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Tesco puts fate in Drastic Dave's hands

Friday, August 01 14:41:42

When Tesco needed a new chief executive to rebuild the world's third-biggest retailer it turned to "Drastic Dave" Lewis, a turnaround specialist who is probably as close to being an insider as an outsider can be.

The 49-year-old earned the nickname during his 27 years at Unilever, where he turned around a string of operations including the consumer giant's British business, cutting costs and energising staff with innovative marketing campaigns.

In October, with no direct retail experience, he takes on the job of running Britain's biggest private sector employer, which is battling its sharpest slowdown in four decades. He will be the first external CEO the group has appointed in its 95-year history.

Lewis was most recently global president of Unilever's personal care division, responsible for brands such as Lifebuoy and Dove soaps and TREsemme shampoo. That brand experience will be tested by the task of putting the shine back on Tesco's image.

He is also credited with having built a strong management team at that division, and he will certainly need to flex the same muscles at Tesco.

The veterans who ran the company under long-time CEO Terry Leahy all left in the three-and-a-half-year reign of Phil Clarke, who was unceremoniously pushed out on July 21 after a second profit warning and with the stock at a decade low.

Four former senior Tesco executives told Reuters that Clarke clashed with directors and was reluctant to take advice.

Three of the four said they knew Lewis and believed he had the right attributes to get the retailer back on track.

Most importantly, he has a contact book stuffed full of current and former directors and managers of Tesco, which is one of Unilever's biggest clients.

"Unilever and Tesco have had a fabulous relationship," said one former Tesco director of its British business, who asked not to be named. He said executives from both firms would often gather for golf trips and other social events.

"There was a very tight-knit relationship; it went way beyond simply being a supplier. Dave Lewis would be at the heart of that. He knows the business very well."

Analysts, drawing parallels with Tesco's current plight, say when Lewis returned to Unilever UK in 2005 it was suffering from declining market share, had an uncompetitive cost base and a weak image with customers. Nine years on it looks very different, having delivered its 27th consecutive quarter of growth in July.

Interviews with several people who know Lewis describe him as "very bright", "tough as old boots" and "entrepreneurial", yet "unpretentious" and "self effacing". At dinners with analysts, he seeks their views instead of doing all the talking.

"The fact that he's not a shopkeeper and he hasn't got a history of being in retail will partly be to his advantage and partly will be his challenge. He will be a breath of fresh air," said a second former director, who asked not to be named.

Tesco, with a market valuation of 22 billion pounds ($37 billion) and over 500,000 staff, had been the darling of the sector during two decades of uninterrupted earnings growth.

But it started losing ground in its key home market in the final months of Leahy's 14 years at the helm. In January 2012, 10 months after Clarke took over, it issued a profit warning.

Like Britain's three other leading grocers - Wal-Mart's Asda, Sainsbury's and Morrisons - Tesco is being squeezed between hard discounters Aldi and Lidl and by Waitrose and Marks and Spencer at the premium end.

It was slow to react to the rapid change in the sector and has also struggled with costly mistakes abroad.

"Not all of it was his fault, and he was inevitably dealt some cards that were going to be awkward. But even if you've got an awkward hand you can play it with care," said the second former Tesco director.

Clarke declined to comment, but defenders of his record would point to the tough economic conditions he had to deal with in several markets and the substantial re-positioning of Tesco he oversaw in a grocery market changing faster than ever before.

Those changes were most pronounced in the UK, where the popularity of discounters increased sharply and where consumers shopped more online and deserted big out-of-town stores in favour of local convenience shops.

A third former director said the most damaging aspect of Clarke's tenure was not the firm's decline in market share but its haemorrhage of management talent.

Comparing the country managers and members of Tesco's executive committee now to those inherited by Clarke from Leahy he said: "There's a shocking contrast in terms of ability, quality and experience. It's a profoundly weaker team."

Leahy had run Tesco with a leadership team of about 20, which included a cadre of five key executives - Clarke, Tim Mason, David Potts, Richard Brasher and Andy Higginson.

Under Leahy, senior executives would spend much of Thursday, Friday and Saturday in stores around the country, looking for changes in the way Britons shopped. The senior team would then meet every Monday afternoon to discuss how to respond.

They would also spend at least two weeks a year in a depot or the back of a store to properly understand how the business operated and how it could improve.

While Clarke remained close to the shop floor, by December 2012 the other four had left Tesco - they didn't get on with him, according to all three former directors - taking a combined 109 years of experience with them. Only a couple of Leahy's 20 remain today.

Lewis could rip up the leadership structure only put in place by Clarke in June, which introduced a chief customer officer and a chief creative officer to Tesco's executive committee, and has been criticised for being unwieldy and dysfunctional.

Analysts anticipate reversion to a simpler organisational structure with shorter lines of communication and clearer accountability.

The British executive also wondered whether Mason, whose last Tesco job was running the ill-starred Fresh & Easy business in the United States, and former UK and Asia chief Potts could be lured back.

As well as strengthening management, Lewis also has to restore Tesco's winning culture and the motivation of its vast UK workforce of more than 310,000 people, which the former directors said was undermined by micro-managing and endless initiatives to improve the business under Clarke.

Lewis has big decisions to make on whether to go head to head with the discounters in a full-blown price war, on what to do with Tesco's huge underperforming out-of-town stores and on further retrenchment from its 11 international markets.

"He knows the culture, he's been around the business a long time," the former British executive said of Lewis. "The supertanker is two degrees off course. Supertankers do take time to get back on course again because they're such big monsters, but big businesses have lots of tools in the tool kit."

Tesco and Lewis declined to comment for this story. (Reuters)

For more visit: www.businessworld.ie