Tesco Plc (TSCO) replaced Chief Executive Officer Philip Clarke after first-half profit trailed the grocer’s expectations, the latest in a series of setbacks since the company veteran took the helm about three years ago.
Dave Lewis, who as head of Unilever’s personal-care unit has led the expansion of the British-Dutch company’s fastest-growing business, will succeed 54-year-old Clarke on Oct. 1, the Cheshunt, England-based supermarket operator said today.
Clarke is being replaced after struggling to stem the march of discounters Aldi and Lidl at one end of the U.K. grocery market, and upscale chains such as Waitrose at the other. Since he started as CEO in March 2011, Tesco’s domestic market share has declined to 28.9 percent from 30.2 percent, while sales have slid in most of its international businesses. Current trading is “more challenging” than anticipated and first-half sales and profit are “somewhat below expectations,” Tesco said today.
“A change in leadership may bring some much-needed fresh thinking to Tesco, but the structural shifts in the grocery sector cannot be reversed,” Natalie Berg, global research director at researcher Planet Retail, said by e-mail. “The fundamental issue remains that shoppers are no longer making that big weekly trip to an out-of-town superstore. ”
Tesco shares rose in London as news of the management change outweighed the latest profit disappointment. The stock was up 2.7 percent at 292.75 pence as of 10:49 a.m., trimming this year’s decline to 12 percent.
“We would expect the market to offset the disappointment of the downgrades with a sense of relief that the group is entering a potentially more effective chapter in its development,” Clive Black, an analyst at Shore Capital in Liverpool, England, said in a note to clients.
Clarke’s tenure at Britain’s largest retailer has been marked by profit disappointment. Less than a year after he succeeded Terry Leahy at the helm of Britain’s biggest retailer, Tesco cut profit guidance for the first time in 20 years following the failure of its Big Price Drop campaign. Leahy built Tesco into the biggest U.K. grocer with sales around the world, overseeing a more than fourfold increase in revenue.
Clarke has missed out on his annual bonus for two years running after failing to reverse falling profit. The outgoing CEO, who has spent most of his adult lifetime working at Tesco, pleaded for more time from shareholders at its June 27 annual meeting, saying the company is undergoing “radical” change. In February, he said the grocer would invest at least 200 million pounds ($342 million) a year to lower prices on essential food items such as milk and eggs as part of an effort to win back consumers from the likes of Aldi and Lidl.
Clarke’s departure means Tesco will have changed its entire board in little more than three years. The company announced in April that Chief Financial Officer Laurie McIlwee would be leaving, becoming the sixth director to depart since 2011.
Tesco Chairman Richard Broadbent said the leadership change is about building on the changes instituted by Clarke, which have included exiting the U.S. after investing about 1 billion pounds there. The CEO also withdrew from Japan and folded the company’s Chinese operations into a joint venture.
“There are huge calls ahead of us to make, in order to build on what’s been achieved,” Broadbent said on a conference call with reporters. “This was the moment for Philip to hand over to somebody who can bring a perspective and a mandate to make the big calls we have to make.”
Clarke will remain as CEO until Lewis joins in October and will then stay in a supporting role until January, Tesco said. He will receive a payoff equal to a year’s salary.
Lewis, who has served in a variety of posts during almost 28 years at Unilever, will become the first Tesco CEO appointed from outside the company. He’s the second top executive to be named to the grocer’s board this month after Marks & Spencer Group Plc’s Alan Stewart was appointed chief financial officer.
Among the main challenges for the new CEO will be to address a shift away from supermarkets and toward discounters, online providers and convenience shops. The percentage of U.K. grocery shopping done at superstores and hypermarkets will fall to less than 35 percent in the next five years from more than 42 percent now, researcher IGD said in a report last month.
Lewis’s first task at Tesco will be to define the business, according to Planet Retail’s Berg.
“It doesn’t stand for value, yet it doesn’t stand for quality, and without a clear proposition we fear that Tesco will continue to lose customers to more relevant and better-defined channels,” Berg said.
At Tesco, Lewis will earn an annual salary of 1.25 million pounds, plus standard benefits. He will receive 525,000 pounds in lieu of his current year cash bonus from Unilever.
The 49-year-old executive’s lack of retailing experience is not a concern, Broadbent said on the call.
“If you look at what Dave Lewis brings, David is absolutely the leader in brand management and brand identity, communication, customer development, customer management,” the Tesco chairman said. “Tesco is not short of retail skills.”
Lewis has held roles globally at Unilever since joining in 1987 including the chairmanship of its U.K. and Ireland business and president of the Americas.
“Dave Lewis knows nothing about retailing, but maybe that doesn’t matter, because as a leading supplier he certainly knows how to win price wars and perhaps that is the big issue now facing Tesco in the U.K.,” said Nick Bubb, an independent retail analyst in London.
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