Tesco boss finds party’s over after quitting top job

By Michael Stones contact

- Last updated on GMT

The party's over for Tesco boss Philip Clarke
The party's over for Tesco boss Philip Clarke

Related tags: Tesco, Analyst, United kingdom

A party for Tesco boss Philip Clarke, scheduled for last night (July 22), to celebrate his 40 years with the retailer, was cancelled on Monday, after he revealed his intention to quit his chief executive role in October.

The cancellation of the party – due to take place at London’s Victoria and Albert Museum – revealed the surprise his announcement generated among colleagues.

Food industry analysts admitted less surprise, as they welcomed the announcement of his replacement Dave Lewis, president of personal care at Unilever.

Shore Capital analysts Clive Black and Darren Shirley said the outcome was unsurprising, given “recent trading in the UK has been rock bottom”.

While the result partly reflects a particularly weak and competitive UK grocery market, Tesco’s trading strategy had contributed to the firm’s woes and the weak share price faced by shareholders, said Black and Shirley. The analysts attributed the 5% fall in like-for-like sales to a lack of competitive pricing in the UK, while recognising some good work on store updates and category reviews.

‘Collapse in morale’

They welcomed the appointment of Lewis, who they said was a first class executive, who had been a great success at Unilever. They believed his appointment would be welcomed by store staff who had been “pummelled in recent years, so leading to a collapse in morale”.

A significant change in Tesco’s UK trading strategy cannot be dismissed, which is likely to have considerable implications for the rest of the British sector, they said. It remained to be seen whether Lewis will retain Clubcard, Fuel Save, Price Promise and other similar initiatives.

Tesco upgraded is advice on Tesco’s stock from ‘sell’ to ‘hold’.

One former Tesco insider thought the retailer’s strategy was fatally flawed. Tesco’s biggest problem is that it has only one type of store for everybody, said Bruno Monteyne, former director of the retailer’s supply chain and now senior analyst with financial analyst Bernstein.

“People nowadays have different shopping trips. Sometimes, when they want to save money and buy the cheapest food, you go to Aldi, Lidl and Asda,”​ Monteyne told BBC Radio 4’s Today​ programme.

‘They never really stand out’

“Sometimes, you want to treat yourself and you go to Marks & Spencer and Waitrose – you have reasons to go to different places. That is where Tesco really struggles because for each of those specific shopping journeys they don’t offer anything. They are not the best in price and they are not the best in quality. So, they never really stand out on any of those.”

Tesco’s strategy needs to be much more radical in response to the challenge from the discounters, he said. Aldi and Lidl were now offering higher quality food, with Lidl delivering “a major game changer”​ by selling fresh turkey for the first time at Christmas last year.

“But Tesco lost sight of its own pricing, and the same for Morrisons, by getting too expensive, so everybody runs to the discounters.”

Monteyne predicted radical changes with Lewis at the helm. “Tesco will get a better offer for value seeking customers, a much more aggressive approach than what has happened so far.”

Morgan Stanley Research agreed that Lewis’s appointment was likely mean radical change. “As the first outsider ceo in Tesco’s history, with a strong track-record in turnaround execution, we believe Dave Lewis’s appointment increases the probability of a significant change of strategy at Tesco,”​ said the group’s Edouard Aubin.

Outlining the “bull case” ​Aubin suggested a resetting of Tesco’s margins in the UK  “putting an end to the space race while slowing down polarisation”.

That should be combined with portfolio optimisation abroad – where Tesco has not covered its cost of capital in 20 years, said Aubin. Adopting that strategy could see Tesco shares reaching 360p, he added.

Read how Tesco broke the news of Clarke’s departure here​.

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1 comment

Early Starter

Posted by Phil Roberts (retired Unilever Supply Manager),

Aged 54 and a party to celebrate 40 years. Did he really start at 14?

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