Tesco Boss To Leave Next Year

Published in Investing on 8 June 2010

After making Tesco the UK's number-one supermarket, Sir Terry Leahy will retire next March.

Every working day, the London Stock Exchange issues hundreds of Regulatory News Service (RNS) announcements from a broad range of companies. Often, these RNS notices are pretty humdrum and one seldom sees a really eye-opening announcement.

Terry's leaving Tesco!

That said, I was somewhat taken aback today by this announcement released this morning by Tesco (LSE: TSCO), the UK's number-one supermarket. It revealed that Sir Terry Leahy, CEO of Tesco for 14 years, is to retire in March 2011.

In an outstanding career as a top retail executive, Sir Terry (now 54) joined Tesco in 1979. He moved up to Tesco's board in 1992, becoming Chief Executive in 1997.

Tesco's long-term succession plan means that Sir Terry's place as CEO will be taken by Philip Clarke (50), a board member since 1998 who started out as a schoolboy stacking shelves in 1974, and is currently head of Tesco's international operations and group IT.

As I write, Tesco's share price is down nearly 3% at 396p.

How's Sir Terry done?

There's no doubt that Sir Terry is the most successful retailer of his generation. When he joined Tesco 31 years ago, it was light years behind retail giants Marks & Spencer (LSE: MKS) and Sainsbury (LSE: SBRY).

By 1995, Tesco had leapfrogged its competition, becoming the UK's biggest retailer. In March 1997, Sir Terry replaced Lord MacLaurin as CEO and set out to build Tesco's market share in non-food items, other services and internationally.

Sir Terry succeeded spectacularly: today, Tesco has a market share of more than 30% of supermarket spending, and one pound in every eight spent on the high street is handed over to Tesco. The global giant has 472,000 staff and more than 4,800 stores in 14 countries, with just over half of its stores located in the UK.

One particular success for Sir Terry was Tesco's Clubcard loyalty programme, launched in February 1995. This enabled the retailer to monitor customer spending and then tailor discounts and vouchers to individual shoppers. Fifteen years later, there are over 15 million Clubcard members, making it the UK's most popular and longest-running loyalty campaign.

What about the shareholders?

During Sir Terry's reign, Tesco has done its shareholders proud. In fact, over the past decade, Tesco's share price has almost doubled, whereas the blue-chip FTSE 100 index is down nearly a fifth.

Tesco trounces Sainsbury

Since June 2000, the share price of Tesco's bitter rival Sainsbury has gone nowhere, although a potential takeover did cause its shares to spike in 2007. 

M&S shareholders have fared better, seeing their shares rise by 28% over the last decade. In terms of shareholder returns, the only supermarket to get anywhere close to Tesco is Morrison (LSE: MRW), whose shares are up an impressive 82% in the last ten years.

As you can see below, Tesco's revenue, profit before tax (PBT) and dividends have risen relentlessly, even during the recent credit crunch and economic downturn:

before tax
Increase 2006/10 (%)+44+45+51

* Tesco's financial year ends in February.

In summary, congratulations to Sir Terry on a terrific three decades at Tesco. I'm sure the retailer's shareholders -- including institutions, private investors and employees -- will be sad to see him go!

More from Cliff D'Arcy:

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Luniversal 08 Jun 2010 , 2:33pm

Leahy, not Leary, in the standfirst, dear friends.

I agree with the fan club. If only Britain had half a dozen more like Tesco, in six different sectors: 'too big to fail' in a good way.

Instead, Tesco is the giant vampire squid of retail in the eyes of its curmudgeonly critics. Nothing stinks like success in poor old bankrupt Blighty.

RedundantHippie 09 Jun 2010 , 1:10pm

Sir Terry is one of an increasingly rare breed, a Manager who understands the Business he was in. Over the past ten years I have come across the absurd notion that "A manager can manage anything" which is utter nonsense! One only has to look at the Banks to realise the stupidity of this idea. Sir Terry got his hands dirty at the sharpe end of Tesco's and worked his way to the top, whether you love or hate Tesco - you have to admire this guy!

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