June 9, 2010 3:00 am

Clarke to take on challenges at Tesco

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Philip Clarke may have been picked to inherit the Tesco crown but Sir Terry Leahy was still very much in the driving seat yesterday.

Anointing a fellow Tesco veteran as his successor as chief executive, Sir Terry used the moment to reflect on his 14-year reign at the UK supermarket chain.

"In every business the chief executive wakes up in the morning wondering where the growth will come from and we have answered that question at Tesco," he said, allowing himself a moment of triumphalism before sketching out the challenges for Mr Clarke.

"There is lots to do going forward. [Tesco] is growing at 10 per cent a year, that is another £6bn of business to undertake [each year]," said Sir Terry.

Most analysts had pencilled in the financial year of 2013/14 as a more natural departure date for Sir Terry since this is when his pension kicked in and long-term incentive plan paid out.

The announcement, however, ensured that distracting speculation would not build up around his departure. It also gives the 50-year-old Mr Clarke, who is a decade older than Sir Terry was when he took the top job, a good stint at the helm.

But it creates huge reverberations around a business that has had only half a dozen chief executives in 80 years. Mr Clarke's immediate challenge will be bringing the management team along with him and preventing defections.

Insiders say Richard Brasher, the commercial director, and David Potts, the retail and logistics director, will be desperately disappointed to have missed out on the top job.

To offset that, Tesco gave them bigger roles yesterday - Mr Brasher will be chief executive of the UK and Mr Potts chief executive of Asia - but it does not guarantee their loyalty to Tesco or their new chief executive.

On the plus side, Mr Clarke inherits a strong business that has withstood the recession. Tesco has also put levers of potential growth in place through its ambitions to develop a "people's bank", become a broadband provider and a one-stop online shop.

Keeping the UK on track is vital since it is the engine that funds everything else (the home market delivers 70 per cent of group trading profit), but the task is becoming ever more challenging given Tesco's huge scale and the resurgence of the competition. All the big four UK supermarkets are performing well for the first time in 15 years.

"The sector is heading for its most difficult time in many years," wrote David McCarthy of Evolution Securities, in a note.

The third big challenge for Mr Clarke is what he does with the US and Japan, two nascent markets in which Tesco is struggling to find the right formula for growth. "In the next five years, Tesco has to decide whether it stays or goes," says Clive Black, analyst at Shore Capital. "These countries, alongside India and China, should provide lifelong growth. It is Leahy's critical legacy that he has provided that platform."

See Lex www.ft.com/tescotimeline

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE