Tesco's share price slid yesterday on the news that Sir Terry Leahy will step down as chief executive officer next year. It is an understandable reaction from investors. Sir Terry has been a phenomenal retailer since he took control of the supermarket chain 14 years ago. Under his direction, Tesco has overtaken Sainsbury's to grab 30 per cent share of the UK grocery market. A grocery business founded on the philosophy of "pile 'em high, sell 'em cheap" has managed to attract shoppers from across the social spectrum.
And Sir Terry has steered Tesco far beyond the world of grocery retailing. Its stores now sell almost everything from clothing, to electronics, to insurance, to broadband services. There has been international expansion too, with stores opening in Eastern Europe, across Asia and even in the United States, the home territory of the mighty Walmart. But it is in the UK that Sir Terry's Tesco has made the biggest social impact. The retailer is estimated to take around one in eight pounds spent by British shoppers. And the reason for this success is simple: Tesco has given its customers what they want more efficiently than any of its competitors.
But as Tesco has grown it has been increasingly dogged by competition issues. The supermarket has been accused of rough treatment of its agricultural suppliers, of crushing smaller independent retailers, of hollowing out town centres. There have been charges of Tesco bullying and bribing local councils (through paying for some local services) to gain planning consent. The supermarket's stockpiling of land is said to have stifled the potential for local competition.
Inquiries by the Office of Fair Trading and the Competition Commission have come to nothing. But there is no doubt that a serious amount of power is now concentrated in Tesco's hands. And it is far from clear whether local councils are equipped to resist this power. Yet there are signs that the tide could be turning. The Competition Commission has proposed a local "competition test" for planned new stores. The previous government moved towards granting councils greater powers to protect the vibrancy of town centres. And some local authorities are already pushing back against Tesco. Since the beginning of the year eight district councils have rejected proposals for new stores.
Sir Terry's success as a retailer has been built on a natural understanding of what the British public want. Perhaps it is that brilliant insight into popular opinion that has now prompted him to call it a day with Tesco.Reuse content