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Business Analysis & Features

Clarke goes solo at tesco

The grocery giant's boss has seized the reins of its UK operation. By James Thompson

Liverpool football club hired Gerard Houllier to become its joint team manager in July 1998 along with Roy Evans. The experiment failed and Mr Evans got the boot just four months later after losing to Tottenham Hotspur 3-1 at home in the League Cup.

For Philip Clarke, an ardent Liverpool fan, perhaps similar issues with joint management have rung true at Tesco. Certainly, the grocery giant's group chief executive used lots of football talk to explain why he has taken over running its domestic business, prompting its UK boss to quit yesterday. Richard Brasher, who had only been appointed UK chief executive in March 2011, is to step down in July after more than 25 years at the world's third-biggest retailer.

Mr Clarke said: "There is just not room for two captains in the same team. If you think about any team, there comes a time when the coach wants to get on the pitch."

He added: "Richard felt that with my desire to get closer to the business to help with the pace and execution [of our plans], the business would benefit from giving me more space for that input."

The resignation of Mr Brasher, who has left the board he joined in 2004 with immediate effect, followed a sustained period of under performance.

It also came just two months after Tesco's first profit warning in 20 years, which wiped nearly £5bn off its market value on 12 January.

Dire underlying sales over Christmas forced Tesco to commit to invest up to £400m in its UK operation this financial year and forecast only "minimal" growth in profits in 2012-13. The grocer is expected to spend a similar amount revamping its UK stores the following year, according to analysts.

Tesco, which has operations in 14 countries, suffered a 2.3 per cent fall in its underlying UK sales over the six weeks to 7 January. This repeated the pattern of the market leader's sales lagging behind its big three rivals, Asda, Morrisons and Sainsbury's, over much of the past six years.

Clive Black, an analyst at Shore Capital, said the "structural changes" in the behaviour of the British consumer since 2008 has "particularly impacted Tesco in its core market".

Mr Clarke has also admitted that mistakes were made communicating its £500m Big Price Drop campaign, which Tesco launched to a fanfare in September. Mr Brasher was its key architect.

Mr Clarke yesterday denied that the Big Price Drop had been a "failure" and that it contributed to Mr Brasher's exit.

But he said: "There is a lot we can do better," adding the changes and investment it had started to make over the last two months were "beginning to show progress in line with our expectations".

Another problem for Mr Clarke, who took the helm in March 2011 following the retirement of Sir Terry Leahy, is that he will have to turn around the performance of its UK business without some of this country's most experienced retailers.

In addition to the resignations of other directors, Tesco will have lost nearly 97 years of experience with the exit of just three directors alone: Sir Terry, David Potts, the head of its Asian operation who will leave this summer, and Mr Brasher.

The competitive environment is also against Mr Clarke.

Dave McCarthy, an analyst at Evolution Securities, one of the very few analysts who has been bearish on Tesco in recent years, said: "[Sir] Terry inherited a company with a lot of momentum and with the competition in disarray. Philip Clarke has taken over a company where the momentum is going backwards and the competition is resurgent."

Despite it huge overseas presence, the domestic market still accounts for more than two-thirds of the group's trading profit.

That said, Tesco is forecast to have grown its adjusted pre-tax profits by 3 per cent to £3.87bn for the financial year that ended in February.

But Tesco's shares closed at 322p yesterday, sharply down on the 411p at the start of this year and Mr Clarke is now under the microscope like never before.

The City is not known for its patience, and it can take several years for a big grocer to turn around its performance, as Sainsbury's and Morrisons can testify.

Mr McCarthy said: "The jury is still out on whether he can turn around Tesco in the UK.

"He [Mr Clarke] needs to re-establish his emotional connection with the consumer, and that is really complex."

Tesco - Checkout


* Per Bank, non-food commercial director (March 2012)

* Sir Terry Leahy, chief executive (March 2011)

* David Reid, chairman (November 2011)

* Laura Wade-Gery, chief executive of Tesco.com (February 2011)


* Richard Brasher, UK chief executive (July 2012)

* David Potts, head of its Asian operation (June 2012)

* Andrew Higginson, chief executive of retailing services (August 2012)

* Lucy Neville-Rolfe, executive director of corporate and legal affairs (January 2013) *** not confirmed by Tesco

Tesco in numbers

5,380 Stores worldwide (2,715 in the UK)

2.3% Fall in its underlying, UK sales over the six weeks to 7 January

£3.7bn Profits in the year to February 2011, on global sales of £67.6bn

492,714 Employees (293,676 in the UK)