Earlier this week, reports emerged that Asda’s new billionaire owners the Issa brothers had been brainstorming ways on how they can utilise the Big 4 grocer’s shop floor space – for anything other than groceries.
Mohsin and Zuber Issa, who have spun a fortune out of reinvigorating hundreds of tired petrol forecourts under their EG Group empire, completed their £6.8 billion joint acquisition of Asda with private equity partners at TDR Capital last month. It still needs final approval from the CMA, though.
Nonetheless, the brothers are now reportedly working up plans to shrink retailing space dedicated to groceries by about a quarter, to make way for cafés, takeaways, and nail and beauty bars to create new customer experience incentives. The Issas are already trying to add Caffè Nero to their estate by buying part of the cafe chain’s £350 million debt pile.
To finance the £6.8 billion buyout of Asda from US retail giant Walmart, the Issa brothers used less than £800 million of their own money. Most of the deal will be funded with £3.5 billion in new debt, as well as sales of Asda’s distribution centres and forecourts.
Asda owns the property of 75 per cent of its 580 supermarkets, giving the brothers flexibility over how they choose to transform its large out-of-town stores in a bid to lure shoppers.
As traditional grocery shoppers switch to buying TVs, clothes and groceries online, the Issas are hunting for other chains to plug into Asda’s supermarkets. They are also reportedly considering selling its own-brand fashion label and in-store concession George under licence in an effort to reduce Asda’s debts.
In December, the brothers were accused of asset stripping by the GMB union over their plans to offload Asda’s logistics portfolio.
A spokesperson for the grocery giant told Retail Gazette that for over two years, Asda has been continuing to follow a strategy that supports it working with relevant brands and partners, “with the aim of enhancing our core offer and allowing customers to complete multiple activities in a single trip”.
In 2019, Asda announced some of its first partnership offers with the likes of Sushi Daily and Just Eat.
“We currently count McDonalds and Decathlon among the brands with which we have a longstanding relationship – some dating back over 15 years,” the spokesperson added.
“More recently, we’ve added partnerships with Greggs, The Entertainer, Claire’s, B&Q, Accessorize and musicMagpie to our stores, as well as an innovative ‘vegan butcher’ concept in our Watford store, branded Veelicious.”
Arguably, Asda’s concept of switching grocery store space for eateries and nail salon isn’t anything new. Customers have witnessed a wide range of additional retail emerge in stores over the last decade from plants and gardening to sushi bars – not just at Asda, but other retailers too.
Over the past year, the UK retail has seen Sainsbury’s announce an exclusive partnership with Dobbies to bring a range of food and grocery products to its garden centres. Meanwhile furniture retailer Habitat launched in Sainsbury’s and Argos as part of an overhaul – Habitat and Argos have been owned by Sainsbury’s since 2016 after all.
“There’s no doubt that nail bars and eating on the go will resurge in popularity”
Meanwhile, Morrisons opened a new temporary store near its site in Camden, north London last month, which features a new fresh-food takeaway concept called Market Kitchen. More recently, Morrisons extended its wholesale partnership with convenience store retailer McColl’s as part of an agreement to convert 300 McColl’s branches to the Morrisons Daily format until 2027.
“We have seen plenty of retailers build in additional services, going back many years to dry cleaning and key cutting and travel agents, and pharmacies,” said Mark Dodds, chair of the food, drink and agriculture sector at Chartered Institute of Marketing.
“In fact, Asda has been pioneering in-store Covid vaccinations at two stores.
“Once the pandemic is over, there is no doubt that nail bars and eating ‘on the go’ will resurge in popularity and Asda could well catch the wave and establish a new clients base.”
Retail expert Nelson Blackley agreed. He added that major grocers were already offering “food to go” or takeaway from their deli counters – whether it’s Chinese and Indian ready-meals in Tesco or custom-made pizzas in Asda.
“However, moving to a full takeaway service might be a difficult option simply because of the huge competition that exists, and the challenge of providing a real point of difference,” he told Retail Gazette.
“Many supermarkets already have beauty and nail salons occupying space in their building – perhaps technically not ‘in-store’ but sharing the same premises along with other services such as dry cleaning, key cutting, photoshops, post offices.”
Blackley argued that Asda’s initiative is about utilising physical space in the way that online retailers such as Amazon can’t do. To manage floorspace in the most profitable way possible.
“Whilst some of these initiatives may not necessarily increase footfall, it’s more about increasing the ‘dwell time’ and total spend per visit, and the productivity of their largest stores,” he said.
“For retailers in the 21st century with physical store estates this is the holy grail, but of course the challenge is growing as range of products or services which online shoppers can find quickly on Amazon is increasing every year.
“Asda launched a nail bar as part of a move to increase its share of the health, beauty, and wellbeing market in their Eastlands supercentre in Manchester when it first opened back in June 2002 and at the end of last year announced they were launching trials with both Accessorize and Decathlon to sell their products in supermarket stores.”
The Resilient Retail Club founder Catherine Erdly explained that the Issa brothers were looking at ways to reduce the Asda store footprint in response to how the grocery market has been impacted by the acceleration in online shopping. Historically, Asda has had one of the lowest penetrations in ecommerce.
“The addition of takeaways and nail salons may not necessarily drive additional footfall into Asda but it will increase the spend in the square footage so it seems like this initiative is about improving sales of density per square foot in Asda stores,” she said.
“They can reduce the grocery offering and then add these additional services in the hope that people will purchase their groceries and then make use of the additional services.
“Takeaways have an obvious affinity because people can then finish their grocery shopping and then purchase food to take home to eat.
“The addition of takeaways and nail salons won’t necessarily drive additional footfall into Asda”
“Nail salons and beauty bars will be an attempt to improve dwell times in the supermarket and make people see the benefits of coming to a physical store again to counteract the fact that more people are buying their groceries online so this is reinforcing the idea that grocery shopping is not just chore based but you could even have a certain pampering element to it as well.”
Erdly also said this type of approach of turning supermarkets into multi-use spaces could be seen in Asda’s former US-based parent company Walmart. She said that in the US, this was a common way of boosting sales in larger format stores.
“The biggest issue really is that the Asda name is not synonymous with luxury relaxations so it seems a little bit of an odd combination to be adding beauty bars and nail salons but they can persuade existing customers to spend more whilst at the superstores then that will be a win-win situation for them,” Erdly told Retail Gazette.
Meanwhile, Nottingham Business School customer experience lecturer Mark Smith argued that Asda was seemingly erring on recreating part of a department store vibe – something the high street is shying away from in other quarters.
“While food store sales continue to increase annually, the opposite is seen with non-food which continues to decline,” he explained.
“Yet the Issa brothers appear to be wanting to attempt to buck this trend.
“Experience needs to be at the very core of all retail decisions now more than ever, but this proposal seems to be going backwards to basic service provision, rather than progressive to brand experience.”
Smith suggested that Asda should instead use investment to create food testing spaces rather than cafes, introduce kitchenware cook-off competitions in-store rather than nail bars, and cake decorating workshops rather than takeaways.
As online grocery shopping soars – with Nielsen recording that online grocery sales accounted for 12.5 per cent of the UK’s total £12 billion supermarket spend during the four weeks to December 26 – grocery shops are undoubtedly shifting away from shelf-focus to market hall-style focus. This means more space for shopping and experiences.
Supermarkets now have the opportunity to innovate to drive footfall back in-store, and creating that one-stop shop where shoppers can grab a coffee and a beauty treatment may be a win-win for Asda. However, retail space costs money and need to be filled at a profit.