Is Dave Lewis the right man to lead Tesco as new CEO?

<p>After three years in the hot seat, following no less than four decades at the UK’s largest retailer, Tesco Chief Executive Philip Clarke is stepping […]</p>

After three years in the hot seat, following no less than four decades at the UK’s largest retailer, Tesco Chief Executive Philip Clarke is stepping down on 1st October 2014. Under his leadership, Tesco shares have fallen 28.2%, hitting their lowest levels for a decade as the retailer struggled to evolve within the changing dynamics of retail and a structural shift in consumer habits to lower value brands and chains.

Dave Lewis, the former Chairman of Unilever UK and Ireland (and current President of its Personal Care business) takes over from Philip Clarke. Lewis is credited with already having strong ties with Tesco from his roles at Unilever and brings with him (according to Sir Richard Broadbent, Tesco’s Chairman) “a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development.”

But given the fact that CEO of Tesco is a monumental change in role from his current CV, is Dave Lewis the right man to lead them?

Here’s my initial thoughts.

Who is Dave Lewis?

Much like Philip Clarke was for Tesco, Dave Lewis is a ‘lifer’. He has been at Unilever since 1987, where he joined as a trainee for Lever Brothers, before progressing to Marketing Director, Managing Director and Chairman roles’ in a career spanning some 27 years at the firm.

The first thing that stands out about Dave Lewis is that his career at Unilever spans the globe. He has led teams based in the UK, Indonesia, South America, Asia as well as Central and Eastern Europe. So his experience is well travelled and given Tesco has operations in twelve countries including places like Turkey, Slovakia and Thailand as well as its major core market the UK, this should calm any fears of Lewis’ international experience.
However, Unilever is a brands firm. It claims that on any given day, 2bn people use its products to look good, feel good and get more out of life. They market more than 400 brands on health and wellbeing from Dove to Suave. Tesco on the other hand is the third largest retailer in the world. It has 3,300 stores in the UK alone. Unilever makes the brands that Tesco sells. Lewis has no experience of pure front line retailing, let alone grocers. He is very much a brands guy.

He does however come with a strong albeit muted reputation. He has made a name for himself as ‘Drastic Dave’ following his restricting of Unilever UK. He has been known as the guy Unilever sends in to turn fledging operations or brands around. He is not a celebrity director though. Outside of inner circles, not much is known about him.

Is now the right time for a change of leadership?

Absolutely. Make no mistake, the change of leadership announced today has helped to calm the waters from the fact Tesco has firmly warned once again its outlook has yet again deteriorated. Why else would shares rally 1.2% on the day of a shock profit warning!

Tesco said today that “current trading conditions are more challenging that we anticipated…the overall market is weaker and combined with the increasing investments we are making to improve the customer offer and to build long term loyalty, this means that sales and trading profit in the first half of the year are somewhat below expectations.”

Philip Clarke has been on borrowed time for months now. Shareholder wrath has merely increased over his failure to implement the necessary changes that to stop the firm losing yet more market share to lower budget rivals. He failed to establish ‘what Tesco is’ and ‘what it stands for’ in a market sector where the middle ground has become extremely muddy. This final profit warning announced today was the nail in the coffin.

Tesco needs fresh idea’s, a new way of thinking and a strategic shift. It needs to establish the Tesco brand once again. A change of leadership now gives the firm some much needed breathing space at a time when the clouds had darkened.

Is Dave Lewis the right man for the job?

He is very much a brands guy and perhaps that’s the first thing Tesco needs to do, re-invent the Tesco brand. In the last three years Tesco has lost itself. It is no longer easy to recognise what Tesco actually stands for.

The grocery brands that have done well in recent years has firmly entrenched themselves with what they stand for. Waitrose has performed well at the top tier of the grocers market (price wise), whilst at the bottom end of the price scale, both Aldi and Lidl have outperformed. According to research from Kantar Worldpanel, Aldo and Lidl saw their market shares increase to 8.1% and 8.2% respectively in the twelve weeks ending 22 June. At the same time, Tesco continues to lose share, which now stands at 26.1%. So certainly this is something one would expect Dave Lewis, a known marketing guy, will lead.

Does he have the stomach for tough decisions? It’s hard to answer this yet. He got a reputation for making tough calls when he made 300 people redundant as part of his turnaround plans for Unilever UK in 2007, so there is evidence he won’t shy away from the big calls. Yet, Tesco employs more than half a million people worldwide, services customer from 6,784 stores and turns over sales of more than £70bn annually. His roles at Unilever have been senior and important. But Tesco is a whole different class and lets not forget, he has never been a CEO before. Lewis is going from first team coach at Aston Villa to managing Manchester Utd FC. That’s how big a jump in role he’s just got and the last thing Tesco shareholder’s need is another appointment like that of David Moyes, which is what they got with Philip Clarke. But he comes with a good, if somewhat unknown, reputation. Time will tell.

What challenges does he face?

The challenges he now faces as Tesco chief are vast but for the sake of writing too much, I will summarise my top 5.

1. The numbers
His chief task will come down to the numbers. Tesco has been hampered by declining market share, based on consecutive quarterly declines in like-for-like sales. Like-for-like sales fell 3.7% in Q1 and 1.3% last year. They even fell 1.1% over Christmas, its crucial trading period.

This has resulted in a near 30% fall in share prices over the last three years to their lowest levels in a decade. Shareholders care about return and shareholder value. So his challenge will be about the numbers, as one would expect.

2. Re-establish the Tesco brand
Consumers don’t know what Tesco is anymore and this is a crucial task. Over the past six months it has cut prices in an effort to stop even more footfall going to Aldi and Lidl. But consumers don’t mind paying a premium if the service they get matches that elevated cost, eg Waitrose. So Tesco needs to decide what it is and there has to be a level of consistency in that brand throughout everything it does.

3. Change the customer experience
Aldi and Lidl saw their sales increase by 19.5% and 12.4% in the twelve weeks to 22 June thanks to lower price inflation and helping customers to spend more in stores. The structural price decline experienced in the grocery sector looks set to continue and as such, Tesco simply has to do more to improve the customer experience in store to attract loyalty and make customers spend more in store. That’s a winnable battle.

4. Diversification
Tesco has moved to create platforms for greater diversification over the years. Tesco bank has strong potential to enter a market that remains volatile and of swaying customer loyalty. Recent measures have been put in place to give consumers greater flexibility to switch providers and this is something Tesco bank can take advantage of. At the same time, Tesco can also continue to market its exciting new tablet device Hudl to targeted regions and families as a cheaper alternative to Apple’s ipad and other providers software. The firms International strategy also requires careful attention, particularly its partnership strategy in China.

5. Embrace tough decisions, quickly
The announcement today of yet another profit warning and the replacement of Clarke has been timed to get the bad news out there before the half year figures hit and the years total outlook changes dramatically. As the new CEO (from October) he now has a good three to six month grace period which he must use wisely. He needs to make tough decisions and quickly. Shareholders will be more warm to a frank and honest approach of the firms major difficulties early on and Lewis must use his grace period wisely.

We won’t know whether the appointment of Dave Lewis is the right one or not for some years. But in the very least, you have to credit the Tesco board with one thing; they had the guts to make a decision to change things, and that’s not easy feat for a guy who has given three decades of his life to the company. Even though I think this decision comes roughly six months overdue.

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