Philip Clarke finally gets the bullet at Tesco

After months of trouble and strife at the UK’s number one supermarket group, Tesco, under the leadership of 40 year veteran Philip Clarke it was one profit’s warning too many this morning with the news that Clarke is being replaced in October. Tesco’s chairman Sir Richard Broadbent said that “Having guided Tesco through a substantial re-positioning in challenging markets, 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.”

The company’s performance in June and July has been poor meaning that Tesco will not hit its half year forecasts, “Current trading conditions are more challenging than we anticipated at the time of our first quarter interim management statement on 4th June. The overall market is weaker and, combined with the increasing investments we are making to improve the customer offer and to build long term loyalty, this means that sales and trading profit in the first half of the year are somewhat below expectation.”

Clarke is being replaced by Unilever veteran Dave Lewis as Chief Executive. Lewis is currently President of Personal Care at Unilever and he has spent 27 years with the business. A party to celebrate Clarke’s 40 year’s with Tesco has been abruptly cancelled.

Dave Lewis, the new Tesco CEO

Clarke took over from Sir Terry Leahy in 2011 and been hit by declining profits both in the UK and in the company’s international business. His tenure has been accompanied by several departures from the management team including the Finance Director, Laurie McIlwee, who resigned in April. Analysts have criticised Clarke for failing to focus the company’s efforts on a few key initiatives and instead trying to change everything at once whilst having no clear commercial strategy. The company has been in the squeezed middle between the discounters like Aldi and Lidl and the premium supermarkets like Waitrose and Marks & Spencer. The UK estate was stripped of investment in the Leahy era to fund the international expansion programme like the failed US venture Fresh and Easy. As leading retail analyst Nick Bubb said today, “We’ve always thought that Phil Clarke was a street-fighter, and his inheritance from the once highly regarded Terry Leahy was very poor (with the core UK business milked dry to finance the foolish escapade in the US), but he was always going to find it hard to survive another profit warning.”

Dave Lewis will have his work cut out in his new role that’s for certain given the head winds against Tesco. Increasing investment in cheaper prices for consumer whilst refurbishing stores is putting margin under pressure and there may be a kitchen sinking by the new management team to reset the business following Clarke’s departure. Life isn’t easy in the supermarket sector right now with consumers increasingly price sensitive and willing to try discount supermarkets. Lewis will no doubt have to take some brave steps to turn this giant around with the last quarterly sales report showing a 3.7% drop. Given Clark’s reputation at Tesco, it will be unlikely that many employees will be sad to see the man go.

Contrarian Investor UK

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