stake).
Former Asda CEO Andy Clarke, who led the company from 2010-2016, put it more bluntly in a 2019 interview with Retail Week: "In the end, the UK became a market they could never really get right. Culturally, it was difficult for Walmart to really understand the UK customer and market."
Indeed, Walmart‘s experience with Asda bore many similarities to its other disappointing efforts to expand internationally. In Germany, Walmart spent around $1.6 billion acquiring two local retail chains in the late 1990s, only to pack up and leave the country in 2006 after struggling to connect with German shoppers and navigate complex labor regulations. In Japan, Walmart took a controlling stake in struggling retailer Seiyu in 2005, but after years of losses sold off 85% of the business to local investor KKR and e-commerce giant Rakuten in 2020.
The common thread in these cases was Walmart‘s difficulty in adapting its US-centric business model and practices to very different consumer cultures and market dynamics abroad. While Walmart found more success in markets like Mexico and Central America where it could more easily impose its signature "everyday low prices" and Supercenter format, the Asda saga underscored just how much of a challenge cracking Europe and other developed economies has proven for the Arkansas-based giant.
Asda‘s Future Under New Ownership
As for what the future holds for Asda in its post-Walmart era, the Issa brothers have indicated they plan to accelerate the growth of Asda‘s online grocery business and convenience-oriented smaller store formats to better align with shifting consumer demands in the UK.
Online grocery sales have surged in Britain amid the COVID-19 pandemic, jumping from 7% of the total market in early 2020 to over 14% by early 2021 according to Kantar data. Asda has moved aggressively to capitalize on this shift, expanding its online operations and partnering with third-party delivery platforms like Uber Eats. The new owners plan to further ramp up e-commerce investments while also opening more small-format Asda On the Move convenience stores at EG Group‘s network of 360+ petrol forecourts to drive offline traffic.
The Issas, who have built EG Group into a global petrol station and fast food retail empire spanning 6,000 sites across 10 countries, see ample opportunity to leverage their experience and assets to fuel Asda‘s growth. Zuber Issa has boldly predicted that "Asda will now move into a new and exciting era" and that the brothers‘ entrepreneurial background and "hands-on operational expertise" will help drive innovation at the supermarket chain.
Walmart, for its part, expressed confidence that under the Issa brothers‘ and TDR‘s ownership, "Asda will continue to serve customers across the UK through great products at low prices." Despite its struggles in the market, Walmart maintains that its tenure helped transform Asda "into an omnichannel retailer, with a strong online grocery platform and a robust convenience store network" well-positioned for the future of UK retail.
Whether this strategic shift can restore Asda to its former glory near the top of the cutthroat UK grocery market remains to be seen. The chain faces intense competition not only from traditional "Big Four" rivals Tesco, Sainsbury‘s, and Morrisons, but also from surging discounters Lidl and Aldi and online players like Ocado and Amazon, which recently partnered with Morrisons to expand its online grocery offerings in the UK.
However, retail analysts see potential for Asda to carve out a renewed niche in the market under fresh leadership. "Asda‘s new owners have an opportunity to redefine and reposition the grocer in a post-Brexit, post-pandemic UK," said Thomas Brereton, Senior Retail Analyst at GlobalData. "We‘re likely to see Asda put a much bigger emphasis on convenience, online, and connecting with local communities while championing its British heritage and commitment to low prices, which the Walmart regime sometimes lacked."
Lessons Learned for Walmart
For Walmart, the sale of Asda is both an acknowledgment of the limitations of its one-size-fits-all international expansion approach and a strategic pivot toward new higher-growth priorities like digital commerce and omnichannel integration. Having enjoyed stunning success expanding across the US for decades, Walmart has learned the hard way that winning overseas takes more than just exporting its domestic playbook.
Despite setbacks in the UK, Germany, and Japan, Walmart remains committed to international growth, with an increasing focus on e-commerce and emerging markets. The company‘s 2016 acquisition of Jet.com for $3.3 billion greatly expanded its US e-commerce capabilities, while majority stakes in India‘s Flipkart and Mexico‘s Walmex provide access to high-potential growth markets. Walmart International now generates nearly a quarter of the company‘s $550 billion+ in annual revenue.
Still, the Asda experience offers valuable lessons for Walmart‘s future global ambitions. Perhaps the most important is the need for patience, agility, and a willingness to localize when entering new markets. Plopping down Supercenters and expecting foreign consumers to embrace the "Walmart way" simply doesn‘t cut it in a rapidly-evolving global retail landscape. Instead, Walmart must be prepared to adapt its business model and invest for the long-term to build strong local businesses and brand connections.
As Walmart CEO Doug McMillon put it in a 2018 talk on the company‘s global strategy, "Our priority is making sure we have strong local businesses powered by Walmart" rather than just imposing a "plug and play" model from Bentonville. The Asda saga is a cautionary tale of the perils of hewing too closely to that centralized model in complex international markets.
The Future of UK Grocery Retail
More broadly, the sale of Asda spotlights the seismic forces reshaping grocery retail in a post-pandemic United Kingdom. With the rapid acceleration of e-commerce adoption, changing consumer habits, and ongoing economic uncertainty arising from both COVID-19 and Brexit, the market is poised for significant upheaval in the years to come.
Already, the pandemic has driven striking changes in how UK consumers shop for groceries. Online sales have nearly doubled since early 2020, a trend that is likely to stick even after the pandemic subsides. Smaller basket sizes and a shift toward more local shopping have boosted convenience-focused retailers. Amid economic headwinds, value-oriented chains like Lidl, Aldi, B&M, and Home Bargains are rapidly gaining share.
This evolving landscape will require grocers to be more nimble and responsive to customer needs than ever before. Increasingly, success is likely to hinge on the ability to seamlessly integrate online and offline channels, harness data and technology to better serve shoppers, and deliver value across a range of formats and missions.
Tesco, with its unrivaled scale, extensive online operations, and strong Clubcard loyalty program, looks well-positioned to maintain or even expand its market dominance in this new environment. Discounters Aldi and Lidl are poised for continued growth as price-conscious consumers seek value. Ocado‘s tech prowess and central role in fulfilling online orders for Marks & Spencer and other partners give it a key seat at the table.
Where that leaves Asda is one of the intriguing open questions arising from the Walmart sale. If the Issa brothers and TDR can position the retailer as a reinvigorated British value champion, Asda could be poised for a resurgence. But if the new owners struggle to keep pace with market shifts, Asda could see its relevance continue to slowly erode.
Whoever emerges on top, the next chapter of the UK grocery wars is poised to be action-packed as retailers battle for the hearts, minds, and wallets of post-pandemic British shoppers. The shockwaves from Walmart‘s retreat and Asda‘s ownership shakeup will be felt for years to come in a fast-changing market where only the most customer-obsessed and forward-thinking players are likely to thrive.
