Tesco's Director Remuneration Report Approved at Today's AGM; But 47% of Shareholders Voice Opposition to Director Pay Packages

Breaking Buzz: From the 2010 Tesco Annual General Meeting (AGM)

Tesco shareholders approved the company's Directors' Rumuneration Report at today's 2010 Annual General Meeting (AGM) in London, as we predicted would be the case in this story yesterday - July 1, 2010: A Preview of Tomorrow's (July 2, 2010) Tesco Annual General Meeting.

However, shareholder opposition over the directors' 2009 compensation, based largely on displeasure over the $6.188 million 2009 pay package [June 4, 2010: Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009] [June 23, 2010:Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist] awarded to Tesco director and Fresh & Easy Neighborhood Market CEO Tim Mason (pictured below), was significant. In fact, it was the most serious shareholder rebuke to a UK public company in terms of a directors' compensation report so far this year, according to London financial analysts in the City (Britain's version of Wall Street).

A whopping 38% of Tesco shareholders voted against approval of the Remuneration Report today. The report is the compensation for Tesco senior executives, such as CEO Terry Leahy and Tim Mason, who also serve on the company's board of directors.

In addition, another 9% of shareholders abstained from voting on the directors' pay package report at today's AGM.

This means 47% of Tesco shareholders didn't vote in favor of approving the 2009 salary, bonus and stock option compensation for the company's senior executives, who also are on the board.

According to UK law, abstaining isn't counted as a vote against such a report. However, the 9% clearly were voicing their collective displeasure with the directors' compensation, particularly Mr. Mason's, or else they would have joined the majority and voted to approve the Remuneration Report.

Here's how the vote went down today:

To approve the Directors’ Remuneration Report

>Votes For approval: 4,447,633,386 >Votes against approval: 290,095,895

>Votes Withheld - Abstain: 61,615,144

>Total Votes: 4,799,344,425

[Read a recap of this and all the other votes taken at today's Tesco AGM here.]

Combined, this means 47%, nearly half, of Tesco shareholders aren't in favor of what the global retailer paid its directors in 2009. It's the first time in modern history we can recall a Tesco Remuneration Report getting such a negative vote. The vote, combined with some other recent criticisms of its executive compensation, should serve as a cautionary note to Tesco's board.

Clearly Tesco Fresh & Easy Neighborhood Market CEO Tim Mason's pay package was the primary source of the shareholder rebellion today. [Read: July 1, 2010: A Preview of Tomorrow's (July 2, 2010) Tesco Annual General Meeting. Also see the stories linked at the end of this post.] In fact, his 2009 compensation package was one of the two key topics of conversation and discussion at today's AGM. The other being topic being the March 2011 retirement of Tesco CEO Terry Leahy.

As we've been reporting on and writing about for a while now, the CtW Investment Group, which works with the Change to Win coalition of U.S. labor unions., including the United Food & Commercial Workers (UFCW) union, as an investment partner, on June 17, 2010 launched a campaign to get Tesco shareholders to vote against the Remuneration Report. Although not successful in terms of getting a majority 'no' vote, the campaign was successful in that it obtained more 'no' and withheld votes than most anybody thought it would. The campaign, and today's vote, also elevated the issue of Tesco director compensation, particularly Mr. Mason's, in a major way.

The CtW Investment Group campaign isn't over.

Below is what CtW Investment Group director of value strategies Michael Garland said in a news release distributed shortly after today's vote on the Remuneration Report was over:

Tesco Shareholders Deliver Stinging Rebuke to Board Over Pay at Today's AGM

In a stinging rebuke to the Tesco PLC (LON: TSCO) board of directors, shareholders today cast 38% of their votes against the Directors' Remuneration Report at the company's Annual General Meeting in London, based on preliminary results released by the company. The company did not disclose the additional number of shares withheld on the Report.

"The extraordinary opposition vote reflects investor outrage over the excessive pay awarded to Tim Mason, Tesco's second highest paid executive, despite the dismal performance of the U.S. Fresh and Easy business he oversees," said Michael Garland, Director of Value Strategies for the CtW Investment Group, which had urged shareholders to oppose the remuneration report.

Today's repudiation of Tesco's executive compensation comes at a difficult moment for the Tesco board. In addition to anger over Mr. Mason's pay, directors must also confront mounting investor concerns with the aggressiveness of the company's accounting, the transparency of its U.S. performance and pay disclosures, and the long-term viability of its U.S. business.

"The onus is now on the board not only to restore the link between pay and U.S. performance for Mr. Mason, but also to address the underlying concerns with Fresh & Easy's future viability," Mr. Garland said. "As an immediate first step, the board needs to disclose metrics and targets that will allow shareholders to evaluate the performance of Fresh and Easy and its executive management going forward."

The CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a coalition of U.S. unions representing nearly six million members. These funds have over $200 billion in assets and are substantial long-term Tesco shareholders.

Tesco hasn't issued a news release of its own on the vote. However, at the AGM it defended the compensation packages of all the directors, including Tim Mason's $6.188 million package.

Regarding Tesco director and Fresh & Easy CEO Mason, a Tesco spokesmen said: "Tim's compensation isn't based on the performance of Fresh & Easy. Rather, it's based on various criteria like the look of the stores and customer response."

Look for our upcoming analysis/commentary piece - "Fireworks at the 2010 Tesco AGM" - on July 5th.

Recent, Related posts

July 1, 2010:A Preview of Tomorrow's (July 2, 2010) Tesco Annual General Meeting

June 4, 2010 Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009

June 23, 2010: Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist

June 24, 2010: Warren Buffett Strikes Again: Buys 2 Million More Shares of Tesco Stock For 3.2% Ownership Stake

June 21, 2010: The Missing Link in Tesco's Purchase of Fresh & Easy Neighborhood Market Meat Supplier '2 Sisters Food Group'

Plus

June 4, 2008: News and Analysis: UFCW Union Takes its Tesco Union Organizing Campaign Across the Pond to the United Kingdom Beginning Today

June 26, 2008: Tesco 2008 AGM: Charges of Tesco's Exploiting Workers at Indian Factory Heat Up On the Eve of Corporate Annual General Meeting

June 22, 2008: Vocal Cast of Critics and Advocacy Groups to Attend Tesco's Annual General Meeting On Friday, June 27

June 26, 2008: Tesco 2008 AGM: Barack Obama Sends Second Letter to Tesco CEO Requesting the Company Meet With U.S. UFCW Union Leaders About Fresh & Easy

August 5, 2008: UNI Global Union Launches Tesco-Specific Alliance; Calls For Tesco Executives to Meet With UFCW Union Officials Over Fresh & Easy Neighborhood Market

February 11, 2008: Supermarket Union President Asks Britain's Prince Andrew to Arrange A 'Sit-Down' With Tesco Fresh & Easy Neighborhood Market Senior Executives

Also: click here, here, and here for additional posts. Use the "newer" and "older" posts links at the bottom of the pages to obtain more stories.Tomorrow's meeting is packed full of topics and discussion. Fresh & Easy Buzz will be focusing on all of it, with a particularly wide-open set of eyes and ears poised on the topics and issues highlighted here.

[Photo Credit: Tim Mason; - Fresh & Easy Neighborhood Market.]

A Preview of Tomorrow's (July 2, 2010) Tesco Annual General Meeting

The Sun never sets over the Tesco Flag in the United Kingdom: Tesco is the leading retailer of food, groceries and general merchandise/non-foods by a huge margin in the UK. The retailer has at least one store - and multiples in most cases - in every single city, town and village in the country. Tesco has a commanding 31% share of the food and grocery market in the UK. By way of comparison, Tesco's two leading rivals, Walmart's Asda and Sainsbury's, combined have about the same percentage of market share.

Tomorrow (July 2) at 10:30 am (London Time) United Kingdom-based Tesco, which owns and operates 159-store Fresh & Easy Neighborhood Market USA, as well as being the third-largest global food and grocery retailer, holds its 2010 Annual General (shareholder) Meeting in London UK.

You can read an explanation of the AGM, along with the agenda for tomorrow's 2010 shareholders' meeting here. It's a full agenda.

We will be following closely numerous developments during tomorrow's AGM. But below are some particular topics/issues we'll be paying close attention to. The first one is more thematic in that it will color the entire texture and contour of tomorrow's meeting. The others are specific developments and issues.

>Sir Terry's swan song: This year's Tesco AGM will be unlike the previous 14, in that it's the last annual shareholders' meeting for Tesco CEO Terry Leahy - at least as CEO - who is retiring from the leadership position at the global retail giant on March 11, 2011. Leahy will likely remain an investor in Tesco, so he could attend future AGM's in that capacity. [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.]

Tesco's fiscal year ends in late February 2011. But when the 2011 AGM rolls around at about this time next year Sir Terry, who received that honor from the Queen while CEO of Tesco, will be gone, replaced by the company's international operations head and IT chief Philip Clarke.

Additionally, Leahy isn't going to be taking a position as a non-executive member of Tesco's board once he retires, as many thought he might. As such, when he leaves in early March 2011, his will be a full departure from the retail company he's led for the last 14 years, and worked at for twice that long.

Expect to see a outpouring of praise for Sir Terry at tomorrow's AGM, his last. Also expect to see numerous stories in the British press in the same vein following the end of tomorrow's meeting.

Leahy deserves most of the praise he will receive. In his tenure as CEO he's led Tesco to world class retailing status.

His one fumble, at least thus far, has been Fresh & Easy Neighborhood Market USA. But F&E is still young. And launching a food and grocery retailing start up - although the start up phase is nearly over - in a mature market like the U.S. isn't an easy task. And it took guts to do. As we've said frequently in Fresh & Easy Buzz, don't underestimate Tesco's ability to right a less than seaworthy retail ship. Although in the case of Fresh & Easy, it will be up to incoming CEO Philip Clarke to make the decisions required to achieve that objective. Sir Terry will be handing off a less than fully-outfitted ship - Fresh & Easy USA - to Clarke in March 2011. Or perhaps the ship will look much different by then? Read what our 'The Insider' columnist thinks about that here and here.

>Northern California: We reported in this June 26, 2010 story - Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open - that Tesco will be making an announcement about its plans for Northern California in July. [Also see here.] Such an announcement could come as early as at tomorrow's 2010 AGM. Stay tuned.

>Acquisitions: In the U.S. and elsewhere. Our 'The Insider' columnist discussed the U.S. acquisition topic in his column published earlier this week. [June 27 The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?] 'The Insider' says he isn't expecting such an announcement at tomorrow's meeting. But "never say never," he told us this morning when asked for a comment. He also said this morning he's working on a follow-up column, in which he discusses a regional acquisition scenario for Tesco, which inlcudes Supervalu's Albertsons chain in Southern California, along with some other information.

>Executive-director compensation: On June 29 the CtW Investment Group and the Change to Win coalition of U.S. labor unions - including the United Food & Commercial Workers (UFCW) union, which CtW invests pension fund money for, took its campaign to get Tesco shareholders to vote against approval of the company's remuneration package (the pay package for the senior executives who are also on the board) to the next level.

On June 29 CtW sent a letter to Patrick Cescau, the senior independent (not employed by Tesco) director on the company's board, calling on him "as incoming Senior Independent Director, personally to step forward at Tesco’s Annual General Meeting this Friday to describe the steps the board of directors is taking to exercise independent oversight of Fresh & Easy and restore the link between pay and performance for its chief executive, Tim Mason." You can read the entire letter here.

Cescau has been a non-executive director of Tesco since February 2009. He was formerly a group chief executive of consumer package goods giant Unilever from 2005 to 2009. Prior to that he was chairman of Unilever plc and vice chairman of Unilever NV. He joined Unilever in 1973 and became finance director of Unilever Indonesia in 1986, then led the business in Portugal, before returning to Indonesia as Chairman/CEO in 1991.

Cescau also ran Unilever's Van den Bergh Foods and Lipton beverage and foods businesses in the US from 1995 to 1998, before becoming Group Finance Director in 1999 and Foods Director in 2001. He has been a non-executive Director of Pearson plc since 2002 and a director of INSEAD (the European school of management) since 2009.

For those not aware, Unilever is one of Tesco's biggest and closest supplier partners, particularly in the United Kingdom but also globally.

The June 29 letter to incoming director Cescau is a follow up to a June 17 letter to Tesco shareholders in which CtW Investment Group urged them to vote against proxy item #2, the Directors Remuneration Report, at tomorrow's AGM. You can read the June 17, 2010 letter to Tesco shareholders here.

We recently said here and here that despite the efforts and campaign by the CtW Investment Group and the Change to Win coalition to obtain a no vote from shareholders, the executive-director pay package resolution, which approves the compensation already given to the Tesco executives-board members, should past tomorrow without much difficulty.

Why? The Tesco shareholders that have the votes, are the big, institutional investors. They aren't likely to vote against the resolution to approve the remuneration report for two reasons: (1) Tesco reported record profits for its most recent fiscal year, and (2) voting it down would cause uncertainty in the market, something these big investors do not want to create. That uncertainty would likely cause a drop in Tesco's share price - which isn't something most of these institutional investors want to see happen. Tesco also had a good first quarter in the new fiscal year, which it reported in an interm report on June 15, 2010 here.

See our stories linked below as well, as they appear to have helped shape this issue:

June 4, 2010 Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009

June 23, 2010: Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist

June 24, 2010: Warren Buffett Strikes Again: Buys 2 Million More Shares of Tesco Stock For 3.2% Ownership Stake

June 21, 2010: The Missing Link in Tesco's Purchase of Fresh & Easy Neighborhood Market Meat Supplier '2 Sisters Food Group'

Fresh & Easy Buzz has learned Bill Dempsey, the director of the United Food & Commercial Workers (UFCW) Capital Stewardship Program and a founding member of the CtW Investment Group, will be attending tomorrow's Tesco AGM in London, which should add an additional personal touch to the group's campaign to get shareholders to vote no on the executive-director pay package resolution.

Through its pension fund the UFCW is an investor in Tesco. CtW is its investment advisor and partner. Tesco's Fresh & Easy Neighborhood Market, which currently has 159 stores in California, Nevada and Arizona, is a non-union grocer. Tesco in the UK, however, is union-affiliated.

The UFCW has been attending Tesco AGM's for the previous two years. Below are some past stories on those annual meetings and related issues.

June 4, 2008: News and Analysis: UFCW Union Takes its Tesco Union Organizing Campaign Across the Pond to the United Kingdom Beginning Today

June 26, 2008: Tesco 2008 AGM: Charges of Tesco's Exploiting Workers at Indian Factory Heat Up On the Eve of Corporate Annual General Meeting

June 22, 2008: Vocal Cast of Critics and Advocacy Groups to Attend Tesco's Annual General Meeting On Friday, June 27

June 26, 2008: Tesco 2008 AGM: Barack Obama Sends Second Letter to Tesco CEO Requesting the Company Meet With U.S. UFCW Union Leaders About Fresh & Easy

August 5, 2008: UNI Global Union Launches Tesco-Specific Alliance; Calls For Tesco Executives to Meet With UFCW Union Officials Over Fresh & Easy Neighborhood Market

February 11, 2008: Supermarket Union President Asks Britain's Prince Andrew to Arrange A 'Sit-Down' With Tesco Fresh & Easy Neighborhood Market Senior Executives

Also: click here, here, and here for additional posts. Use the "newer" and "older" posts links at the bottom of the pages to obtain more stories.

Tomorrow's meeting is packed full of topics and discussion. Fresh & Easy Buzz will be focusing on all of it, with a particularly wide-open set of eyes and ears poised on the topics and issues highlighted here.

A Four Month Pause: No New Fresh & Easy Neighborhood Market Stores Set to Open Until September 2010

News/Analysis/Commentary

Tesco's Fresh & Easy Neighborhood Market currently has no plans to open any new stores in either July or August, Fresh & Easy Buzz has learned. Our source information is strong enough on this that if Fresh & Easy were to open a store, say in August, it will be because the grocer decided to do so after today.

The next batch of new Fresh & Easy stores will likely open in September 2010, according to our information. Look for as many as 9-10 new store openings in September.

There are currently 159 Fresh & Easy stores open and operating.

Tesco's Fresh & Easy hasn't opened any new stores since April 2010, despite having numerous units in California, southern Nevada and Metropolitan Phoenix, Arizona completed and sitting empty.

If the next new store opening doesn't come until September, as we're reporting, that will mean the grocery chain has taken a four month new store opening pause - from May -to- August 2010 - which is similar to what the grocer did for about three months back in March 2008, just five months after its first store opened in November 2007. [See - March 29, 2008: Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works] [ April 14, 2008: Commentary: Fresh & Easy Should Use its New-Store Opening 'Pause' in Part to Further Train, Develop and Reward its Store-Level Employees.]

Fresh & Easy started calendar 2010 off with a new store opening big bang. The grocer opened five stores in January, nine units in February, Three in March, and 11 Fresh & Easy food and grocery markets in April., for a total of 28 new stores in the first quarter of calendar 2010. However, with no new stores set to open in the second quarter, the total will remain at 28 new Fresh & Easy stores opened in the first half of calendar 2010.

Tesco's Fresh & Easy continues to publicly say, via its corporate spokesman, that it's taking a slow and cautious approach to opening new stores because of the continuing recession, which has hit the states of California. The economy in all three states is improving though.

But this argument, which is nearly two years old, really begs the question, in our analysis. That question, or central proposition is:

If you're a major global retailer like Tesco, the third largest food and grocery retailing company in the world, and you say you still believe strongly in your U.S. format and chain, Fresh & Easy, which Tesco says it does, and you have many stores completed and sitting empty, which you're paying monthly rent on, why, recession or not - and the economy is without a doubt improving significantly - would you not open those stores, particularly a few of the completed 18 stores in Northern California's San Francisco Bay Area, a region where the economy is considerably better (and improving faster) than it is currently in Southern and Central California, southern Nevada and Metro Phoenix, Arizona, the market regions where Fresh & Easy has its current 159 stores?

Further, since one of the key positioning points of the Fresh & Easy format and stores is that they're affordable - Tesco has even claimed the prices are at least 10% lower than Fresh & Easy's supermarket competition, and that's not including the regular 20% off discount store coupons the grocer regularly distributes - one must then also logically ask why such a format, Fresh & Easy as described by Tesco, wouldn't be the perfect answer for shoppers during a recession? And since it's not, what's wrong?

We aren't going to answer the question in this piece. But if you read through Fresh & Easy Buzz, which we've been publishing since late 2007, you'll be able to derive some answers, at least based on our close observation, research, reporting and analysis of Tesco's Fresh & Easy for nearly three years.

This question, or central proposition, though is the one Tesco needs to ask itself internally. It should also seek some outside, unbiased and objective counsel on the question as well. Answering the question honestly, then moving forward with changes based on those answers, is the first key step the grocer needs to take in order to have a chance of real success - breaking even, then profits, and ultimately growth - with Fresh & Easy Neighborhood Market.

In April of this year Tesco CEO Terry Leahy said the company will open about 50 new Fresh & Easy stores in its fiscal year 2009/10. That fiscal year started at the end of February, which means 14 of the 28 new stores opened so far in calendar year 2010 were opened in Tesco's 2009/10 fiscal year, leaving 36 new stores to be opened between now and the end of February 2011, when the fiscal year ends.

That's an eight month period, which works out to opening an average of between four -to- five (four some months, five others) new stores a month. That's a decent pace. However, in Northern California alone, Tesco has 37 store locations which have been confirmed since 2008, more that we've reported on but aren't confirmed by the grocer. Most of the Northern California stores aren't completed. Work hasn't even started on many. But a couple, like the store in Pacifica, California near San Francisco, are completed and sitting empty.

In Southern and Central California, southern Nevada - where a new Fresh & Easy store hasn't been opened in nearly a year - and Metro Phoenix, Arizona, the grocer has probably as many or more than 36 stores that are either completed and sitting empty or could be completed rapidly, but has put construction on hold.

A new CEO, current director of international operations and IT Philip Clarke, will be taking over for Tesco CEO Terry Leahy in early March 2011. As such we don't expect to see any change in the number of Fresh & Easy stores opened this year, over Leahy's estimate. In fact, if anything, perhaps fewer.

Because Tesco has a strong culture of succession planning, Philip Clarke is already working with CEO Leahy in the corner office at Tesco corporate headquarters in the United Kingdom, in addition to doing his current job. Clarke has had little if any involvement in how Fresh & Easy has been run to date, that's been done by Tesco director and Fresh & Easy Neighborhood Market CEO Tim Mason, under CEO Leahy's supervision and support.

But come March 2011, CEO Clarke will have to decide what he wants to do regarding Fresh & Easy, which lost $253 million in fiscal year 2009/10 and $208 million in fiscal year 2008/09. In addition, Tesco is estimating a loss in that same $253 million range for fiscal year 2010/11. These are operating losses and don't include the hundreds of millions of dollars in start up investment Tesco has made for Fresh & Easy USA.

The most significant, in a challenging way for Tesco, aspect of the higher loss in 2009/10, compared to 2008/09, is that the loss of $45 million more in 2009/10 came with a substantial increase in sales at Fresh & Easy. (See the links above.) Why is this important? Because a key part of Tesco's strategy with Fresh & Easy is predicated on an assumption that as scale and sales increase, losses will narrow. But the opposite happened in 2009/10 over 2008/09.

Additionally, Tesco is predicting an increase in sales of 50% in fiscal year 2010/11, over 2009/10. But it's also projected a loss of about $253 million, the same as 2009/10. This means that increased scale - the significant predicted year-over-year 50% increase in sales - does absolutely nothing to decrease the loss at Fresh & Easy, based entirely on Tesco's own numbers and estimates. For those who know even just a little bit about the food and grocery retailing business, this is a serious problem.

Tesco also just spent what Fresh & Easy Neighborhood Market CEO Tim Mason says is in the "tens of millions of dollars" to buy and takeover its produce supplier, Wild Rocket Foods, and its fresh meat and prepared foods ingredient supplier, 2 Sisters Food Group. The takeover is over adding what CEO Mason says is about 750 employees to the Tesco Fresh & Easy Neighborhood Market payroll.

Tesco's line, which most all of the grocery industry trade press and mainstream business press has published in its stories on the takeover, is that the company is doing this because it demonstrates confidence in Fresh & Easy... ect.

But Tesco intentionally brought Wild Rocket and 2 Sisters with it to the U.S. as part of a strategy of outsourcing its fresh produce and meat supply functions in order to achieve cost savings. In other words, built into the financial assumptions for Fresh & Easy's breaking even is having the two companies there as independently-owned supply partners to absorb labor costs. Adding 750 new employees to the Tesco Fresh & Easy payroll by taking over Wild Rocket and 2 Sisters blows those break-even assumptions right out of the water, most probably. Tesco can probably take some sort of an accounting charge over the cost of buying the two companies.

You do the math. Assume the fully-burdened cost per employee is $30,000, which is reasonable. Multiple that by 750 added employees to the Tesco Fresh & Easy payroll. Since Wild Rocket Foods and 2 Sisters Food Group both only had Fresh & Easy as their respective U.S. customers, there's no other revenue source for Tesco regarding its ownership of the two companies. That means the added labor cost of these 750 new employees has to come from current and future Fresh & Easy Neighborhood Market revenue. (We suspect layoffs of some sort will come soon at both Wild Rocket and 2 Sisters.) This could blow Tesco CEO Leahy's projected $253 fiscal year 2010/11 loss for Fresh & Easy out of the water, possibly meaning an even bigger loss for the fiscal year which ends in February 2011.

Terry Leahy will be leaving the CEO position on March 11, 2010, and Tesco won't report it's fiscal year 2010/11 sales and earnings, including its loss for Fresh & Easy until the following month, April. Therefore he won't be around to have to deal with the numbers - be they less than $253 million, around $253 million, or possibly more.

But new CEO Philip Clarke will be there in April 2011, just a little over a month into his new job as CEO of Tesco. And you can bet he's already thinking about what he's going to say, and do, about it. We also doubt if opening new stores is the primary thing on incoming CEO Clarke's mind right now - or at the top of his "to do list" - regarding Fresh & Easy Neighborhood Market.

Linkage

June 1, 2010: No New Fresh & Easy Neighborhood Market Stores Likely This Month

May 1, 2010: No New Fresh & Easy Neighborhood Market Stores Set to Open This Month

March 30, 2010: Tesco Set to Open 11 New Fresh & Easy Neighborhood Market Stores in April

March 29, 2010: Tesco's Fresh & Easy Set to Hit 150-Plus Store-Count Mark on April 7

March 16, 2010: A New Fresh & Easy Store Opens in Las Vegas Tomorrow on St. Patrick's Day; Will Tesco CEO Sir Terry Leahy's Proud Irish Eyes Be Smiling?

March 7, 2010: Three New Fresh & Easy Stores Opening This Month; First Opening March 10 in Palm Springs, California

January 27, 2010: February New Store Opening 'Big Bang' For Tesco's Fresh & Easy; Nine New Stores So Far

February 24, 2010: Fresh & Easy Store Opens its Doors in South Los Angeles

April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait

April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit

January 14, 2010: UFCW Union Launches Informal Boycott of Fresno CA Fresh & Easy Stores Today; One Day After the Stores Open

April 20, 2010: Strong Group Revenue & Profit For Tesco... But $253 Million Loss at Fresh & Easy

June 23, 2010: Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist

June 4, 2010: Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009]

June 21: The Missing Link in Tesco's Purchase of Fresh & Easy Neighborhood Market Meat Supplier '2 Sisters Food Group'

Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

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.

Recent columns by "The Insider."

~Thursday, May 20, 2010: Welcome to Discountopia USA

~Thursday, April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California

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.

Tesco plc, which owns Fresh & Easy Neighborhood Market USA, announced today that CEO Sir Terry Leahy (pictured above in a contemplative moment) will retire in March 2011. Leahy will be 55 years-old then, and will have served 14 years as CEO of the United Kingdom-based global retailer.

In making the announcement today, which was a surprise to even those of us who follow Tesco closely, Tesco plc chairman David Reid said: "Terry (Leahy) has made an unrivalled contribution over a prolonged period. He is undoubtedly one of the leading businessmen of his generation. He has put in place a strategy which can secure the progress of Tesco for years to come."

Philip Clarke (pictured above), 50, the head of Tesco's European and Asian retail operations, it's second-largest division after the UK, will replace Leahy as CEO when he retires next year. Clarke has worked at Tesco throughout his career, spending many years in retail and commercial (buying and merchandising). He joined the Tesco plc Board in 1998 and currently has responsibility for the group's growing international operations in Asia and Europe as well as for Tesco's information technology operations, the retailer said in its announcement today.

"I am honoured and delighted to succeed Terry who has taught me so much. I am very excited by the opportunity to lead such a fantastic team of executives, many of whom I've worked with for years. Together we will build a global business which focuses on the customer and fully respects our people, our communities, our supply chain and our shareholders," Clarke said today about becoming Tesco's new CEO in March of 2011.

Additionally, Tim Mason (pictured above), 52, the president and CEO of Fresh & Easy Neighborhood Market USA, will become deputy CEO of Tesco plc when Sir Terry retires in March 2011 and Clarke succeeds him, and given the additional responsibility for corporate branding and values and climate change initiatives, along with retaining his position as CEO of Fresh & Easy and remaining in the U.S. at the grocery chain's headquarters in El Segundo, California.

Prior to coming to America as CEO of Fresh & Easy Neighborhood Market in 2006 (the first Fresh & Easy stores opened in November 2007), Mason was Tesco plc's corporate director of marketing in the UK. As such, giving him the new overall corporate responsibilty for Tesco's branding makes sense in that experiential background regard. Terry Leahy was a director of marketing at Tesco prior to becoming its CEO, and was a mentor to Tim Mason when he started in the retailer's marketing department.

Tesco's corporate values and climate change areas have been central to CEO Leahy's tenure as CEO. For example, he's expended considerable effort in building a "Tesco" corporate culture since taking over as CEO 14 years ago, making it one of his chief leadership goals.

Additionally, Sir Terry has been in the forefront of grocery industry CEO's globally on the issue of climate change. For example, he's the first, and still only, food retailing industry CEO to have created an initiative in which many of the products on Tesco store shelves in the United Kingdom have "carbon footprint" shelf signs, which indicate an item's carbon footprint from field or factory to store shelf.

Leahy also has been an outspoken advocate in the UK and globally for creating corporate and government public policy responses to climate change. The fact he's intrusting this responsibilty to Tim Mason, who is the son-in-law of Leahy's mentor, former Tesco CEO Lord MacLaurin, suggests he sees Mason as his heir apparent at Tesco in these two areas - climate change and corporate culture. [Suggested reading: September 8, 2008: Tesco PLC CEO Terry Leahy: 'We Must Go Green' December 31, 2008: 'Green' Retailing: Tesco Scores Second Overall, Number One Among Food and Drug Chains, in Ceres Coalition's Climate Change Corporate Scorecard]

In the announcement today, Tesco CEO Leahy said about his March 2011 retirement: "When I became CEO I had a plan to build Tesco around its customers, to make it number one in the UK and to find new long term growth in non-food, in services and in international expansion. I wanted to develop a purpose and values that could sustain Tesco through its challenges and encourage and grow future leaders. It has taken 14 years but that strategy has become a firm reality now and so I feel my work is almost complete."

Commenting on the naming of Phil Clarke as his replacement, Sir Terry said: "I am delighted Phil Clarke has accepted the role of CEO from March 2011. I have worked with Phil at Tesco for many years and I am confident he has all the necessary talent, energy and experience to take the group forward. He will be supported by an outstanding team of senior executives who together represent one of the strongest leadership teams in the world of retailing. 'There is no better job than leading Tesco and after retirement I will concentrate mainly on private investment. I will, of course, keep a large shareholding in Tesco and remain its biggest supporter."

An interesting note: Terry Leahy and Philip Clarke both were raised in Liverpool, England, also home of those famous lads called the Beatles. Both CEo Leahy and CEO-apparent Clarke also worked at Tesco stores stocking shelves and the like while in high school.

Leahy said today he has no plans to be a non-executive member of Tesco's board when he retires in March 2011. He says his plans are to be an investor globally. We've heard from more than one good source today that Sir Terry has a big interest in investing and getting involved in companies in the rapidly-growing "green" energy, technology and related environmental industries. If so, this would allow him to focus the next phase of his business career to a large degree in the area of climate change, which as mentioned he's put a substantial focus on as CEO of Tesco. And at only 55 that second career phase could be a very long one.

Leahy is also a big supporter of the Everton Football Club and even a special advisor to the team. Perhaps he will have even more time to participate in what is one of his favorite activities - British football and the Everton lads- when he retires in March 2011?

Tesco also announced some additional executive changes that will take place in March 2011 when CEO Terry Leahy retires. Those changes are:

>David Potts, 53, will become the first CEO of Tesco's fast-growing Asia business. He is currently the corporate director of retail and logistics in the UK, as well as having responsibility for the Republic of Ireland. Clarke, who will become CEO in March 2011, currently heads up both the European and Asian operations.

>Richard Brasher, 49, currently Tesco's corporate commercial (buying and merchandising) director, will assume the newly-created role of CEO of the UK business and take responsibility for the Republic of Ireland, a position which will open up when David Potts assumes his new position in March 2011.

Additionally, Tesco said Andrew Higginson, 52, will continue as CEO of corporate retail services, which include the company's Tesco Bank, Tesco Telecoms division, its internet business and its loyalty marketing services firm Dunnhumby. Laurie McIlwee, 48, will continue as Tesco's finance director and Lucy Neville-Rolfe, 57, will continue as corporate and legal affairs director.

The company also said Trevor Masters will continue as CEO of its Central Europe and Turkey retail operations after the March 2011 changes, and in a new position Gordon Fryett will head up Tesco's property and real estate department across the group. A new group commercial (buying and merchandising) role will also be created, Tesco said, without being specific about the nature of the position.

Fresh & Easy Buzz will be offering some analysis of the retirement of Tesco CEO Terry Leahy, and the ramifications of it and all the changes announced today on Tesco plc and its Fresh & Easy Neighborhood Market USA chain, in the days and weeks to come. Stay tuned.

Biographical sketch of Philip Clarke, who will replace Terry Leahy as CEO of Tesco plc in March 2011. Source: Tesco plc:

Phil Clarke first worked for Tesco in 1974 as a part-time assistant while he was still at school in Liverpool.

Clarke then joined Tesco's management training scheme after reading Economics at Liverpool University.

He has broad Tesco experience as a store manager, a buyer, a marketeer and as an international executive.

Clarke joined Tesco plc's Board 12 years ago with responsibility for the Supply Chain; IT was added a year later. In January 2004 he took over responsibility for International Operations and retained IT.

He is now responsible for almost 2000 stores and nearly two-thirds of group space. He has been at the heart of all our new moves and operational improvements across Asia and Europe in recent years, including China, India and Turkey, building teams and developing talent in these important markets.

Clarke has been a Non-Executive Director of another FTSE company, Whitbread PLC, since November 2005 and is a member of the board of ECR Europe.

Philip Clarke is married with two children and lives in Hertfordshire, UK.

Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009

Tesco's Fresh & Easy Neighborhood Market USA hasn't come close to break-even yet. (The first stores opened in November 2007.) The nearly three-year-old fresh food and grocery chain posted a loss of $253 million for its 2009/10 fiscal year ended February 27, 2010, which is $45 million more than the $208 million loss Tesco reported for Fresh & Easy for its 2008/09 fiscal year. But Fresh & Easy CEO and Tesco plc director Tim Mason (at left) is doing just fine in terms of compensation, thank you: He pocketed $6.188 million (£4.27 million) last year for his efforts, about $3.477 million (£2.4 million) of it as a bonus, according to Tesco.

In fact, only one other member of United Kingdom-based Tesco plc's senior management team, its leader CEO Sir Terry Leahy, carted home more money in salary, bonus and stock last year than did Mr. Mason. CEO Leahy, who's been with Tesco for 31 years and CEO for 13 of those years, took home a combined total of £5.22 million ($7.564 million) for 2009. His salary portion of the total was £1.4 million ($2.028 million), with the rest being in various forms of performance-related pay. Tim Mason was Tesco's second-highest wage earner after CEO Leahy in 2008 as well.

Interestingly, CEO Leahy's 2009 total compensation the previous year was at £5.1 million ($7.390 million) at bit less than he took home this year because he took a pay cut in 2008/09 of £370,000 ($536,167) due to Fresh & Easy's failure to hit certain performance targets. Apparently the fact Fresh & Easy lost $45 million more in fiscal 2009/10 than it did in 2008/09 didn't trigger a pay cut for Leahy this time around. And it certainly didn't for Fresh & Easy CEO Mason, who earned nearly as much total pay as Leahy did for fiscal year 2009/10.

Tim Mason's and Terry Leahy's bonuses come out of a total pool of £24 million ($34,778) allocated by Tesco for its senior executive team, the result of achieving its highest profits in the company's 91-year history for the 2009/10 fiscal year.

Tesco also said it's created a bonus pot of £105 million ($151.777 million), which will be distributed to 216,000 of its employees in the United Kingdom, ranging from store clerks and office staffers to warehouse workers, as part of its annual "Shares in Success" worker bonus program. None of those funds go to employees of Tesco's U.S. Fresh & Easy chain. Tesco hasn't disclosed, and we haven't verified one way or the other, if Fresh & Easy workers are receiving a similar bonus.

Tim Mason has worked for Tesco since 1982. Mason, who is the the son-in-law of Lord MacLaurin, the former chief executive of Tesco who groomed Sir Terry Leahy for his current CEO position, started out with the retailer as a dry grocery category buyer, moving into the marketing department after two or three years. There he learned the Tesco marketing ropes working alongside then marketing director Leahy. In 1995 he became marketing director of Tesco in the United Kingdom. Before coming to California to launch Fresh & Easy in 2006, Tim Mason also was chairman of Tesco's online operations, Tesco.com, which as marketing director he played a major part in creating.

Succeed or fail, from a compensation standpoint Fresh & Easy Neighborhood Market is a win-win for CEO Tim Mason. His total compensation, including bonus, is based on Tesco's overall performance. In addition, since he is a corporate director of Tesco plc, along with being the CEO of its U.S. operation, he gets stock options based not on Fresh & Easy's performance but on that of Tesco as a whole.

Of course if Fresh & Easy Neighborhood Market does succeed in terms of hitting certain performance standards, both CEO Mason and Tesco plc CEO Leahy stand to win big. For example, according to Tesco, Leahy and Mason are entitled to nearly 50 per cent of their respective salaries in deferred company stock if Fresh & Easy hits certain performance targets over a given period of time. From a purely compensation standpoint that's the definition of success for Mason and Sir Terry at Fresh & Easy. According to Tesco, CEO Leahy was awarded 65 per cent of the potential maximum number of those shares as part of his annual bonus this year. It didn't say if Mason was awarded any of his shares as part of his bonus for the 2009/10 fiscal year.

That's the big win. But taking home $6,188 million as the head of a grocery chain that's lost nearly half a billion dollars in the last two years isn't bad either. In fact, it's nice work if you can get it, albeit at times it's probably a bit challenging and frustrating. Perhaps there's some sort of start up-oriented incentive pay built into that $6.188 million? And, in these times, like Tesco's famous slogan says: "Every Little (Bit) Helps."

A New Fresh & Easy Store Opens in Las Vegas Tomorrow on St. Patrick's Day; Will Tesco CEO Sir Terry Leahy's Proud Irish Eyes Be Smiling?

The two most-classic and most-popular versions of the Irish ballad, "When Irish Eyes are Smiling," is the version by the Irish tenor John McCormack, and the rendition of the song by Irish-American singer (and tenor) Bing Crosby. You can listen to "When Irish eyes are Smiling" by John McCormack here and to Bing Crosby's version of the Irish ballad here. Both versions are three minutes long.

Tesco CEO Sir Terry Leahy (pictured above) is a proud Irishman.

Leahy is so proud of his Irish heritage in fact he recently joined 299 other prominant people of Irish ancestery throughout the world in becoming a charter member of the new Global Irish Forum, a global organization designed to deepen Ireland's engagement with Irish communities worldwide and to spread the message that Ireland is open for business, and remains an attractive place for international investment, business people and tourists alike

Joining the CEO of Tesco as one of the 300 founding-members of the Global Irish Forum, which was hatched at the Global Irish Economic Forum in September 2009 and officially chartered this month under the leadership of Micheal Martin, Ireland's Minister of Foreign Affairs, include such prominant members of the Irish despora in the Unired States as:

Kathleen Kennedy Townsend, the former lieutenant governor of Maryland and daughter of the late former U.S. Attorney General, Senator and Presidential candidate Robert F Kennedy; Craig Barrett, the former CEO of Intel; Loretta Brennan Glucksman, chairman of the America-Ireland Fund; Dennis Swanson, president of Fox Television; John Hennessy, president of Stanford University; Jack DeGioia, president of Georgetown University; Norah O’Donnell, chief Washington correspondent for NBC's cable news channel MSNBC; and former US ambassador to Ireland and retired U.S. House of represenatives' majority leader Tom Foley.

Other participants in the Global Irish Network from throughout the world include: Rock star and humanitarian Bob Geldof; Riverdance dance troupe founders Moya Doherty and John McColgan; professional golfer Padraig Harrington; novelist Colum McCann; Willie Walsh, CEO of British Airways; Alan Joyce, CEO of Qantas Airlines; and Peter Sutherland of the investment bank Goldman Sachs.

And speaking of the Irish - and Sir Terry Leahy - tomorrow, Wednesday, March 17, is St. Patrick's Day, the day when we're all Irish.

Tomorrow, St. Patrick's Day, is also when Tesco will open its 147th Fresh & Easy Neighborhood Market fresh foods and grocery store. The new store opening tomorrow is at 5639 Centennial Center Boulevard in Las Vegas, Nevada - a city where the saying "The Luck O the Irish" couldn't be more relevant, or needed at the gaming tables and slot machines. It will be Fresh & Easy's 27th store in Nevada.

In light of Tesco CEO Terry Leahy's proud Irish Heritage, one can only expect his "Irish Eyes will be Smiling," knowing there's a Fresh & Easy store opening on St. Patrick's Day, that day in Las Vegas and throughout the U.S. when regardless of our heritage we're all Irish.

In fact, St. Patrick's Day, Fresh & Easy and Las Vegas have many things in common. For instance:

>Fresh & Easy's brand and store color is green. Green is the official color of Ireland (the Emerald Isle) and St. Patricks Day;

>Green, as in the color of money - cold, hard cash - also happens to be the lifeblood of Las Vegas and its mega-gaming industry;

>"The Luck O the Irish" is a saying you'll hear repeated often tomorrow on St. Patrick's Day, as well as throughout the year. Luck also is key in Las Vegas - and luck is certainly key for Tesco with its Fresh & Easy chain;

>And of course, St. Patrick's Day is a holiday centered on food and drink. Vegas is nothing if not a food and drink town. And, well, Tesco's Fresh & Easy is all about (selling) food and drink.

We expect Tesco's Fresh & Easy to go all out tomorrow with its St. Patrick's Day store grand opening in Las Vegas. After all, anything less might fail to bring that smile to Tesco CEO Sir Terry Leahy's proud Irish eyes.

In case the Fresh & Easy team hasn't thought much about this - the synergy and importance of St. Patrick's Day, Las Vegas, Sir Terry, and the new store opening there tomorrow - we offer six things we suggest they could do for the store grand opening tomorrow. It's still not too late:

1. We would make sure the store is decorated for St. Patrick's Day. Plenty of green shamrocks, Leprechauns, green balloons, streamers and the like. Have shamrock and Leprechaun stickers and balloons to give out to the kids for free.

2. We would make special name tags for all the participants in tomorrow's grand opening, as well as for all of the new Las Vegas store's employees.

The name tags would have an O before each person's last name, which is a St. Patrick's day tradition. Fresh & Easy CEO Tim Mason would be "Tim O' Mason" tomorrow, for example, and so on for everyone participating, and for all of the store's employees. These could be made out of paper right at the store. A green shamrock sticker included on the name tag of course.

3. We would serve free samples of corned beef and cabbage (both sold at Fresh & Easy) to shoppers attending the grand opening tomorrow. This is a must tie-in.

4. We would trade on the "Luck O the Irish" saying by giving out lottery tickets to every customer who buys $10 or more worth of groceries at the store's grand opening tomorrow, say between 10 am and noon. It's Vegas baby, after all. (And how about giving a $25 store gift card to any person attending the grand opening tomorrow who can prove their name is Patrick...or Patricia.

5. We would have an accordion player and a fiddler at the grand opening tomorrow, playing Irish tunes outside the store. It's Vegas, so both shouldn't be very hard to find.

6. We would build displays, with St. Paddy's Day point-of-purchase signs, all over the store, focusing on cross-merchandising, of the top St. Patrick's Day food and beverage items.

To start, think packaged fresh corned beef, fresh cabbage and potatoes cross-merchandised in both the meat and produce departments; even in a refrigerated case outside of both departments for impulse sales. Don't forget the onions and leeks either. Or the seasoning mixes tied-in with both displays.

Additionally, we would feature/display fresh sausages and beef stew meat in the meat and produce departments. Cross-merchandising is an incremental sales builder - always.

And let's not forget a big display of Guinness Beer, and one or two other Irish beer brands such as Harp, where not one shopper can miss it. And a coffee display, with Irish Coffee fixings and recipes.

Do include a big display of Irish soda bread and scones in the bakery (potato rolls would also be nice). Plus, St. Patrick's Day cookies and cupcakes displayed both in the bakery and elsewhere in the store is a must.

Throughout the store we would display packaged scone mixes, canned Heinz Baked Beans, preserves/jams (Robertson's would be nice, including Lemon Curd) and dozens of other key Irish and St. Patrick's Day-themed grocery items (Lucky Charms cereal even works great), all tied-in with St. Patrick's Day point-of-purchase materials and signs. The added sales potential is huge.

These are just six simple ideas. There are many more.

Of course, we would do a version of this at all 146 (147 tomorrow) Fresh & Easy stores in California, Nevada and Arizona for St. Patrick's Day.

And that, we bet, would really make Tesco CEO Sir Terry Leahy's Irish Eyes Smile.

Happy St. Patrick's Day. And remember - we're all Irish tomorrow.

Guest Contributor: Tesco's Approach to Strategy Communication. By: Robert S. Kaplan

The Tesco steering wheel, a tool the company uses to drive performance, communicate and help employees drive into the future.

From the Fresh & Easy Buzz Editor's Desk: Robert S. Kaplan, the Baker Foundation professor of business at Harvard Business School and chairman of the Palladium Group consulting firm, is, along with David P. Norton (his partner and the founder of the Palladium Group), the creator and intellectual force behind the Balanced Scorecard, which is a strategic methodology and organizational and operational structure used by corporations throughout the world.

Kaplan and Norton has authored five books together, along with numerous articles, on the Balanced Scorecard. Their latest book about the Balanced Scorecard method is titled: The Execution Premium: Linking Strategy to Operations for Competitive Advantage. You can read a detailed biography of Robert S. Kaplan here.

Kaplan and Norton recently completed the 2008 version of their firm's annual European Balanced Scorecard Summit in London The awalys well attended conference is a much sought after ticket by corporate strategists, chief executives and others.

Tesco PLC, which owns and operates Fresh & Easy Neighborhood Market USA, was represented at the 2008 European Balanced Scorecard summit by its CEO, Sir Terry Leahy. Mr. Leahy made a presentation at the summit. Robert S. Kaplan writes about the Tesco CEO's presentation in the September 2, 2008 issue of the Harvard Business Review.

Mr. Kaplan's piece about what Tesco CEO Leahy discussed at the recently-ended summit provides interesting insight into Tesco PLC's current organizational, operational and communications structure.

Reproduced below is the article:

Tesco's Approach to Strategy Communication
by Robert S. Kaplan
September 2, 2008

I recently returned from London where we held our 2008 annual European Balanced Scorecard Summit. Each of our summits features the induction of companies into the Balanced Scorecard Hall of Fame. We had several firsts at the London conference as we inducted the first two companies from Russia, the first Irish company, the first Middle East company, and the first enterprise from France, its Ministry of Defense.We also noticed a distinct increase in delegates coming from companies in emerging markets, such as Tanzania, Namibia, Cyprus, Iran, Saudi Arabia, and Egypt. It's clear these countries are diversifying beyond their traditional simple manufacturing and agricultural companies into higher-value industries. As these companies march northward on the value chain, their need for more sophisticated management techniques will only increase.

In addition to the induction ceremony, we heard from leaders of world class companies, including Infosys, Old Mutual, BP, Nippon Boehringer, Solvay Pharmaceuticals, and HSBC--all presenting on how they approach strategy and execution, specifically using our Balanced Scorecard (BSC) method.

Sir Terry Leahy, CEO of Tesco, gave one of my--and the audience's-- favorite sessions. He described the challenges of delivering a distinctive and consistent buying experience to consumers in every store when you have more than 400,000 employees in multiple countries. It's a classic concern: How can you keep local store managers and employees engaged in satisfying consumers in their shopping experiences? Extended out a little: How can you keep distributed frontline employees--regardless of industry--engaged with and acting on the company's central strategy?

Leahy explained his approach: "Tesco doesn't want one leader. We want thousands of leaders who take initiative to execute the strategy."

To make this goal a reality, in the early 1990s, Tesco went through a process to clarify its mission, values, and strategy. Based on our first Harvard Business Review BSC article, Tesco communicated its new strategy to its employees via a "steering wheel," a simple symbol and metaphor for a tool intended to drive performance and help employees navigate into the future.

The Tesco steering wheel has four 90 degree arcs, representing the four BSC areas of focus: financial, customer, operations, and employee performance. Every store gets a monthly steering wheel update, a summary of its metrics within each of the four arcs, so that all employees in Tesco's multiple regions and formats get feedback on their performance. Tesco supplements its steering wheel report with "shopping lists" that capture key elements of the strategy in simple forms that employees can follow in their everyday activities. The steering wheel has helped the company stay focused on its strategy even as it experienced rapid growth over the past two decades.

Recently, Tesco added a fifth dimension, community, to the steering wheel report to encourage employees to be excellent citizens in the communities where they work and live. While praising the simplicity of the steering wheel display and its power to communicate to employees, Sir Terry emphasized that it is not easy, requiring extensive consumer research, data collection, and analytics to make sure that the objectives and metrics remain relevant as consumer preferences evolve and competition heats up. But in part because the steering wheel ensures all employees are aware of and can act on the strategy, Tesco has become an engine of social mobility, allowing employees from whatever background or education to advance in the company. Last year, Tesco filled 3,500 management positions, 27 directors, 200 store managers, and 8,000 department heads by promoting from within the organization.

Resources:

>You can learn more about the Balanced Scorecard and how it links strategy, operations and communications here.

>Bruce Tempkin, who writes a blog called Customer Experience Matters, read Mr. Kaplan's Sptember 2, 2008 Harvard Business Review (HBR) piece about Tesco CEO Terry Leahy's presentation at the European Balanced Scorecard Summit. Mr. Tempkin has a September 11 post discussing it in his blog. We suggest reading it. It's a short post. Click here to read it.

>For more on the Balanced Scorecard click here.

CEO's Can Say the 'Darndest Things': Wal-Mart CEO Lee Scott Says He Has Faith Tesco Will Succeed With Fresh & Easy; It's A Small-Mart World After All

Art Linkletter, the creator and host of what arguably is considered the most successful TV show in American broadcasting history, the long-running but not around anymore Art Linkletter's House Party, decades ago wrote a best selling book (which is still in print) as a companion to his TV show. The book's title: "Kids Say the Darndest Things."

A regular feature of Art Linkletter's TV show was having a panel of kids on each episode. The host would ask the kids various questions, many of them serious in nature. And true to the book's title, those kids would indeed nearly always say the "darndest things." We are reminded of this because in the world of business, corporate CEO's sometimes say the "darndest things." That of course is in the eye of the beholder.

And Wal-Mart, Inc. CEO Lee Scott (pictured above at the top) said what many in an audience full of investors and retail industry analysts at last week's Goldman Sachs (investment bank) annual retail industry conference tell Fresh & Easy Buzz was in their view the "darndest thing." We don't think it is all that "darned" ourselves. But we'll explain that later.

During his presentation at the Goldman Sachs conference, Wal-Mart CEO Scott was asked about his thoughts on Tesco's Fresh & Easy Neighborhood Market, the United Kingdom-based global retail chain's small-format food and grocery retailing venture in the Western U.S. states of California, Nevada and Arizona, which is now up to 82 stores in only 10 months of store operations.

Answering the question, Scott said he has heard mixed reviews about how Tesco's Fresh & Easy Easy was doing, and that he wasn't paying all that much attention to it on a regular basis, two sources who attended the retail conference told Fresh & Easy Buzz.

However, he then said: "The thing that bothers me is Tesco is a very good retailer. I have a lot of faith that they will find their direction and it is something we need to pay attention to," our sources said.

Why don't we think Wal-Mart CEO Lee Scott's "endorsement" of Tesco's Fresh & Easy is saying the "darndest thing?" Because it's essentially what Fresh & Easy Buzz has been writing since last December; 'that those who rule out Tesco's overall performance as a top-notch global retailer which has the corporate ability to course correct under current CEO Sir Terry Leahy, do so at their own peril.'

Of course, just because Lee Scott is saying it doesn't mean he is right. And, just because Tesco has been a success most elsewhere in the world where it has ventured, doesn't mean it will succeed in the U.S. with Fresh & Easy. Other strong British retailers like Sainsbury's and Marks & Spencer have met their respective Waterloos in the United States after all. And finally, just because we believe Tesco has the ability to succeed over time in the U.S. with Fresh & Easy if it makes the right changes doesn't make it so either. The jury is still out, in other words.

However, just as Wal-Mart got to be the world's number one retailer through incremental steps and improvements, so too has Tesco followed a similar path in becoming the world's number three retailer, after France's Carrefour Group. Never rule Tesco out.

This is not to say Tesco doesn't have numerous problems with both its Fresh & Easy format, operations, marketing and sales, as we point out in the blog regularly.

Further, it remains our analysis that many of these problems, such as a lack of a clear retail format positioning for the Fresh & Easy stores, lack of a proper focus on local merchandising, mediocre marketing and promotion, and a few other key factors must be corrected if Tesco is to succeed with Fresh & Easy. But as we've also pointed out, there is time to fix these and other problems. It isn't even one year out since the first store opened after all. That comes in late October of this year.

The problem is thus far we've observed a less than willingness by Fresh & Easy's senior management team in the U.S. to course correct in ways that could solve many of these problems and put the retailer on a much faster course towards success. Of course, that is our analysis.

There have been some positive changes. And these changes, such as improving the interior decor in the stores, adding some additional local products and a few others, have not only improved the stores but also have impacted the stores' positively in gaining increased sales. But more is needed.

Average weekly sales

Beginning in January until about mid-April, our estimates based on information from sources was that the Fresh & Easy stores were doing average gross sales per-store, per-week of between 70,000 -to- 100,000. Based on our sources, we now estimate average sales per-store, per-week of about 125,000 -to- 150,000.

Additionally, some of the Fresh & Easy stores, such as the store in Los Angeles' Eagle Rock Neighborhood, the store in Manhattan Beach, California that opened on July 2, and a few others, are hitting the $200,000 per-week sales goal that Tesco has as its target for all the stores to be averaging for this point in time.

There also remain some very poor performing stores, such as Fresh & Easy store number one in Hemet, California, which we estimate is averaging less than $100,000 a week in gross sales, based on information form sources. There are other stores in this poor-performing category besides the Hemet store, including more than one in the Las Vegas Metropolitan market.

Deep discount coupons and sales inflation

A stark and important reality though is that one of the key drivers of Fresh & Easy's increased sales over the last six -to- eight months has been its aggressive use of $5-off customer coupons good for what amounts to a 25%-off discount on any grocery purchase of $20 (or more). These coupons are mailed out regularly to shoppers homes and given out in multiples at the stores even when customers make small purchases.

A Fresh & Easy Buzz team member recently spend about $15 in a purchase at a Fresh & Easy grocery store and was given three of the $5-off coupons, for example. A regular reader in Las Vegas says he receives one or two of the deep discount coupons almost every time he makes a purchase at the Fresh & Easy in his neighborhood, saying sometimes he says no thanks since he usually has five or six at home at any one time.

Fresh & Easy has been distributing these coupons regularly and in an on-going way since the first stores opened last fall. Customers are used to them. Many consumers even site the deep-discount coupons as the primary reason they shop the Fresh & Easy stores.

For example, if you read Fresh & Easy store reviews on online sites such as Yelp.com or Chowhound.com (and others), you will see the $5-off coupons come up often as a prime reason reviewers say they shop the stores. We've also received numerous emails, as well as blog comments, saying the same thing. Further, we've interviewed hundreds of Fresh & Easy shoppers outside stores since last fall, and the coupons as a primary reason for shopping the Fresh & Easy markets come up often in those discussions.

Eventually the grocery chain will have to reduce the face-value of the coupons considerably or eliminate them completely. When that happens, we will see a true test of how the stores do since they are positioned as everyday low-price neighborhood markets but the deep-discount coupons are a hi-low retailer tool, serving to artificially discount the price of the products in the stores when used because the face value (25%-off on a $20 purchase) are so high.

Therefore, keep in mind our estimate of average weekly store sales for the chain of about 125,000 -to- 150,000 is based on Fresh & Easy's aggressive use of the $5-off (on purchases of $20 or more) coupons. Reduce the coupons value by say half, which is the offering Tesco gives consumers when it uses similar coupons in the UK, eliminate it completely, or merely use them infrequently as most U.S. chains would if they even used such deep-discount coupons, and it's our analysis those weekly sales averages could likely drop significantly.

Earlier this year, Tesco PLC CEO Sir Terry Leahy said publicly the company would release sales and profit/loss figures for Fresh & Easy Neighborhood Market USA for the first time, like the company does for its other international divisions, in September, 2008 when it reports its interim numbers. That September, 2008 interim sales and profit release date is just a couple weeks away. Therefore, if Tesco does release these numbers, we will be able to have a much clearer picture of Fresh & Easy's performance to date.

We decided to go out on the limb and publish our current per-store, per-week sales estimates of average weekly sales of 125,000 -to- 150,000 anyway. If our source information (average weekly sales estimate) is wrong, we will admit it if it's the case when Tesco publishes the Fresh & Easy sales numbers in a couple weeks.

Lee Scott: A wily CEO

But Back to Wal-Mart CEO Lee Scott and his faith in Tesco's long term prospects with Fresh & Easy. Ironically, another reason wily Lee Scott didn't say the "darndest thing" is because Wal-Mart is staking lots of effort and money on a new format, Marketside, which is very similar in size (Fresh & Easy stores average 10,000 -to- 13,000 square feet, Marketside 15,000 -to- 20,000) and format to Tesco's Fresh & Easy.

Wal-Mart has only created five retail formats in its history--the original discount store, the hypermarket which became the Supercenter, Sam's wholesale Club, its 45,000 square foot Wal-Mart Neighborhood Market supermarket format, and now Marketside. The mega-retailer does not create formats out of whim. Doing so is a deliberative corporate process at Wal-Mart, especially under Lee Scott.

As we've reported and written about often in Fresh & Easy Buzz, Wal-Mart just happens to be opening its first four small-format combination basic grocery and fresh foods Marketside stores in four city's (Gilbert, Mesa, Chandler and Tempe) in the Phoenix, Arizona Metropolitan region where Tesco has Fresh & Easy stores. Not to mention these four Marketside stores are each less than two miles away from Fresh & Easy units.

Like the Fresh & Easy small-format markets, the Wal-Mart Marketside stores will feature a selection of basic groceries, many under a store brand, along with fresh meats and produce, and fresh, prepared foods. The only difference in the prepared foods category between Marketside and Fresh & Easy is that the ready-to-eat and ready-to-heat foods will be prepared right in the Marketside stores, which have in-store kitchens, along with small seating areas for some eat-in customers. The Fresh & Easy prepared foods are made at a central kitchen in Southern California and then shipped to the stores.

So, if we were cynical, and we are not of course, we might suggest Wal-Mart CEO Lee Scott in many ways has a significant vested interest in having faith in the success of Tesco's Fresh & Easy venture--at least in the medium term.

After all, although Wal-Mart does not say so publicly, a considerable part of its strategy with Marketside is an anti-Tesco Fresh & Easy one. In other words, the world's number one retailer, which also now happens to be the number one seller of food and groceries in the U.S., thinks it can build a better small-format, convenience-oriented grocery and fresh foods "Small-Mart" than one of its two chief global competitors, Tesco, can, even though Tesco has experience doing so and Wal-mart doesn't. We will see.

But it is more than that overall. As we write frequently, Tesco PLC is a world class global retailer. It has shown the ability to course correct in places like Asia and Eastern Europe, where its stores initially were not doing well so it corporately made positive changes.

After all, its not just what Fresh & Easy Neighborhood Market USA CEO Tim Mason and his senior executive team do poorly or do well that will result in the ultimate success of Fresh & Easy. That final decision, at least as long as he remains CEO, will be up to Tesco PLC CEO Sir Terry Leahy, who has called some pretty good shots regarding Tesco's strategic growth and successes since he's been the global retailers CEO.

We can't wait to hear what Sir Terry has to say about Wal-Mart's Marketside when he has a chance to visit one of the stores in Arizona, which will start opening in just a few weeks.