Asda chief warns of food price caps as deal struck with EG Group

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Nick Edser Business Correspondent May 30, 2023, 07:54 GMT

Updated 1 hour ago

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All EG locations will be rebranded under the Asda name

The Asda chief warned of “unintended consequences” if the government required supermarkets to impose price caps on basic foodstuffs.

Stewart Rose told the BBC any such move could be “counterproductive”, and that shoppers faced the prospect of missing out on better deals.

His comments came as Asda agreed to buy the British and Irish businesses of petrol station giant EG Group for £2.27 billion.

The agreement will see further growth of Asda in the prepared food sector.

Rose told the BBC that UK food retailers were “already competing fiercely with each other to give our customers the best possible deal” and were “ahead of what the government could offer”.

“It will not be effective to start trying to manipulate the markets or take control of the markets,” he said. “Be careful what you wish for, and be careful about unintended consequences.”

He said that any action by the government to fix prices “is in fact counterproductive because if you say you’re going to set the price and assume you can do it at a lower cost and agree to keep it at a higher price, you’re denying the customer a better deal”.

“So this is anti-competition and it’s actually quasi-cartel, and cartels are illegal.”

Asda’s deal to buy EG Group’s British and Irish assets brings together two companies already owned by the billionaire Issa brothers.

The newly combined company will generate revenues of approximately £30 billion and employ around 166,000 people.

Rose said the deal is necessary because all of Asda’s competitors operate convenience stores. “Now we’re going to be in the fit-out business, so we’re going to be a complete retailer.”

In Egypt, there are about 350 gas stations and more than 1,000 food outlets. All of its locations will be rebranded under the Asda name.

There are already 166 Asda “On the Move” convenience stores, which have been rolling out on EG sites since the Issa brothers bought the supermarket in 2021.

Mohsin Issa, co-owner of Asda, said the merger would be “positive news for motorists, as we will be able to offer Asda’s highly competitive fuel offer to more customers”.

The Competition and Markets Authority (CMA) is currently investigating all supermarkets over the hike in food and fuel prices.

The watchdog is examining whether “failure to compete” means customers are overpaying, despite claims by supermarkets that they work to keep food prices “as low as possible”.

A separate fuel market investigation found that some supermarkets increased profit margins on petrol and diesel.

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Zuber and Mohsen Issa founded EG Group in 2001

Asda said it plans to invest more than £150m over the next three years to combine the two companies.

It hopes to achieve savings of around £100m in the next three years, by taking advantage of the new group’s size and higher sales volume.

The idea behind the tie-up, said Susannah Streeter, head of finance and markets at Hargreaves Lansdown, was that “by super-competing on gasoline, Asda might win more specialty groceries from competitors at a time when grocery shopping is all the rage,” instead of dedicated weekly stores.

“But as the cost-of-living crisis intensifies…the search for value may take precedence over convenience for the foreseeable future,” she added.

Retail analyst Richard Hyman expected high-profile job cuts to follow.

“It was inevitable that the Issa brothers wanted to consolidate the assets they already owned,” Heyman said. The only reason they do this is to cut costs.”

Zuber Issa, co-founder and co-CEO of EG Group, said the deal was “an important strategic step for EG Group”.

“Following this sale, EG Group will benefit from a significantly stronger balance sheet,” he said in a statement.

EG said the proceeds from the sale of its UK and Ireland businesses to Asda, along with $1.4bn (£1.1bn) raised from the US deal, would be used to pay down debt.

GMB said it was concerned that higher interest rates could saddle Asda with “unsustainable” levels of debt.

In a letter to Rose, GMB national officer Nadine Hutton said: “There is a big question about who is going to pay for this debt. Pay cut-by-fire and lease-back?

“Or is this just the beginning of a wholesale attack on workers’ salaries across Asda?”

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