The Insider: Heard on the Street
[This is the first in a series of columns to be published between now and the end of this year in which our "The Insider" columnist will be exploring what potential changes new Tesco plc CEO Philip Clarke, currently head of the retailer's European and Asia operations, might make with Tesco's Fresh & Easy Neighborhood Market USA after he assumes the CEO position on March 11, 2011. - Editor]
When Philip Clarke (pictured at top), the current head of Tesco plc's European and Asian retail operations, takes over for CEO Sir Terry Leahy in March of next year he will bring to his new job as the leader of the third-largest retailer in the world a very different skill set, tool kit and experience-based mind-set to the position, compared to that of Sir Terry. CEO Leahy announced his retirement on June 8. See here: [June 8, 2010: Tesco CEO Terry Leahy Retiring; Philip Clarke New CEO; Tim Mason Named Deputy CEO But Will Remain Fresh & Easy Neighborhood Market Chief in U.S.]
Clarke was identified many years ago by Leahy and the Tesco board as the logical heir-apparent for the CEO position when Sir Terry retired - although most thought it would be much later rather than so soon. Leahy will be 55-years old when he rites in March 2011. In fact, the heir-apparent status is one of the reasons Clarke was given the position as chief of Tesco's European and Asian operations, which has been where the retailer's international operations - and growth - have been most focused over the last few years. Compared to Europe and Asia, Fresh & Easy USA is small potatoes, for example.
But Philip Clarke, called in the UK retailing trade "Mr. Supply Chain" because of his expertise and love of the detailed technical aspects of the business, is a much different type of executive than Sir Terry Leahy is.
Although a reserved and actually somewhat shy man - he's a thinker more than a gabber - Leahy is what you might call an autodidactic. He harbors a deep reservoir of knowledge across many fields. Ask him a question, and not just about retailing, and you're likely to get an immediate and learned answer. For example, when Leahy wanted to learn more about climate change he consulted scientists from the UK's top universities and research centers, read extensively, and sponsored academic seminars on the topic. The result: Ask Sir Terry about nearly any aspect of climate change and expect to get a well-informed answer, if he's in a talking mood.
In the business of food and grocery (and general merchandise) retailing he's arguably the most eclectically self-taught executive out there. And Terry Leahy puts his knowledge into action, implementing policies at Tesco like its "carbon footprint" shelf sign program, which shows shoppers the relative "carbon footprint" of a given food or grocery item, from the field or factory to Tesco's store shelves. Leahy, and thus Tesco, is way out in front of most other food and grocery retailers with the program.
Terry Leahy also is a grocer who's developed an uncanny ability to understand politics, particularly UK politics. (He's missed the boat a bit when it comes to U.S. politics however.) That's self-taught as well. For example, he figured out a couple years after becoming CEO that hiring well-connected former MP's and staffers - not to mention ex-PM Tony Blair for a couple missions - was the best way for him to expand in the UK to the degree he desired (and that's been to a mega-degree), despite the objections of so many groups and individuals. He's also used these folks to help him maintain and burnish Tesco's reputation in the UK among key opinion leaders and other stakeholders.
Sir Terry has also used this strategy for Tesco's international business, but to varying degrees of success. For example, Tony Blair's missions for Tesco have been international ones in large part, in places where he has gold-plated relationships.
In the U.S., Leahy hired not a marketing-oriented public relations firm to represent Fresh & Easy Neighborhood Market, although they have a marketing-oriented PR division of sorts, but instead a very politically-connected one. That firm, APCO Worldwide - which has offices in Sacramento, California; Chicago, Illinois; New York City; Seattle, Washington; Raleigh-Durham, North Carolina; and Lexington, Kentucky, in addition to its headquarters office in Washington, D.C. - has among its principles and senior staff some of the most politically connected executives in the PR business, both Republicans and Democrats. [Suggested Reading - September 10, 2008: Tesco Fresh & Easy Neighborhood Market's Politically-Connected Public Relations Firm APCO Worldwide.]
A staffer from APCO's Sacramento office, Brendon Wonnacott, served as Tesco Fresh & Easy's corporate spokesman from 2006 -to- April 2009, when Tesco's Fresh & Easy Neighborhood Market hired him to be it's in-house PR executive and spokesman, and a company employee, which he currently is. APCO Worldwide still works for Tesco's Fresh & Easy though. Wonnacott does the day-to-day, out-front work, but its the access to the principles and senior staffers that led Tesco initially to hire APCO as their PR firm of record.
APCO's overall performance has been a mixed bag for Tesco's Fresh & Easy, but it has been an important part of Tesco's being able to fight off the at times strong campaign from the United Food & Commercial Workers (UFCW) union, which since 2007 has been trying to unionized store-level Fresh & Easy Neighborhood Market employees.
Philip Clarke, no shrinking violet by any means in the intellectual department, is more of an operations-oriented - hence the "Mr. Supply Chain" nickname - and an "I'll get back to you after consulting the appropriate department executive" kind of guy than Sir Terry is. By this I mean that whereas Leahy is more apt to give you that informed answer to your question right on the spot, Clarke isn't likely to do that. Rather, he's going to consult the organization chart and, if the question is on marketing, ask the senior marketing executive, if it's on U.S. food retailing, he will probably call Fresh & Easy CEO Tim Mason, and if its about British politics, climate change, the rules of soccer, farming or another such topic - all those Sir Terry can answer pretty well from self-knowledge - it's hard to say what his response would be, although those who know him well can almost guarantee it wouldn't be a Sir Terry-style response.
All this isn't to suggest one man is smarter than the other. Nor is it to suggest one has a superior style to the other. Rather, each has his own style based on their experiences, education, self-learning and experience within Tesco, where both of the men - who both come from similar working class backgrounds in Liverpool, England - have spent the majority of their careers.
No longer as Fresh, certainly not Easy
However, when it comes to Tesco's Fresh & Easy Neighborhood Market in the U.S., these differences will matter.
Fresh & Easy, which currently has 159 stores in California, Nevada and Arizona, is Sir Terry's baby. He made the decision to come across the pond to America, approved the format, named Tim Mason to head it up, has approved investing nearly $1 billion in it so far, and has defended it, albeit much less aggressively in the last year than in 2007-2008. In other words, Fresh & Easy is the house Terry Leahy built, with Tim Mason as the general contractor.
In contrast, Philip Clarke will come to Fresh & Easy USA on March 11, 2011 as a relatively blank slate. Sure, as a Tesco key executive and CEO heir-apparent he's been involved in discussions on and meetings about Fresh & Easy, perhaps even offering a suggestion or two. But to my knowledge he's had nothing to do with the decisions about or operations of Fresh & Easy from 2006 to today.
It's been Terry Leahy's and Tim Mason's project. And Leahy has delegated nearly all of the decisions about the U.S. fresh foods and grocery chain to Mason, which was part of the agreement between the two men when Mason agreed to come to America to start Fresh & Easy up. That's in part why Mason's title at Fresh & Easy is president and CEO rather than something else, like president or director of Tesco's U.S. operations.
Unlike Sir Terry, who as CEO has had a broad range of responsibilities, Phil Clarke has been hands-on involved in international retail operations in Europe and Asia for these many years. He will bring this fresh and immediate experience, and the skill set and tool kit acquired in doing it, with him to the office-of-the-CEO at Tesco'in the UK. He will assume those broad responsibilities of CEO, but his present job will influence it.
With this fresh operational experience in his mind, one has to believe Clarke will want to make some changes with and at Fresh & Easy. For example, Tesco recently reported a loss of $253 million for Fresh & Easy for fiscal year 2009/10, and CEO Leahy said Fresh & Easy will lose about that same amount in fiscal year 2010/11, which ends in early 2011. That will give Tesco about $750 million in operational losses for Fresh & Easy since the first stores opened in 2007. At the end of this fiscal year, which started in February, Tesco will have been operating the chain for over three years.
With Fresh & Easy Neighborhood Market entering its fourth year of business at the end of fiscal year 2010/11 - and frankly with nothing we can see at this point in time improving its fortunes, including an improved economy - will new CEO Philip Clarke be willing to allow things to continue as business as usual for yet another year?
I don't know. But what I do know is that most executives who've just come from a long stint running a very successful international operation, as is the case for Clarke with Tesco's European and Asian retail divisions, is going to want to know what Tim Mason - who will become Deputy CEO on March 11 but remain in the U.S. running Fresh & Easy, according to Tesco - and his team are going to do differently going forward than what they have been doing to turn around Fresh & Easy's fortunes. Tesco can only use the recession argument, the shelf life of which has already expired, for so long, after all.
CEO Mason and his senior executive team said in presentations in 2006 and 2007 that Fresh & Easy would achieve average per-store sales of $200,000 a week after a few years of operations. In November of this year it will be three years since the first batch of stores opened, and the chain's average per-store sales isn't even half of that $200,000. Those who know the food and grocery retailing business in America will likely agree with me when I say going from $100,000 a week in average per-store sales (which Fresh & Easy isn't even doing currently) to $200,000, in say two or even three year period, is a near miracle. Even if Fresh & Easy were to achieve that, it would mean hitting that $200,000 average per-store sales number, which Tesco has identified at where it needs to be in order to make a profit with Fresh & Easy, not until mid-to-late 2013 (three years from now). And remember, I said "even if they could achieve it." Therefore, something has to be done to jump-start Fresh & Easy. And the naming of a new CEO at Tesco plc is probably the right time to do it, especially from that new CEO's perspective.
One change - but a big one
One change new CEO Philip Clarke could make, say in late 2011, would be to call Deputy CEO Tim Mason back to the UK, with Mason's blessing of course, because Mason's new added duties as of March 11, 2011 - which in addition to remaining CEO of Fresh & Easy will include responsibility for all of Tesco plc's global marketing and branding; corporate values and climate change initiatives - require him to work out of Tesco's global corporate headquarters in the UK for the good of the entire corporation.
After all, might it not be difficult to run the marketing and branding functions of UK-based Tesco, which derives about 70% of its sales in the UK and the other about 28% from its Europe and Asia operations, out of Southern California?
And wouldn't it be more practical for a Deputy CEO in charge of corporate values to direct those values from the company's corporate seat, in the UK, rather from El Segundo, California?
And since nearly 100% of Tesco's tens of billions of dollars a year in sales (accept the $450 million a year in sales at Fresh & Easy) come from its European and Asia operations, which means that's were the retailer leaves the bulk of its carbon footprint, one might suspect running the corporate climate change initiative, which have been a big part of CEO Leahy's focus, from Tesco Towers in the UK would make far more sense than doing so from California's southern coast.
Now, here's where the beauty of such a move lies for Phil Clarke and Tim Mason: It could be done without any damage to Mr. Mason's feelings or reputation. In fact, it could enhance both those two aspects personally for Tim Mason and Tesco.
The handoff: First, the move would allow Clarke and Mason to transition Fresh & Easy from its start up CEO - Tim Mason - to one who would now focus on "the next phase"of the fresh foods and grocery chain's development. Isn't that a good press release opening paragraph, by the way? This is done all the time in business when it comes to start ups, right? Core competency: Second, Mason could get back to his original position at Tesco - marketing. Before he left Tesco UK to start up Fresh & Easy in California he was the corporate director of marketing.
What follows then - the big question in this scenario should it play out - is: 'Who would replace Tim Mason, say in late 2011, as CEO (or whatever the title might be) of Fresh & Easy Neighborhood Market USA?'
I'm going to leave that question to be addressed in part two of what is going to be a series of columns on this topic, which is: 'Will incoming Tesco CEO Philip Clarke shake things up at Fresh & Easy when he becomes CEO in March 2011.' But Here's a hint: The central premise of my follow-up next column can be summed up in this question: 'If my scenario does become reality, would Phil Clarke name a new chief for Fresh & Easy Neighborhood Market from Tesco's ranks, or would he name a veteran U.S. food and grocery retailing executive to head up Tesco's fledgling U.S. operations?' But that's only a part of the next column. Stay tuned.
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