Outlook It would seem we need to add an impeccable sense of timing to the endless list of attributes of Sir Terry Leahy, who bowed out as chief executive of Tesco in March. In quitting when he did, Sir Terry avoided having to unveil what were Tesco's worst results in around two decades yesterday, at least on the crucial measure of UK like-for-like sales. Has Philip Clarke, Sir Terry's successor, really managed to blow his legacy in the space of six short months?
Of course not is the answer, tempting though it sometimes is to look at companies' performances through the prism of personality. For one thing, Mr Clarke is a chip off the old block, hand-picked by Sir Terry to continue Tesco's march towards world domination. For another, Tesco's first-half performance was not as bad as some would have you believe – a 12 per cent increase in profit anyone? – and many of the problems it did have were macro issues.
Above all, it's the economy,stupid. The slowdown in the pace of recovery we have seen this year has hit Tesco particularly hard in two ways. First, as grocer of choice to the squeezed middle, it has seen customers move towards thediscount supermarkets at one end and to the premium marque,Waitrose, which has smartened up its pricing, at the other. Second, grocers are generally defensive plays during difficult economic times (people don't stop buying food), but Tesco's huge non-food sales make it less of a grocer than any of its rivals. As a result, it is much more vulnerable to pressures on household incomes.
The good news for Tesco shareholders is that the position of strength from which it starts gives Mr Clarke more room for manoeuvre than everyone else. The Big Price Drop campaign it launched last week – though subject to the normal arguments about grocers' smoke and mirrors acts – looks to be a pretty ruthless response to mounting threats to its core UK business. Also, the new chief executive has honed Tesco's international portfolio already, though the jury remains out on Fresh & Easy in the US.
Against all that, there are some questions to be addressed. On the core food offering, there is just a sense that Tesco has taken its eye off the ball during the past couple of years and needs to sharpen its act. The problems in its banking division alluded to yesterday are uncharacteristically sloppy and appear to be hindering the roll-out of the next stage of an increasingly important business for Tesco. And Fresh & Easy, though making progress, is still losing money. There is plenty of room for Mr Clarke to make his mark.