Asda deal highlights strategic focus for supermarkets

Wednesday 21st October 2020

Partner and retail specialist Andy Brian explores what the proposed takeover of Asda by EG Group can tell us about the evolving strategy of supermarkets.   

When the Issa brothers, the entrepreneurs behind the EG Group, announced this month that they have agreed to buy Asda from US owners Walmart in a private equity backed £6.8billion deal, it signalled a fascinating development in UK grocery retail, and not only because this deal would bring Asda back into majority British ownership after more than 20 years.

The deal may still be subject to approval by the UK Competitions and Markets Authority, but already we have seen glimpses of the way in which EG Group intends to use the Asda brand.

Less than a week after the acquisition was announced, the group opened its first ‘Asda on the Move’ store at a service station in Walsall, West Midlands. This tried and tested model of partnering with household retail names has been pivotal in the rapid growth of EG Group, with the likes of Greggs, Subway and Starbucks already well positioned in its forecourts.

Most observers expect the new ownership to expand the Asda footprint even further by rolling out ‘Asda on the Move’ stores onto EG Group forecourt sites, leveraging increased buying power across groceries and fuel. But this deal also presents an exciting opportunity for Asda to develop the same partnership model in Asda stores, in a continuation of a recent strategic focus for Asda and the other major multiple grocers.

Store wars

Grocery retailers will, over the coming years, continue to face the challenges presented by the growth of online retail, and in doing so they will need to find, and capitalise upon, the opportunities created by this societal shift. Online grocery shopping has doubled since the start of the coronavirus pandemic, according to research carried out by Waitrose, and 40% of people say they will continue to shop online more than they did before the COVID-19 outbreak. That research also notes that one in four consumers now buy food and other essentials online at least once each week, in a trend which has been described as ‘irreversible’.

It is well known that most grocery retailers struggle to make a profit through selling groceries online. Bain & Co, the management consultancy business, recently found that grocery retailers made a loss on sales of around 7-8% when operating an in-store picking model. Asda recently doubled the capacity of its online delivery service in order to try and future proof against further growth of online, but even taking into account the cost saving advantages presented by the EG Group takeover, sustaining a healthy margin on online sales will continue to be a challenge.

Filling the space

The other potential consequence of the rise of online shopping is, of course, downward pressure on in-store sales. Despite strong sales during the COVID-19 lockdown period, supermarkets have experienced reduced in-store footfall as customers have tended to make fewer shopping trips. And this is where EG Group’s partnership model can work in reverse for Asda.

Asda has already been developing its ‘test and learn’ partnerships strategy for a while, with Claire’s accessories concessions opening in its stores last year, followed by Greggs concessions in selected stores earlier this year, and partnerships with B&Q, Music Magpie and The Entertainer. The other major multiple grocers have been making similar moves over the last few years, and this trend is expected to continue as supermarkets seek new ways to fill their floor space, entice customers in, and keep them there for longer.

It’s not just brand partnerships, as big retailers are extending the range of services offered in-store too. Asda recently announced plans to offer drive-through flu jabs as part of its in-store pharmacy service. One wonders whether this initiative is a pre-cursor to offering COVID-19 vaccinations in the coming months but, in a broader sense, it also shows that Asda is continuing to think laterally about delivering a range of services under one roof to mitigate the impact of reduced footfall.

The Asda/EG Group deal highlights the opportunity and this is a trend which is sure to continue under the new ownership, assuming the CMA approves the takeover. However, it is certainly not the only supermarket looking to diversify in challenging times.

This article featured on supermarket and grocery trade resource KamCity in October 2020.