These Gas-Station Entrepreneurs Favored Food Over Fuel and Got Rich

These Gas-Station Entrepreneurs Favored Food Over Fuel and Got Rich

Britain's Issa brothers became billionaires by emphasizing retail at filling stations. Now they are expanding in the U.S.

Mohsin, left, and Zuber Issa took advantage as big oil companies sold off underperforming gas stations. EG GROUP
Mohsin, left, and Zuber Issa took advantage as big oil companies sold off underperforming gas stations. EG GROUP

Two brothers who became billionaires in Britain by focusing on food over fuel at gas stations are looking to roll out that model globally in the hope of finding broader success.

As teenagers, Mohsin and Zuber Issa worked at a filling station in northern England owned by their parents, who emigrated from India in the 1960s. They used that experience to expand from the purchase of a single derelict site nearby into one of the world's largest independent gas-station operators, with over 6,000 sites across Europe, and more recently in Australia and the U.S.

They took advantage as big oil companies sold off underperforming gas stations, snapping up sites in the U.K. and then in Europe. Their playbook: doubling down on higher-margin food, selling fresh and packaged groceries and franchising some of the world's most recognizable fast-food brands.

Now the Issa brothers are looking to repeat the trick in the U.S. EG Group--the business they own along with private-equity firm TDR Capital -- struck its sixth American acquisition in just over two years in November.

But as the brothers explore a stock-market listing for the business, they are facing scrutiny over corporate governance and the debt amassed to fund the rapid expansion. And some retail analysts say EG Group faces a tougher test stateside.

The brothers are also in the middle of wrapping up the biggest deal of their lives: the $9 billion purchase, with TDR, of Walmart Inc.'s majority stake in British grocery chain Asda Group Ltd.

The deal, announced in October, catapulted the Issas to prominence in the U.K. The brothers had kept a low profile despite amassing a fortune estimated at $4.7 billion by a British "rich list" and EG Group's near $24 billion in annual revenue.

The Issas bought their first gas station in 2001 near Manchester in northern England and opened a cafe and shop on its spare land. Working at their parents' site had taught the brothers that motorists often wanted refreshments and that coffee could be more lucrative than fuel. With gas stations typically selling mostly cigarettes and lukewarm tea, they spotted an opportunity to attract drivers with higher-quality food.

To buy more gas stations, they borrowed money, including from Lloyds Banking Group PLC, which became a long-term adviser and provided funding that allowed them to avoid selling a stake in the business. They funded refurbishments with profits, adding convenience stores selling products from milk to artisan bread, and recognizable fast-food chains such as Burger King and Subway.

EG Group opened England's first drive-through Starbucks in 2010 and is now the U.K.'s largest franchise operator of the coffee chain. Convenience-store and fast-food offerings now make up about two-thirds of the company's revenue.

Mohsin, 49 years old, is typically responsible for the day-to-day business. Zuber, a year younger, works more on development and acquisitions, Mohsin told a local paper in 2011. He added that their approach was to look for sites with lots of nearby homes, or "good traffic flow and 'chimney pot' surroundings."

The strategy appears to be paying off in the pandemic. EG Group recently reported a 54% rise in third-quarter earnings, stripping out the impact of acquisitions, as higher grocery and merchandise sales offset a fall in fuel volumes.

EG Group said its ambition in the U.S., which is already home to half its employees, is to become a one-stop shop for breakfast, tobacco, newspapers and fuel for morning commuters, and for groceries when they return home.

The company bought Kroger Co.'s nearly 800-strong network of convenience stores and gas stations in 2018, gaining brands like Kwik Shop and Turkey Hill, and last year acquired Cumberland Farms, with its 567 stores in the Northeast and Florida.

David Marcotte, a retail analyst at research firm Kantar, said the brothers have raised standards at the U.S. stores they have bought but questions whether Americans can be persuaded to shop for groceries at gas stations.

Drivers in the U.S. are more likely to choose where to stop based on gas prices than food, he said.

Others analysts said there isn't room at the sites EG Group has bought to add many extra facilities.

The speed of EG Group's expansion and its debt load are also attracting scrutiny.

S&P Global Ratings estimates EG Group's debt will hit $11 billion this year, with a debt-to-earnings ratio of 10 times. By contrast, the ratio for Alimentation Couche-Tard Inc., a Canadian peer, is 1.9 times, S&P said.

An EG Group spokesman said S&P's calculation didn't reflect synergies from its recent deals.

Separately, both EG Group's longtime auditor Deloitte and Moody's Investors Service have raised concerns that the company's financial reporting and corporate governance haven't kept pace with its increased size and complexity.

Until November, the 44,000-employee company had a board consisting of just four people: the brothers and two partners from TDR. Such concerns were in part what recently prompted Deloitte to resign, while Moody's downgraded EG Group's credit rating.

The EG Group spokesman said Deloitte signed off on its last audit and hadn't raised any accounting issues.

He said Moody's concerns didn't reflect recent investments to strengthen the business.

The company has appointed a former BP PLC executive to its board and said it was actively seeking additional directors.

Despite their success -- the Issas now own a pair of private jets and a $30 million mansion in London's tony Kensington -- those who know the brothers say they remain humble and hardworking.

They have kept the business based in Blackburn, the rundown former mill town where they grew up, having shunned calls to relocate. No one at headquarters has an office, and the Issas' children, three of whom work for the business, are expected to work their way up like everyone else, according to a person familiar with the matter. Staff tend to stay with the company for the long haul, and some cashiers have risen to hold senior international management roles.

Mohammed Khan, a local politician who knows the family, said the brothers, who declined to be interviewed, are unassuming and almost shy.

"If you meet them, you don't think they are millionaires," he said.

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