He’s had a rough ride in his first 12 months, but the Tesco CEO could soon appease his critics with a raft of measures for the UK
His first year at the helm of the UK’s biggest retailer has been bookended by rioting anti-capitalist protesters in Bristol and a Westminster siege by campaigners against alleged slave wages. It just about sums up the baptism by fire Philip Clarke has experienced as Tesco’s group CEO.
As he approaches that 12-month milestone next week, the retail giant appears unusually vulnerable. With weeks to go to a crucial set of results in April, the Liverpool-raised veteran, a formidable trader and Tesco empire builder, still has to convince some doubters he is the man to turn things around.
But how much blame should Clarke shoulder for Tesco’s recent performance and what can he do to put things right?
It’s four months since Clarke publicly signalled a move to get the core UK operation back on track in what was an almost unheard of admission of problems on board the good ship Tesco. Whether they started with the new regime or Clarke was thrown a hospital pass by Sir Terry, there is no question those problems have piled up.
Tesco share of sales according to Kantar Worldpanel has slipped below 30%, its much-publicised Big Price Drop campaign has been widely redubbed the Big Price Flop, and its Christmas figures were the worst in 20 years. Clarke has also had to slam the brakes on store expansion, admitting the emerging threat of digital to the established supermarket model has bitten into non-food more than expected.
But, perhaps closest to his heart, Clarke has had to admit he is not happy with what he has seen in-store, where he admits Tesco has been “running hot” for too long, with not enough employees and existing ones not well enough trained.
Since Christmas, everyone has been waiting for the fightback. Last month, The Grocer revealed Tesco’s launch of a new pricing and promotions strategy, targeting its most affluent 200 stores with different ranges and promotions, while trialling lower prices through discounts at 100 stores at the opposite end of the spectrum. In other stores, teams of staff, ‘the fruit squad’, have begun trialling more frequent inspections of the quality and availability of fresh food.
But sources say Clarke’s vision has only started to emerge publicly. “He has bought a tremendous amount of energy to Tesco,” says one insider. “He’s done a lot of things that will prove to be watershed things. He’s restructured the whole business, and I know from the outside it might not be clear, but it’s been a really seminal moment in its 90-year career. You can feel the energy in the building.”
Reports persist of friction between Clarke and his UK CEO Richard Brasher, but despite a series of board-level departures and reshuffles, Brasher remains where he is - for good reason says the source. “I think there have been some big challenges in the UK, but what Clarke has done is let the UK business become the master of its own destiny,” he says. “Brasher is the CEO of the UK business. He consults with Philip Clarke but he is the top guy in the UK. The trouble with rumours of a rift between the two is that it ignores human nature. Good, firm discussions are how decisions get made.”
Clarke’s biggest challenge at home is the resurgent opposition, but none bar Walmart can beat it on the global stage. “Tesco is growing and our international business is the same size as Sainsbury’s as a whole,” points out the source. “It’s not right to take the travails of the UK business and make it a proxy for the fortunes of all of Tesco. We have a bank that is about to launch a mortgage product and become a retail bank. We have a genuinely profitable dotcom business that is doing very nicely and growing very rapidly. There is a problem that we have to tackle with our UK stores, but we are moving on price and you will see in the next few months some changes to address those issues.”
While analysts have been quick to blast Tesco’s Big price Drop, they are largely positive about Clarke’s first year in charge. “Given he was passed a ball that took some catching, he’s done OK actually,” says Shore Capital’s Clive Black. “He has shown himself very determined, very decisive. By Christmas he was already doing something about the UK stores.”
The retailer’s legendary hard-nosed approach to trading certainly appears to be alive and well, with The Grocer revealing last week its fining of suppliers for slow or delayed deliveries, which it blamed for £50m in “avoidable damage”.
Then there is its huge dotcom power. Online is certain to play a key part in the former director of IT’s fightback. The £30m “dark store” in Enfield, unveiled this week, is a forbidding statement of intent from a company that already has 48% of the e-grocery market, according to Kantar - and Clarke won’t stop there, says Ken Towle, Tesco director of internet retailing.
“Clarke has an obsession about the customer shopping experience, whether online or in-store,” he says. “One of the good things about Tesco is we get behind the strategy very quickly. Internet has always been important, but more recently, it has become even more important. It’s not just a small team in Welwyn Garden City. It is the whole of Tesco getting behind it.”
And they’ll be behind Clarke in April when he makes further announcements about his plans - which could provide the real watershed moment people have been waiting for.
The way forward
- Stores: Tesco will want the emphasis to switch from unpaid work experience to a revamped level of service, staffing and quality, starting with fresh
- Digital: dark stores in Enfield and Crawley are rolling out, and Tesco has major plans for Click & Collect
- Global: Fresh & Easy is fighting back in the US, Asia is booming despite its Japanese retreat and so is central Europe
- Pricing: Clarke says he’s happy with Tesco on price but the retailer will surely try to reenergise its Big Price Drop
- Marketing: a refresh is overdue. Expect a big blitz