Monday, February 28, 2011

Big Day For Tesco CEO Terry Leahy: Retirement and A Birthday But No Break-Even For Fresh & Easy USA On His Watch


The Changing of the Guard at Tesco
News/Analysis/Commentary

Most of the talk (and wins) at last night's Academy Awards gala in Hollywood, California was about the multi-Oscar Nominated movie "The King's Speech," which nabbed four wins out of 12 nominations, including for Best Picture. British actor Colin Firth also won the best actor Oscar for his portrayal of a proud yet stuttering King George VI in the hit film.

But later today across the pond at Tesco's corporate headquarters in Cheshunt, United Kingdom employees and friends will be celebrating another favorite British son of Irish ancestry, Terry Leahy (pictured at top), and likely asking the retiring CEO to make his own speech or two, as the staffers at the company he's lead for 14-years not only celebrate his retirement but also Sir Terry's 55th birthday, which is today.

There will no doubt be cake and beverages at the Tesco campus today, along with a few gifts for Sir Terry, as in addition to celebrating his birthday it will be his last official day in the office before he turns over his pinstriped grocery apron and corner office to director of international operations and information technology and incoming CEO Philip Clarke, who not only currently lives in the same neighborhood as Leahy but was also born and raised in the same city, Liverpool, as the man he's replacing, and started with Tesco over three decades ago as a store stock clerk, just like the retiring CEO did.

Not that Sir Terry needs any gifts. As we reported on Friday, Leahy gave himself a parting gift last week, trousering about £5,174,751.1 (pounds), or $8,357,223 million (U.S.) in stock options - perhaps as a small retirement nest egg or the start of his first private investment fund. The outgoing CEO has said one of the things he will do after he retires from Tesco will be private investment, including perhaps as an angel investor for small start-ups. [See- February 25, 2011: A Parting Gift: Retiring Tesco CEO Terry Leahy Exercises Options and Sells Nearly Three Million Shares of Company Stock

When it comes to the uncanny similarities between outgoing CEO Leahy and incoming CEO Clarke, some observers might say..."Meet the new boss, (almost) the same as the old boss." But despite their respective Liverpool origins and other similarities, Leahy and Clarke are different in many ways.

Clarke, however, must be the same as Sir Terry in the one way that ultimately counts: Ensuring Tesco remains the dominant retailer in the United Kingdom, along with becoming the second-largest global retailer, after Walmart, which has been Leahy's and thus the Tesco board's goal, in tandem with his fierce 14-year battle to make Tesco the UK's retailing top dog, which it is.

As he departs the company he's been with for over three decades, Sir Terry leaves Tesco with a market share (about 31%) that's nearly equal to that of its two leading competitors, Walmart-owned ASDA and Sainsbury's, which dominated Tesco in the sales of food and groceries in the UK when Leahy took the helm 14-year's ago.

Like him or not - and most people do like him - as the CEO of Tesco for the last 14-years Terry Leahy has been a combination overall solid strategic thinker (the corner office executive he became) and street fighter (the stock boy from Liverpool he started as).

For example, he recognized the importance of making Tesco a significant global retailer, particularly moving into emerging markets in Eastern Europe and Asia, long before most grocers, including all but a couple in the U.S., even thought about the concept. Today Tesco is one a just a handful of truly global food and grocery chains.

Back home in the UK it was under Leahy's leadership that Tesco basically launched a retailing version of carpet bombing (the street fighter) in terms of opening stores of various sizes in every city, town and village in the nation. Every municipality in the UK today has at least one Tesco-owned store. Most have many.

This strategy includes multiple formats, from superstores to the small Tesco Express convenience-oriented grocery markets, along with building the stores from-the-ground-up along with converting nearly every imaginable type of commercial building, including numerous pubs, into Tesco-owned stores. There's even a former church building in the UK that's today a Tesco Express store. Tesco kept the church facade in place and built around it.

Leahy has made mistakes, of course - who hasn't after 14-years as CEO of a major retail chain. But the successes out weight the mistakes overall, in our analysis.

But most of Sir Terry's mistakes, in our analysis and opinion, are more recent and have to do with Fresh & Easy Neighborhood Market USA, which is his baby, but now Philip Clarke's responsibility.

Sadly, one of Leahy's biggest mistakes vis-a-vis Fresh & Easy, in our analysis and opinion, is that he didn't make a number of significant changes that have been and are needed since the first stores opened in November 2007. We aren't going to detail those changes here. If you read through the three-plus years' worth of stories and posts in Fresh & Easy Buzz, you'll find numerous examples of which we speak.

But we also give Sir Terry credit for having the balls to launch a from-scratch food and grocery chain in America, focusing it on California, which not only is the biggest food and grocery retailing market (state) in the U.S. but also among the most competitive, along with being a very expensive place to launch a new chain.

Of course, one can reasonably argue that what we call "balls" is just another word for foolish. And there's plenty of room to argue that doing what Leahy and Tesco did with Fresh & Easy, and where they did it in the U.S. - California, Nevada and Arizona - is mostly folly.

But tomorrow is Sir Terry's birthday. So we wish the "happy warrior of retail" an enjoyable one, along with a fun and productive retirement.

Leahy leaves a fairly big executive grocery apron for Philip Clarke to fill. But he also leaves a big and expensive challenge, and a bit of a mess - Fresh & Easy Neighborhood Market USA - for the incoming CEO.

But If Clarke can look at Fresh & Easy with a fresh set of eyes, which it very much needed, make the needed changes, which include needed strategic as well as other changes, and get the fresh food and grocery chain to break-even by the end of Tesco's 2012-13 fiscal year, which is for all practical purposes the end of December 2012, then he will likely earn his Tesco wings.

Tesco says it expects in a few months to report a loss for Fresh & Easy in the same range as last year's loss, about $250-259 million for the current (2010/11) fiscal year, which ends tomorrow. Tesco reported a mid-year loss of $151 million for Fresh & Easy. There are currently 164 Fresh & Easy markets in California, Nevada and Arizona. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market.]

But first Philip Clarke, who recently returned from a visit to America and Fresh & Easy Neighborhood Market [February 23, 2011: Incoming Tesco CEO Philip Clarke Visits America - And Fresh & Easy Neighborhood Market] has to decide if he really wants to keep Sir Terry's creation, Fresh & Easy, operating, and losing millions of dollars each week, for another two years.

Clarke has said publicly he and Tesco deputy CEO and Fresh & Easy Neighborhood Market CEO Tim Mason are four square behind Fresh & Easy and plan to achieve the goal of break-even in two years. But we believe the jury of one (Clarke's mind/decision-making process) is still out on whether he will stay the course or pull the plug on Fresh & Easy USA before the end of Tesco's fiscal 2012/13.

Stay tuned.

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