Inside This Issue - Opinion
Questions remain for Tesco
November 29th, 2010
by David Pinto, Editor
One of the great retailing careers will come to an end next spring, when Tesco CEO Terry Leahy officially retires.
During a 14-year run as head of what has become the world’s third-largest — and arguably its best — retailer, Leahy took a regional U.K.-based grocery retailer that wasn’t even the market leader in its home country and transformed it into one of the world’s most important global retailers. During Leahy’s tenure as CEO, a period in which both sales and earnings have more than tripled while Tesco’s store count ballooned from several hundred units to nearly 2,500 worldwide, the retailer emerged as a major presence in no fewer than 11 countries outside the U.K. Today the company is a major player not only in the United Kingdom but in four Eastern European countries and half a dozen Asian nations.
Along the way Leahy transformed what was formerly a grocery retailer into a multiformat, multidimensional merchant that offers its customers all manner of merchandise and services, including extensive in-store nonfood assortments, a state-of-the-art on-line shopping service, and a range of financial, telecommunications and lifestyle services that set it apart from every retailer with which it competes. Its loyalty program, launched in 1995, has become the standard against which all competing efforts are measured.
Today, nearly one U.K. consumer in three buys her groceries at Tesco each week, while 300,000 British citizens work for the organization, making Tesco the country’s largest private-sector employer.
Leahy’s influence has come to extend far beyond the retail stores his company operates. He has launched and rolled out sustainability and lifestyle initiatives that have profoundly impacted the environment, the various communities in which Tesco operates and the residents within those communities. In short, the U.K. is a more consumer-friendly and environmentally friendly place today than it was a decade ago — because of Terry Leahy.
It should also be noted, however, that as Leahy’s March retirement date approaches, some questions about Tesco’s future remain to be answered. Business in a handful of the retailer’s Eastern European and Asian markets is not as robust as Leahy had hoped. And then there’s the United States … .
After an extended period of consumer and market research, Tesco formally entered the United States in 2007, launching Fresh & Easy, a convenience-oriented grocery format, by rapidly opening stores in California, Arizona and Nevada. To date, 159 Fresh & Easy stores have opened their doors, while the format has undergone substantial revision. But the venture has yet to turn a profit — it has thus far lost some $700 million — and the goal of exerting the impact on either its customers or its markets that had been projected — and hoped for — remains afar.
Even Leahy concedes that Tesco’s future depends to a great extent on how quickly Fresh & Easy can be transformed into a profitable venture, a goal that remains elusive even after an investment that has run into the hundreds of millions of dollars. For this year’s fiscal half, Fresh & Easy lost some $150 million on sales of around $400 million.
Yet it’s undeniable that Fresh & Easy has made significant progress since the first group of stores opened in the fall of 2007. The stores are brighter, more attractive and easier to shop than they once were. And the merchandise mix, though still skewed heavily to house brands, a Tesco staple, is more relevant to the neighborhood customers of various ethnicities who shop Fresh & Easy than was originally the case.
Moreover, the company remains, outwardly at least, very bullish on its convenience-store approach, predicting that Fresh & Easy will turn a profit in the fiscal year that ends in just over two years.
Encouraged by a 9.6% same-store sales increase for the fiscal half, Tesco plans to accelerate its store-opening program, with the stated objective of having 400 stores open by the close of the 2013 fiscal year, a store count that will more efficiently support its extensive distribution and logistics facilities. As an initial step, the company plans to open 19 new stores in California over the next six months.
Viewed from this perspective, Fresh & Easy is not at all the failure its detractors proclaim it to be. Rather, it is very much a work in progress. And indeed, no one who knows Terry Leahy and what he has accomplished in the past 14 years as Tesco’s chief can seriously doubt either the wisdom of his decision to enter America, the U.S. geography he selected as his entry point or the store format he chose for his entry vehicle.
Indeed, the feeling here is that Fresh & Easy may very well turn out to be Terry Leahy’s — and Tesco’s — finest hour.