By Chris Blackhurst Tuesday, 28 May 2013

Tesco Boss Philip Clarke: I feel 'bloody great'

The MT Interview: Tesco boss Philip Clarke has weathered profit warnings, the horsemeat scandal, a £1bn defeat in the US market and still come up smiling. Where next?

Whenever I wanted to meet the former Tesco boss Sir Terry Leahy, I had to trek from London to Cheshunt in Hertfordshire to the company's headquarters.

Leahy would delight in asking about my journey and how long it had taken, making it plain he had little truck with the capital, preferring to be based in the outer London suburbs, among the people, his people, in supermarketland.

'Cheshunt is more like the UK than St James's Square,' was a familiar jibe, delivered in his trademark deadpan manner and aimed at corporations that choose to base themselves among the bright lights and glitzy addresses of central London.

Now when I call, his successor, Philip Clarke, asks where I am and selects pretty much the nearest Tesco to my office. It's a little thing, but, already, it's plain that Clarke and Leahy are very different.

It's easy to assume they are more similar than they are. They both originate from Liverpool, both love football, both are Tesco lifers. They're of similar vintage - Clarke is 53 and Leahy, 57. Heavens, they've gone and lived in the same road in the same village in Hertfordshire.

However, although they share a postcode, they're not in and out of each other's houses. The truth is, in many respects, they're miles apart.

Physically, they are quite different. Clarke is stocky and bespectacled, Leahy is tall and lean. They're typically quick-witted Scousers but Leahy's humour is bone-dry and droll. Clarke is an excitable, non-stop talker.

How are you feeling, I ask, as I arrive at the Cromwell Road store in Kensington. 'Bloody great,' says Clarke.

His reply is surprising, considering that he had only recently announced the first profit fall at Tesco in two decades. He scrapped Fresh & Easy, the company's foray into the US, at a cost of £1bn. He also wrote off £800m from the value of Tesco's land bank, a signal that the era of rapid expansion and site-grabbing were over. With the inclusion of those additional charges, Tesco's post-tax profits slumped, from £2.8bn to £120m.

The US debacle apart, the business's core UK market has also been suffering. Tesco's merciless chasing of sales and profits had turned it into an aggressive, snarling beast of capitalism - one without an especially friendly face and with few friends.

Size was all that seemed to matter, as Tesco sought an ever-increasing number of stores. But once the inevitable bitter local planning rows had been won - not for nothing was Tesco nicknamed 'Tescopoly' - actually shopping in them was not uplifting. I well remember going to its New Malden store on the A3 and being besieged by signs everywhere proclaiming that Tesco was cheaper than the competition.

The company could appear cold and forbidding. Even its much-lauded super-efficiency, evinced by its 'Just in Time' delivery operation, worked against it - with people complaining that their shopping centres were blocked by Tesco trucks making yet another delivery.

At the upmarket end, shoppers decamped to the friendlier Sainsbury's and Waitrose, with their reassuring celebrity tie-ins (Sainsbury's with Jamie Oliver, Waitrose with Delia Smith and Heston Blumenthal). At the bottom, Tesco was fighting off strong, price-led competition from Asda, Morrisons, Aldi and Lidl.

That does not take account, too, of the structural pressures affecting the industry, with the internet making ever bigger inroads into the traditional high street.

There are those who claim that Leahy must have seen the writing on the wall and got out, that Clarke received what is known in rugby as a hospital pass. From a regular position throughout the noughties at or near the top of the MT Most Admired Companies list, Tesco, in the past two years, managed only 41st followed by a dismal 171st.

If so, the recipient of the ball appears unbothered - he's upbeat, beaming and chipper. We set off on a whistlestop tour of the store. He's all hustle and bustle. Walking quickly, talking as he moves, he greets everyone he encounters. He wants to show me what he dubs his 'intrepreneur' section.

Where once there was a grim, forbidding in-store coffee bar, there's now a bright, friendly cafe and bakery run by Euphorium, the Islington firm that Tesco is partnering with to produce breads, cakes and pastries.

It's a new concession, the first of its kind within a Tesco. They're wearing Euphorium-branded uniforms but the staff are working inside a Tesco. 'Euphorium has been making bread since 1999 but it ran out of capacity to expand, which is where we came in,' says Clarke.

The deal that was struck with it was like the one he's completed with Giraffe, the family restaurant chain, and Harris + Hoole coffee shops.

'The Tolleys (the family behind Harris + Hoole) had been making coffee for 15 years and had got seven shops,' says Clarke. 'We came along and we're helping it grow, as a high street brand and in our stores. It's opening 15 stores in 11 months, including one in a Tesco. The plan is to roll the shops out in the branches where there is demand for high-class, artisanal coffee.'

It won't be every Tesco, stresses Clarke, just those where there is a need. 'Retailing is very local; you can have two shops that are three miles apart, yet have a completely different customer demographic.'

When Clarke announced that Tesco was taking a stake in the three businesses and they would be sharing profits, the suspicion was that it was trying to add to its mighty consumer presence by hiding behind other brands. There was a refusal to believe this was a departure - more that Tesco was up to its old tricks.

Nonsense, says Clarke, 'We need to be more relevant to our customers' wishes. You can only begin to build a close relationship with them if you get that right.'

It's clear this is an obsession of Clarke: that Tesco has to regain the trust of its customers. 'We asked ourselves, what are the tools we must use to make people believe we're honest?'

It's a telling statement and it goes to the heart of what he's trying to do. The implication from its chief executive is that somewhere, amid the muscle-flexing, Tesco was no longer perceived as being honest, that shoppers did not believe in it to the same degree - and went elsewhere.

CLARKE IN A MINUTE

1960: Born on 8 March in Liverpool, the son of a Tesco store manager. Went to Liverpool Blue Coat School

1974: Starts working for Tesco while at school, stacking shelves on Saturdays

1981: Graduates from Liverpool University, joins Tesco's management training programme, one of the few graduates on the operations side of the business

1984: Moves to the south of England to manage his first large store, is inspired by Tesco legends Ian MacLaurin, David Orchard-Smith and David Malpas

1998: Joins the Tesco board and is put in charge of supply chain management, also international operations, apart from the US

1999: Adds CIO to his remit

2011: Becomes CEO

Part of that rekindling process began with the look of the stores. As we stand, looking out over the Cromwell Road floor, I point to the signs - there are hardly any compared with my memories of New Malden.

They're not in Tesco red, white and blue but in softer, neutral colours. They're not screaming direct comparisons with rivals, either. They're simply worded: making a promise on price, guaranteeing freshness, pledging quality.

Before, when you went in, you were confronted by posters mentioning Sainsbury's and Asda. You'd chosen to go to Tesco and you wanted to know what Tesco could do for you - not how it beats up the opposition.

He gestures towards the nearby pizza counter. In the past, shoppers could choose a pizza to take home but they had to cook it. 'Now we'll cook it for you, if that's what you want,' says Clarke, pointing to the oven. 'It's about us getting back to where people want us to be.'

The implication in all this is that something went horribly wrong, that towards the end of the old regime, Tesco had lost its way. Clarke is careful, however, not to say this. It would undermine Leahy's achievements. And that simply would not be right.

His words are deliberately chosen. 'We went through a period of extraordinary expansion; we were rolling out our model across the world. Now we're trying to establish the right relationship with our customers.'

So if, in the end, Leahy was shown to be fallible, does it matter? The truth is, he turned the business into a world-beater and his determination was terrifying. While others raged about Tesco's domination, Leahy remained unmoved. 'Our market share of UK retailing is 12.5%,' he once said to me. 'That leaves 87.5% to go after,' he added, grinning.

To reinforce that legacy, Clarke strides towards the sushi counter. 'Because we're in this part of London we're selling sushi,' he says.

'Go to some of our stores and we won't have it, but here we do. It's new.' He grabs six pieces of individually wrapped sushi (that's the clever bit - customers can choose which variety they want rather than buy pre-packed assortments). 'I saw it done like that when I was in Japan (before securing the top job, he ran Tesco overseas, apart from the US). It's how we sell it in Asia. Now we've brought it over here.'

He holds the sushi. 'Six for £3. Not long ago, if you came in here, you could only buy a sandwich. This is made this morning, all fresh.' He picks up a box and it's obvious the six pieces will barely fit into it.

Suddenly, the cuddly Clarke vanishes. He's visibly irritated. 'I told them to get larger boxes,' he snaps, to his hapless PR. The grin has been replaced with a scowl. I suspect that when I leave, someone will get a call and it won't be pleasant: it's only fleeting, but for a second I've glimpsed a darker, brooding, fiercer side.

We press on. 'Do you know what the best-selling item in our London, Regent Street store is?' I shake my head. 'Salad,' he says triumphantly. 'The queue for salad at lunchtime in Regent Street can be 60 deep.'

Food retailing today, he says, is 'all about choice. You've got to offer choice. You've got to spot a trend. You do that by capturing the data - we're very good at that - and then using it to make people's lives better. So here, in Cromwell Road, we effectively have two stores - our data showed us some people want a quick in and out, salads and sushi at lunch, curries in the evening. Others want to do their normal food shop, so we do that as well.'

Philip Clarke says his aim is to get Tesco 'back to where people want us to be.'

The signs attacking competitors have gone, he says, because 'we want our customers to leave price at the door. We don't want them to worry about that - we will do it for them. They know we'll be the cheapest, that's our promise. We've got that right, now we're working on service and quality. And it's starting to move our way.'

This is his mantra: 'We used to be about more shops, now we're about making those shops more relevant.' It's all very well, I say, indicating the sushi, but where's the volume? At Tesco, the push had always been for bigger numbers. The City got used, year after year, to it setting more records. Clarke nods, as if to say, that's right but times have changed, consumers have changed. They want more from their store. 'If you keep the customers happy, you keep the City happy. Previously, the emphasis was on growth, now it's on returns and growth.'

It's also about staying ahead. His industry, like many, is threatened by the internet. In Seattle, Amazon is test-delivering groceries. To that end, he says proudly, Tesco has an app development centre in Shoreditch, east London, and employs 5,000 technologists in Bangalore, India.

Tesco rode the first digital wave with its championing and then purchase of Dunnhumby, the data specialist behind the legendary Clubcard. That Clarke has a Silicon Valley boss's understanding of data should come as no surprise: his aptitude for technological innovation was honed during 12 years in charge of the company's IT.

His knowledge of how to use data to get closer to customers was surely a vital factor in his landing the top job. Getting a big piece of the market for people shopping on their mobiles is likely to be as important to Tesco's growth as the Clubcard was in its day.

One of Clarke's first moves as CEO was to acquire Blinkbox, which sells films, music and books online. A bank that will offer online accounts is planned. A Tesco tablet cannot be far away (his favourite toy is a white Samsung phone on which he is forever accessing apps).

'Around 15% of our investment is now in technology. We don't just sell in-store any more. Ours is a high-tech, multichannel world and we're building the capability for that. Whatever way they choose to shop with us, customers want a sensory experience.'

He indicates the Euphorium bakery counter. 'That's where the intrepreneurs can help us. They're less suited and booted than usual corporates.' He hesitates. 'We don't want to lose our efficiency but we want to get more creativity into the machine.'

The tour continues to the fish section. He seizes a packet of fresh fish. 'This packaging has changed. Now, you can see all the fish.' He muses. 'It's all in the detail, retail.'

At the meat counter, he stops again. 'I've reduced the emphasis on shouting about the price and stressed the importance of delivering quality at that price.'

On another of his store visits, a shopper had challenged him about Tesco's Finest bacon, saying it wasn't up to standard. When he investigated, he found the bacon rashers had been made thinner to compete with a rival on price. That may have been acceptable before; not now. He demanded a rethink of the bacon range.

'Here, look at this,' he says, picking up a packet of steak. 'Aberdeen Angus, the very best and very good.'

Nonetheless, a good deal of careful supply-chain inspection will now be in order. Tesco was the hardest hit of the big supermarkets by the horsemeat scandal. Its Everyday Value spaghetti bolognese contained up to 60% horsemeat, its value burgers up to 29% and its frozen meatloafs up to 5%.

It was the relentless downward pressure on cost that made this unseemly debacle all too likely, as suppliers struggled to maintain their margins.

He gazes along the spotless aisle. 'My dad was a Tesco store manager. He knew about shop management, he knew about the importance of a clean store. He said the shop should be like your home. It should be like the best room in your house, the front parlour your mum keeps for special occasions and visitors on Sunday afternoons.'

But, he reflects: 'It's not unique. Thousands of people in our business know about "shop prep". It's not enough to be chief executive. What I must do is allow them get back to what they want to do.'

He was raised in the Childwall area of Liverpool. 'We were upper working class. We lived nearly where the professions lived but not quite.'

He went to Liverpool Blue Coat, then a boys' grammar school (today it's co-ed). Then he studied economic history at Liverpool University. His father had retired early on health grounds. 'I stayed at home so there would be less pressure on the family finances.'

From 14, he'd been working in his father's branch of Tesco. He never left, carrying on right through school and university. He did consider banking as a career but he stuck with Tesco, as it meant he could stay in the north-west.

'I'm now in my 39th year. I met Linda, my wife, in Tesco. On the day of my wedding, I opened up the store in the morning (he was by then a manager in his own right), did an inspection and then got married.'

There's something dependable and solid about him. Tesco, all his life; Liverpool, born and bred; married a local girl, two grown-up kids. He moved away but never really did - he goes back home for Liverpool FC games and he keeps a house there. It's kept him in the real world, maintained his sanity.

'These jobs are 24/7, you never stop thinking about work. My solution is to zone out. I go to our other home, in the country near Liverpool. I have no phone with me. Only the head of security and my family can get in touch. I see my mum and dad and old friends.' His payback for the relentless pressure is a salary of £1.1m a year.

He worked his way round the empire, without ever realising he was in the frame for the chief exec job. He consults Ian MacLaurin, the former chairman who appointed Leahy as CEO in 1997, as well as Leahy himself, but is coy about how often they speak.

He's not close to Leahy, not a confidant. 'Few people are,' he says. Clarke adds immediately: 'But it's not about how we are with each other. It's about how we are with this job.'

Tesco, says its CEO ruefully, 'never has been a very social place outside work. With what time I have, I concentrate on being a good leader, good father, good son, good husband.'

In the course of our meeting, he repeats this phrase - the good leader, father, son, husband - three times. Indeed, so often does he say it that it seems to carry a wider resonance. I know what it is: if he went on to add 'good Tesco' I would not be surprised.

That may be so, but Fresh & Easy was set up under Leahy. And look what happened. 'It was my responsibility to do the best for the shareholders. It was not easy to close. I had counsel from the chairman, from the board. It was clear it wasn't going to create value for shareholders, not in the long term, maybe never. It became a decision that had to be taken and I took it.'

He did not do so lightly. 'I went to Fresh & Easy 10 times in two years - even though it was 1% of our business. Since the decision was made, I've been back three times, as we've got people there and we care about them.'

He's cautious about attributing blame. 'In the end it was about creating value for shareholders. The first year, Fresh & Easy looked good. The second, it stalled.'

Among the casualties was Tim Mason, Clarke's deputy. Mason was viewed as Leahy's heir apparent before Fresh & Easy turned sour, before Clarke's appointment. Now, he is out completely. 'That was a big decision,' says Clarke, 'one of my big decisions. Tim is a man I'd admired. I still do.'

Was it his hardest? 'In my career?' He shakes his head. 'No, that was back in the 1980s, having to let a real personal friend go.'

Mason was not alone. Others from the higher echelons have left, not all of them voluntarily. 'Terry's team have gone. They were in their mid-50s and they chose to retire. Two needed persuasion.' He fixes me with a hard stare. 'Generation shifts happen.'

Now, part of Clarke's remit is to be 'thinking of someone who can be CEO 10 years after I've left the company. I want someone who will be able to lead what will be a tech company, with multichannels, but still, fundamentally, a retailer.'

But is he enjoying it? He laughs. 'It's not work/life balance or whatever it's called. For me, it's just life.'

With that he apologises. He has to go, he's got work to do.

FOUR CHALLENGES FACING CLARKE

  • To turn around the UK business and be the supermarket market-leader once again
  • To grow worldwide and put the disappointments of the US and Japan in the past
  • To develop online and take on the threat posed by Amazon (which is moving into fresh groceries in the US)
  • To present a more intimate, caring Tesco that's a better fit with society's mood and, when the going gets tough, to be honest with customers

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