July 5, 2013

Éclat at Tesco

Sir Terry Leahy, ex-Tesco CEO (photo: Anna-Maria Romanelli)
Yesterday's hero: Former Tesco CEO Sir Terry Leahy (photo: Anna-Maria Romanelli)
The events at Tesco's annual meeting in London last Friday have been generally received with astonishment here in the German trade.

The spectacle of former Chairman Ian MacLaurin publicly demolishing the legacy of ex-CEO Terry Leahy, the very man he once carefully groomed for the job, was certainly unedifying. But the dismantling of the reputation of a demigod almost beggars belief.

Clearly, something has gone very wrong at a company which some top German retailers use as their international benchmark.

Lord MacLaurin's surprise speech resembled the eruption of a volcano on the coast of Patagonia long believed extinct. The passionate jogger of yore seems to have flown in from retirement at the golf club in Spain to intervene with devastating effect.

After all, the words of the old Tesco stalwart carry weight. MacLaurin, Chairman between 1985 and 1997, is widely credited with having transformed the company from its former "pile-it-high, sell-it-cheap" image and eternal no. 2 position behind rival J. Sainsbury into the UK's leading retailer. He also initiated Tesco's internationalisation.

Leahy, the titan

Deadpan Sir Terry Leahy has an even more formidable track record. During his time as CEO from 1997 to March 2011, he diversified the UK business and globalised Tesco, more than trippling group revenues to make it the world’s no. 2 food retailer after Walmart.

It is perhaps an irony that, among their many other similarities, both gentlemen have been titled for their services and wrote a first-class management book in their retirement.

The bone of contention seems to be the nature of the baton Leahy handed to his (former?) friend and fellow Liverpudlian Philip Clarke in 2011. As like-for-likes decline on the UK market, where Aldi has just been proclaimed "Grocer of the Year", MacLaurin calls Leahy's legacy “sad”.

Running hot

To bolster Tesco’s breathtaking expansion in today 13 foreign countries (Central & Eastern Europe, Asia and the USA), Leahy had to “run hot” UK operations.

This euphemism used by his successor Philip Clarke really means chronic underinvestment on a home market where the global retail giant still makes about two-thirds of its annual revenues & earnings.

To make matters worse, fields afar have not always meant eldorado for Tesco. Since 2011 Clarke has been obliged to exit e.g. Japan and there are rumours about Poland and Turkey.

Whacking bonus

Had the venture with “Fresh & Easy” convenience-oriented supermarkets on the US West Coast in 2007 turned out well, Leahy had negotiated for himself a football-pools-sized bonus. Wisely, he didn’t organise a retroactive penalty for its failure; and Clarke has since been obliged to write the business down for £1bn.

As Tesco strives to find a buyer for loss-making Fresh & Easy (rumours include Ron Burkle’s Yucaipa Companies and/or Aldi), this must be a sobering thought for German discounter Lidl who is looking to enter the US in 2015.

The very fact that Tesco, who is greatly admired here in Germany, is struggling abroad can give local retailers no satisfaction. After all, Metro Cash & Carry is active in 28 foreign countries; Aldi is in 16 and Lidl in 27.

Beloved leaders

What else are outsiders to make of the events at the AGM? An unkind comparison would be with the Soviet era where the party leader was sacrosanct and delegates never dared to criticise.

But when the great one passed away or was toppled by a rival, the personality cult came to an abrupt end: the school books were rewritten, the pictures taken down and the statues removed.

So we have now finished with the cult of Leahy and seem to have begun an era of revisionist Leahy-bashing.

No time, this time

In the speech where he downs his former protégé MacLaurin also pleads for “two to three years” more time for today’s CEO Philip Clarke to reposition Tesco on the UK market.

Given that there has been a decline of nearly a quarter in Tesco's share price since the beginning of 2011, it is doubtful whether crisis-torn international capital markets will give Clarke the time he needs.

No doubt the demise of Clarke’s reputation will follow in due course. Almost as if he anticipates the same, Lord MacLaurin went on to attack “short-termism” and investor impatience.

Can it be that one’s memory after all these years is beginning to play tricks? Wasn’t the then plain Ian MacLaurin once impatient to oust the founding Cohen family from any remaining influence at Tesco?

Ah, but then history is always rewritten by those in power at the time…


Podcast microphone (photo: Gerhard Seybert-Fotolia)
(photo: Gerhard Seybert-Fotolia)

Podcast. Click arrow to listen to an audio version of the text:

Lebensmittel Zeitung print and digital (photo: LZ)
Our German B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: By international editor Mike Dawson in Lebensmittel Zeitung, no. 27, 05.07.2013

German Retail Blog

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Comments for this article are closed.

  1. Name
    Created 27 July, 2013 09:08 | Permanent link

    "No doubt the demise of Clarke’s reputation will follow in due course. Almost as if he anticipates the same, Lord MacLaurin went on to attack “short-termism” and investor impatience."


    Six years is not enough time for the almighty Tesco and the God called Leahy to get it right with Fresh & Easy?

    Clarke should take note and get rid of Fresh & Easy yesterday or lose his job.


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