Belfast Telegraph

Sunday 21 December 2014

'Outsider' hope for troubled Tesco

Tesco sales drop is most significant in twenty years
Tesco sales drop is most significant in twenty years

Tesco ditched beleaguered chief executive Philip Clarke today as it recruited an outsider from consumer goods giant Unilever to try to restore its fortunes.

Shares in Britain's biggest supermarket rose 3% as the City cheered the announcement, which comes weeks after Mr Clarke, 54, admitted that its latest sales performance was the worst in 40 years.

New boss Dave Lewis, 49, takes over in October with a £1.25 million basic salary and a £525,000 golden hello in lieu of his Unilever bonus.

Meanwhile, a party due for tomorrow to celebrate Mr Clarke's four decades at the firm has been cancelled.

The announcement of his departure came as the supermarket warned that continuing pressure on the grocery market combined with the cost of investments meant that sales and trading profit for the first half would be "somewhat below expectations".

Tesco has been battling with intense competition from discount rivals Aldi and Lidl and a squeeze on household budgets.

The group highlighted the need for change by saying any improvements for the current 12-month period would be partly reliant on "steps that may be taken during the remainder of the year to improve our customer offer further".

Mr Clarke took over in March 2011. His predecessor, Sir Terry Leahy, had seen a transformation in Tesco's fortunes as profits surged during his 14 years in charge - though there have since been question marks over his legacy.

But at the start of 2012, Mr Clarke shocked the market with the group's first profits warning in 20 years. It prompted the launch of a £1 billion turnaround plan but latest annual results showed annual earnings down for the second year in succession.

This was followed by like-for-like sales for the first quarter to May 24 falling by 3.7%, the third quarter in a row of worsening falls, and today's profits warning.

Tesco chairman Sir Richard Broadbent said: "Philip Clarke agreed with the board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile."

Mr Clarke said: "Having taken the business through the huge challenges of the last few years, I think this is the right moment to hand over responsibility and I am delighted that Dave Lewis has agreed to join us."

The appointment of Mr Lewis brings to an end a tradition of long-serving insiders being given the top job at Tesco, with the job previously held by Sir Terry and before him Lord MacLaurin.

Mr Clarke, who worked his way up from the shop floor, will be replaced by Mr Lewis in October but stay on in a support role until January, and receive a year's salary on departure.

Tesco said: "The board are deeply grateful to Philip for his contribution to Tesco, over the last four decades, as well as more recently as chief executive. His has been an outstanding achievement.

"Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development."

Neil Shah, analyst at Edison Investment Research, said: "Dave Lewis's arrival as new CEO from Unilever sends a clear signal that Tesco knows it has to get back to basics and address the value of its brand to consumers.

"Under Clarke's leadership, with successive falls in quarterly sales, there is a sense that Tesco has simply lost its sense of self. Expect a root-and-branch review in the way Tesco markets its brand across all products and all retail channels."

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: "The task ahead for the new chief executive remains sizeable. The march of the discounters Aldi and Lidl continues.

"The question now will be whether the new chief executive will have the courage to take early aggressive action, potentially going toe to toe with the discounters and impacting earnings, at least in the short term."

Clive Black, of Shore Capital, said a shift in Tesco's trading strategy under the new boss could have "considerable implications" for the sector.

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