AS TIM Mason departs and Tesco announces a strategic review of its US venture Fresh and Easy, it is Sir Terry Leahy’s judgement that is under scrutiny. But despite the failure of his American dream, critics should not use hindsight to throw too many brickbats Leahy’s way.
It is important to remember both how bold and how deliberately limited in risk Leahy’s plan for Fresh and Easy was. As he writes in his recent book, Management in 10 Words, he sought not just to open another supermarket chain in the US, but to attempt a genuine innovation in food retailing: Whole Foods at WalMart prices. That was a gutsy choice, and Leahy also designed his bid for a transatlantic empire so that failure was possible without dragging down the group.
It might seem that by trying to invent something wholly new rather than buying an existing player, Leahy needlessly multiplied his risk. But buying your way into America is also a route scattered with wreckage, as in the case of Sainsbury’s purchase of Shaw’s supermarkets, which it ultimately sold for $2.5bn in order to focus closer to home in 2004.
Third quarter like-for-like growth of just 1.8 per cent in the US, against some analysts’ expectations of more than four per cent, yesterday made clear that Leahy’s gamble has failed.
It is clearly time to reassess his later years at the top of Tesco: his complaints in 2010 that investors were failing to recognise long-term potential were too bullish; and Tesco’s first profit warning for 20 years this January indicates that not all was left well at home.
But we need visionaries who can take the calculated risks that discover whole new markets. Leahy hoped to equal Tesco’s size in the UK across the pond. He over-reached, but the scale of his ambition was admirable.