Wednesday 2 October 2019 11:58 am

Tesco CEO: Analysts react to Dave Lewis' shock departure

Tesco chief executive Dave Lewis this morning made the shock announcement that he is preparing to step down, saying the supermarket giant’s turnaround is complete.

Lewis cited personal reasons for his decision and declared that five to six years is an appropriate tenure for a chief executive.

Read more: Tesco CEO Dave Lewis quits

Boots veteran Ken Murphy will replace Lewis after he leaves the firm next summer.

Analysts have credited Lewis with rescuing the company, but have raised questions over some subdued sales figures in today’s results, the competition posed by supermarket discount chains and the decision to bypass internal talent to hire a relative newcomer to food retail as new chief executive.

Turnaround

In 2014, when Lewis joined the business, Tesco had posted a string of profit warnings and uncovered a £250m overstatement of profits. 

Analysts have cheered Lewis’ tenure at the FTSE 100 supermarket, saying he rescued the company from decline and “restored it to vitality”. 

Russ Mould, AJ Bell investment director, said: “Three cheers for Dave Lewis, the man who stopped Tesco from sinking into a deep hole. The departure of one of the most highly-respected bosses in UK business is not a surprise given his turnaround efforts now seem to be bearing fruit. 

“He has made some very difficult decisions which, while painful, have put the supermarket back on track.”

Retail Economics chief executive Richard Lim said: “This surprise news will send shock waves through the industry. 

Read more: Will Tesco’s earnings drive further share price gains?

“Upon arrival, he faced the momentous task of restoring the UK’s largest retailer to vitality.

“A lazer-like focus on the core food business, disposal of international assets and a ruthless approach to cost-cutting has left the retailer in a much more commanding position.”

However, some analysts pointed at today’s results, published alongside the announcement of Lewis’ departure, as an example of work that still needs to be done.

Like-for-like sales in central Europe fell 3.1 per cent sure following the sale of properties in Poland, and in Asia sales dipped 1.3 per cent.

Increasing competition

Despite Tesco’s transformation, one issue still facing the company – and all major UK supermarkets – is how to combat the growing popularity of discount chains Aldi and Lidl. 

The latest industry data from market research firm Kantar showed that Tesco sales decline 1.4 per cent in the 12 weeks to 8 September, while Aldi and Lidl grew 6.3 and 9.2 per cent respectively.

In an attempt to recapture market share Lewis announced the roll-out of discount brand Jack’s last year. 10 shops have been established, with a further three to be opened by February.

Read more: Tesco sells mortgage arm to Lloyds banking group for £3.8bn

However, Jack’s store in Lancashire was closed last month and will be replaced with a traditional Tesco branch, prompting questions over the success of the experiment. 

Lewis today said the closed store was a trial run of a larger Jack’s format and admitted management had got the location wrong.  

Mould added: “The jury is still out on Jack’s but it is clear that Lewis has been a man who has constantly rolled up his sleeves and explored every possible avenue to sharpen Tesco’s proposition.”

“The plan to open a further 150 stores in the UK also sees Tesco go head-to-head with the likes of Aldi and Lidl,” Emma-Lou Montgomery, associate director at Fidelity, said. 

New CEO

Incoming chief executive Ken Murphy will have big boots to fill at the supermarket giant, according to analysts who have questioned the decision to hire externally. 

The appointment raised also questions as Murphy, who has spent his career at Walgreens Boots Alliance and currently works as a consultant for the firm, has no experience running a food retail business.

Responding to questions over the decision to hire externally rather than promote internally, Lewis said the existing senior management team are all fairly new to their roles. 

Charles Wilson, the chief executive of Booker – which Tesco acquired in 2017 – also told Tesco bosses he was not interested in taking over from Lewis. 

Read more: Tesco Metro prepares to slash 4,500 jobs

“He [Lewis] certainly leaves the business in a better condition than which he found it, however it is telling that his successor hasn’t come from within the existing management structure,” Michael Hewson, chief market analyst at CMC Markets, said. 

“I wonder if investors will wonder the same thing as they digest today’s better than expected results, along with Mr Lewis’s surprise decision to leave.”

Retail analyst Nick Bubb said: “The bigger question is why Tesco overlooked an array of internal candidates for the new chief executive position and have gone outside and appointed Ken Murphy from Boots (aka Ken who?) as the new Tesco boss.”

“There’s a lot for Tesco to play but also a lot more that needs to be done in order for the UK’s current number one supermarket chain to hold onto its poll position,” said Emma-Lou Montgomery.

“Incoming CEO Ken Murphy has big boots to fill, but he is also a cheaper option, for now, and as we’re always being told, “every little helps.”

Main image credit: Getty

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