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Surprise exit for Tesco CEO who 'saved' supermarket

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Dave Lewis, Tesco CEO stands inside Tesco's new discount supermarket Jack's, in Chatteris, Britain, September 19, 2018. Photo: REUTERS/Chris Radburn

Tesco (TSCO.L) CEO Dave Lewis is to step down next year, the supermarket said on Wednesday.

“It is with regret that I have accepted the resignation of Dave Lewis as Group CEO of Tesco, who has decided that he wants to leave the business in the summer of 2020,” Tesco chairman John Allan said in a statement.

Tesco shares fell 1.5% at the open in London following the announcement, which was not expected.

Lewis said: “I believe that the tenure of the CEO should be a finite one and that now is the right time to pass the baton.

“Our turnaround is complete, we have delivered all the metrics we set for ourselves. The leadership team is very strong, our strategy is clear and it is delivering. The Tesco brand is stronger and customer satisfaction is the highest it has been for many years.”

Lewis cited personal reasons for his departure and said he was not leaving to take up another position.

READ MORE: Metro Bank founder to step down in December

“None of us really know why he is leaving and this question will be high on investors’ mind,” Bruno Monteyne, an analyst at research house Bernstein, said in a note to clients.

Lewis, who joined as CEO in 2014, will be succeeded by Boots veteran Ken Murphy. Murphy is currently chief commercial officer and president of global brands at Walgreens Boots Alliance, the US company that owns the pharmacy chain. Monteyne said Murphy is “relatively unknown.”

“Ken has values which align with our own, strong strategic and operating acumen, and is proven at the very top of a large and respected multinational retail group,” Allan said. “I firmly believe we have the right person for the job.

“Ken has contractual commitments to his previous employer, and therefore we will announce his precise start date in due course.”

Murphy will be paid £1.35m in the top job, as well as a 7.5% contribution to his pension. Tesco said the financial terms of Lewis’ departure would be confirmed nearer to his leaving date.

‘The bloke that saved Tesco’

Lewis joined Tesco from Unilever in 2014 at the height of an accounting scandal that left the retailer with a more than £200m blackhole on its books, and pushed it to a loss of over £6bn in 2015.

Lewis, who was nicknamed “Drastic Dave” at Unilever for his cuts, successfully steered the business out of trouble and Tesco made a profit of £1.6bn last year.

“Put quite simply he is the bloke that saved Tesco, which should go down as an enormous achievement in British retail history,” Clive Black, a retail analyst at stockbroker Shore Capital, said in a note to clients.

As well as rescuing Tesco from the brink, Lewis also successfully pushed Tesco into new growth markets with the £4bn acquisition of wholesaler Booker, which closed last year. That deal helped Tesco move into the hospitality and retail supply market, selling goods to pubs, corner ships, and hotels.

News of Lewis’ resignation came as Tesco reported better-than-expected half-year results. Operating profit for the first six months of 2019 was £1.4bn, better than the £1.3bn forecast. Comparable sales fell 0.4% to £28.3bn, but were still better than expected.

READ MORE: Dozens of Sainsbury’s and Argos stores set to close down

Bernstein’s Monteyne said in a note to clients: “The company could not have delivered any stronger on the recovery investment thesis.”

“We have had a strong start to the year, leaving us well-positioned to continue to be highly competitive in challenging markets,” Tesco said.

When Murphy joins next year he will be entering a highly competitive supermarket sector currently in the midst of a price war.

German discounters Aldi and Lidl have been stealing market share from big supermarkets like Tesco and changing shopping habits among Brits mean supermarkets are now having to cope with a shift from superstores to local convenience.

Tesco on Wednesday announced plans to open 150 more Express convenience stores over the next three years, targeting office workers picking up food for dinner on their way home. At the same time, the supermarket said it would “repurpose” 153 of its larger Metro stores and add new “innovative” counters to 692 others.