LONDON: Tesco Plc chief executive officer Dave Lewis (pic) is stepping down next summer and will be succeeded by a surprise choice, Walgreens Boots Alliance Inc’s Ken Murphy.
Lewis, 54, will leave the UK’s largest retailer after a turnaround that began when he joined Tesco in 2014 in the wake of a massive accounting scandal. Since then he’s leveraged the company’s position as UK grocery market leader to boost profits despite consumer jitters over Brexit, the shift to online shopping and competition from discounters Lidl and Aldi.
While there’s been speculation that Lewis was ready to move on, the 52-year-old Murphy is a dark-horse choice to succeed him.
The spotlight previously was on internal candidates such as Charles Wilson, former chief of wholesaler Booker, which Tesco acquired last year. But he stepped down from his role running the retailer’s UK arm after being diagnosed with cancer.
Tesco shares rose 1.1% in London on Tuesday, reversing early losses, after the company reported first-half operating that beat analysts’ estimates.
While Lewis’s turnaround is complete, “the bigger question is why Tesco overlooked an array of internal candidates for the new CEO position and have gone outside and appointed Ken Murphy from Boots (a.k.a. ‘Ken who?’), ” said Nick Bubb, an independent retail analyst.
Murphy worked at Boots UK & Ireland before rising to chief commercial officer and president of global brands at Walgreens Boots, the trans-Atlantic drugstore operator formed through a merger.
Lewis, who joined the retailer from consumer-goods giant Unilever, said on a call that he’s not leaving for another job. Five years ago “there was a lot of pressure, financially and in terms of the relationship that the brand had with consumers, ” he said. “The business is now healthy, vibrant and there’s a real energy.”
Tesco said Lewis informed chairman John Allan some time ago about his desire to move on, sparking an orderly succession process. Wilson did not want to be considered for the top job, Allan said on the call.
Under Lewis, Tesco has been streamlining its store operations, cutting thousands of jobs and closing fresh-food counters in some U.K. outlets while starting a discount brand called Jack’s.
The company ended a short-lived foray into the US before the CEO’s arrival, and he continued the international retrenchment by selling South Korean and Turkish operations, while eyeing expansion in markets like Thailand.
On the call, Lewis confirmed a Bloomberg report that Tesco has been weighing options for its Polish business. Tesco last month agreed to sell its mortgage portfolio to Lloyds Banking Group Plc.
“Investors may see scope for more restructuring, whether through continued cost efficiency, products and supply-chain optimisation, as well as turnaround in some of its geographies outside the UK, ” Morgan Stanley analyst Maria-Laura Adurno said in a note.
Along with the CEO succession, Tesco announced a deal to boost the Booker wholesale business, agreeing to acquire Best Food Logistics. The company, which supplies clients like Pret A Manger, KFC and Burger King, will add £1.1bil in food-service sales, Tesco said.
Tesco shares have gained 26% this year. They’ve returned about 2.1% a year since Lewis took the helm in 2014, according to data compiled by Bloomberg, compared with an 11% annual decline under his predecessor, Philip Clarke.
Walgreens Boots Alliance shares have fallen around 20% so far this year. In the UK, the Boots chain has said it will close 200 of its 2,500 stores and dismiss 350 employees at its headquarters. Last year, operating profit slumped 22% to a near-decade-low of £391mil (US$479mil).
The announcement of the new CEO came as Tesco reported a half-year sales decline of 0.4%, hurt by comparisons with a year earlier when hot weather, the soccer World Cup and royal wedding boosted results. Operating profit beat analysts’ estimates. — Bloomberg