Asda is investing in convenience to drive growth

A senior exec at Asda co-owner TDR Capital has told lawmakers the supermarket’s owners are “more than comfortable” with its debt pile, and are taking a long-term view of its growth prospects.

Gary Lindsay, managing partner of TDR, which co-owns Asda with the Issa brothers, told MPs on the Business Select Committee that it had no concerns over the rising cost of borrowing affecting the Asda business.

Despite reducing its debt leverage in recent times, Asda’s debt pile stands at £3.9bn. The supermarket is facing increased interest payments following hikes to interest rates since late 2022.

However, Lindsay told MPs: “Whilst it’s been great for the Asda business to enjoy a lower cost of capital for the last three or four years, that was that was never a central tenet of us investing in the business.

“We feel more than comfortable with the leverage level at Asda and we feel more than comfortable that when we decide to refinance the balance sheet in the next two or three years, the business can more than absorb that incremental cost.”

When asked on how the private equity giant planned to generate financial returns from Asda, Lindsay said success was dependent on injecting growth into the chain.

“The strategic goal for Asda is very much focused around growth,” he said. “If we’re unable to grow the business, we don’t get paid anything.

“Clearly in a mature, reasonably low-growth market such as grocery in the UK, which is one of the most competitive in the world, we went into to the Asda investment with an incredibly long-term view and our eyes wide open on the level of capital it was going to take to ultimately grow Asda.”

He suggested the chain had not been run with growth as a priority in its years under the ownership of US supermarket giant Walmart and was instead “being run for cash” as it represented such a small (around 2%) proportion of its global revenues.

He pointed to the ownership’s investment in convenience – following its acquisition of Co-op and EG UK sites and programme of conversions under the Asda banner – as a major pillar of its growth strategy that had not been pursued under Walmart.

“Ultimately that growth is going to come from more customers deciding to shop at Asda versus competition and it’s still very early days,” he said. “We’re only in year three in this investment, which we view as still from a TDR perspective and incredibly young investment.”

He also defended the supermarket from accusations of forecourt profiteering on fuel prices.

“We are incredibly competitive when it comes to price across the business,” he said. “During the cost of living crisis we invested 25% of the Asda P&L to support customers through an incredibly tough time.

“We are there to serve our customers across a whole host of different missions. Fuel is clearly one of them.”