What next for Tesco after its changing of the guard?

Laura Onita
Tesco Express -  Jason Alden/Bloomberg

Six years ago, Tesco’s boss Dave Lewis had to call Marc Bolland, then chief executive of Marks & Spencer, to ask for Alan Stewart to be released early from gardening leave. 

Bolland agreed and Stewart joined as finance chief a day after the supermarket chain had to admit it inflated its profits by £250m – its darkest hour. 

Stewart is now off, only seven months after Lewis said he was stepping down. In tandem, the two effectively revived Tesco. They offloaded parts of the business, including a recent deal to sell its supermarkets in Thailand and Malaysia for £8bn, to cut debt and slim down its operations. They bought Booker, the corner shop chain, to inject some life in the UK business and helped reduce the pension deficit. 

Clive Black, a retail analyst at broker Shore Capital, says: "The timing of his [Stewart's] retirement is interesting, in that it overlaps with the appointment of Ken Murphy, Tesco's new chief executive, who commences work in October. From next year, chairman John Allan will have a totally new main team."

Stewart is staying on until April and can help find a successor and bring Murphy up to speed. But it will be down to the new guard to steer the ship when the task at hand – to grow the business after a pandemic – is arguably harder than having to fix it. 

The share price is flat against a 9pc fall in the blue chip index over the duo’s six years at the helm. While Tesco has gained momentum during the outbreak, German discounters Aldi and Lidl continue to breathe down its neck. Then there is the threat that more consolidation in the grocery arena could derail growth plans, not to mention a looming recession. 

Lewis is departing as questions over how a final share payment package was calculated and whether Tesco is right to dish out £635m in dividends to shareholders while accepting a business rates holiday worth millions from the Government while its shops stayed open.

Tesco could decide to prioritise share buybacks over dividends, or vice versa, in future.  

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The main battleground will be home delivery. Since the outbreak took hold shoppers have flocked to websites to order their groceries. The challenge is that online grocery is only a fraction of the overall sector and supermarkets do not have the vans, drivers or staff to pick up the orders at the rate they are coming in at, while also making a profit. 

Tesco, similar to its mainstream rivals, has already managed to increase weekly online orders significantly by thinking outside the box in response to the crisis.  

"It has brought several years of anticipated progress forward in a matter of weeks," says Black. 

The new top brass will have to strike the right balance between offering a service in demand while keeping a lid on costs. Tesco has already said it will use some of its megastores to act as local fulfilment centres. Murphy and his lieutenants might have a different view. 

The likes of Sainsbury’s, Waitrose and Ocado already have super speedy delivery but Tesco has chosen to put it on the backburner, for now. There is scope, however, to grow its online offering in Ireland.

The new team will also look at Poland, a particular problem child for Tesco for some time. Only last month Stewart said that being the fourth or fifth largest grocer there was "not ideal". A disposal could follow, with rumours already circulating, and indeed, if the price tag is right, the whole business in mainland Europe could go. 

Coronavirus has also left Booker more exposed as almost half of its revenues typically come from restaurants, bars and canteens where the profit margins are better. It can just ride out the storm, as the lockdown is relaxed, or it could take advantage and buy smaller rivals to complement the business as it did with Best Food last year. 

Although the next regime is likely to be one of continuity, Murphy will join with new ways and new ideas.