Asda Boss Warns Over Food Price Caps As EG Group Deal Sealed

The Asda chairman has warned of "unintended consequences" if the government asks supermarkets to impose price caps on basic food.

Stuart Rose told the BBC any such move could be "counterproductive", and that shoppers face the possibility of missing out on better deals.

His comments came as Asda agreed to buy the UK and Ireland business of petrol station giant EG Group for £2.27bn.

The deal will see Asda step up its growth in the convenience food sector.

At the weekend it emerged that the government is in talks about asking supermarkets to cap prices on basic food items to help tackle the rising cost of living.

Mr Rose told the BBC that UK food retailers were "already competing very heavily with each other to give our customers the best possible deal" and were "well ahead of what the government can offer"'

"Starting to try and manipulate markets or control markets is is not going to be effective," he said. "Be careful about what you wish for, be careful about the unintended consequences."

He said any action by the government to fix prices "actually would be counterproductive because if you say you're going to fix the price and suppose then you could actually do it cheaper and you'd agree to keep it at a higher price, you'd be depriving the customer of a better deal".

"So that's the anti-competitive and actually it's almost a cartel, and cartels are illegal."

Industry body the British Retail Consortium has already said the possible measures would not make a "jot of difference to prices".

Asda's deal to buy the UK and Irish assets of EG Group brings together two businesses that are already owned by the billionaire Issa brothers.

The newly-combined company will have revenues of nearly £30bn and employ about 166,000 people.

Mr Rose said the deal was needed as all Asda's competitors ran convenience stores. "We are now going to be in the convenience business, so we'll be a complete retailer."

EG has about 350 petrol stations and more than 1,000 food-to-go locations. All of its sites will be rebranded under the Asda name.

Asda - which is the UK's third largest supermarket - currently has 438 petrol stations, including 129 forecourts that it bought from the Co-op last year in a £600m deal.

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

Asda co-owner Mohsin Issa said the combination would be "positive news for motorists, as we will be able to bring Asda's highly competitive fuel offer to even more customers".

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

The watchdog is looking at whether a "failure in competition" means customers are overpaying, despite claims by supermarkets that they are working to keep food prices "as low as possible".

A separate investigation into the fuel market has found some supermarkets have increased margins on petrol and diesel.

Asda said it planned to invest more than £150m over the next three years to integrate the two businesses.

It hopes to make savings of about £100m in the next three years, by taking advantage of the size of the new group and higher sales volumes.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the idea behind the tie-up was that "by being super-competitive on petrol, Asda may win more grocery custom from rivals at a time when grocery top-ups are all the rage, rather than dedicated weekly shops".

"But while the cost-of-living crisis rages... the search for value may be prioritised over convenience for the foreseeable future," she added.

Retail analyst Richard Hyman predicted job cuts at a senior level would follow.

"It was inevitable the Issa brothers would want to consolidate assets they already own," Mr Hyman said. "The only reason they'll be doing this is to cut costs."

Zuber Issa, co-founder and co-chief executive of EG Group, said the deal was "an important strategic step for EG Group".

"Following this sale, EG Group will benefit from a significantly strengthened balance sheet," he said in a statement.

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

The GMB union said it was concerned that rising interest rates would saddle Asda with "unsustainable" levels of debt.

In a letter to Mr Rose, GMB national officer Nadine Houghton said: "There is a huge question over who will pay the price for this debt leveraging. Will it be the 7,000 low paid retail staff in Asda's Southeast stores who are going to have their pay slashed by fire and re-hire?

"Or is this just the beginning of a wholesale assault on the pay of working people across Asda?"