LONDON (Reuters) - Tesco TSCO.L boss Dave Lewis, credited with saving Britain's biggest retailer from collapse in 2014, will step down next summer after declaring its turnaround complete, handing over to a relative unknown catapulted into one of the sector's top jobs.
Celebrating its 100th anniversary, Tesco is five years into a recovery plan launched by Lewis after an accounting scandal capped a dramatic downturn in trading.
Successor Ken Murphy, a former executive at healthcare group Walgreens Boots Alliance WBA.O, will become the second outsider to lead Tesco, following in the footsteps of former Unilever ULVR.L executive Lewis.
Like Lewis, 52-year-old Irish national Murphy has experience in the consumer goods industry, key suppliers to supermarkets, having started his career at Procter & Gamble PG.N.
“Now is the right time for me to pass on the baton; our turnaround is complete,” Lewis told reporters on Wednesday.
“We’ve delivered all the metrics we set for ourselves, the leadership team is very strong, our strategy is clear and it is delivering,” he said, adding that he was not leaving for another job.
The outgoing boss also dismissed Murphy’s lack of experience in the UK grocery retail industry, another parallel with Lewis at the start of his Tesco tenure.
“If you look at the CEO as being the best shopkeeper in the team, it’s the wrong brief,” Lewis said.
“He’s got loads of retail experience, he’s got loads of wholesale experience, he understands brands and he understands customers and he’s super smart.”
News of Lewis’s departure came as Tesco beat forecasts with a 25% rise in first-half operating profit before one-off items of 1.4 billion pounds ($1.7 billion) and raised its interim dividend by 58.7%.
The numbers served as a clear demonstration of the progress made since Lewis launched his recovery plan after a 2014 accounting scandal capped a dramatic downturn in trading.
Shares in the group were up 0.2% at 1511 GMT.
Tesco was on its knees when Lewis joined but has since met all his turnaround goals, including a key margin target of earning between 3.5 pence and 4 pence of profit for every pound customers spend. The first-half profit margin was 3.67%.
“Put quite simply he is the bloke that saved Tesco, which should go down as an enormous achievement in British retail history,” said Shore Capital analyst Clive Black.
“Murphy has big shoes to fill.”
Shares in Tesco, which has a 27.4% share of Britain’s grocery market, have risen 6% since Lewis started in September 2014. The FTSE 100 index, meanwhile, has risen by 8.5%. Lewis, however, noted that Tesco’s shares had risen by about 40% since the full extent of the accounting irregularities were revealed in October 2014.
Lewis overhauled Tesco’s relationship with suppliers, lowered prices, simplified product ranges and improved store standards. Jobs have also been cut, including 4,500 announced in August.
The 54-year-old also pursued growth by buying wholesaler Booker for nearly 4 billion pounds, forming a global purchasing alliance with Carrefour CARR.PA and launching discount format Jack's.
Tesco chairman John Allan said Lewis had told him about his planned 2020 departure a year ago, kicking off a succession process that also considered internal candidates. Allan said that Charles Wilson, the Booker boss once seen as the frontrunner to succeed Lewis, did not want to be considered.
PROVEN TRACK RECORD
Murphy ticks a lot of boxes for Tesco.
He led the turnaround of Alliance UniChem in Italy, then shared the top operations job at Boots UK & Ireland before going on to become executive vice president, chief commercial officer and president of global brands at Walgreens Boots Alliance.
Murphy left that position at the end of 2018, retaining a consultancy role with the U.S. retailer.
“We wanted a combination of experience, proven leadership in international retail businesses, a strong strategic mind and a track record in commercial and brand,” Allan said.
He denied that Murphy’s appointment signaled a new international push from Tesco, which has retrenched from countries such as South Korea and Turkey under Lewis.
Given contractual commitments to Walgreens, Murphy’s precise start date will be announced in due course. He will join on a basic annual salary of 1.35 million pounds, slightly less than the 1.25 million pounds Lewis earned in 2018-19.
Tesco is also stepping up its store opening program, doubling its UK online capacity and revamping its Clubcard loyalty scheme. It is also buying wholesaler Best Food Logistics.
Though Tesco said it has made a strong start to the year, UK like-for-like sales dipped 1% in its second quarter, partly reflecting a tough comparison with the same period last year, when a heatwave and the men’s soccer World Cup boosted demand.
Lewis said that being CEO of Tesco was “all consuming” and when he leaves he would take time out with his family before considering his next move.
He said he did not want to be labeled as the man who saved Tesco, insisting “there are 450,000 people who have turned around the business”.
Editing by Mark Potter and David Goodman
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