It’s been an extraordinarily tough few years for Tesco. Back in 2010 it was at the top of its game, growing fast and leaving the rest of Britain’s food retailers in its wake. But fierce competition, a series of over-ambitious acquisitions and, of course, its devastating accounting scandal knocked one of Britain’s most successful business off its perch. It’s still the largest retailer in the UK but Tesco’s reputation took a massive knock, arguably even bigger than the one to its finances.
Today its CEO Dave Lewis - brought in from Unilever expressly to clean up the mess - will be hoping to consign all of that to the past. Two and a half years after the scandal hit the front pages Tesco has signed a deal with the Serious Fraud Office that means its subsidiary Tesco Stores Limited won’t be prosecuted, in return for paying a £129m fine. It has also agreed with the Financial Conduct Authority to pay around £85m in compensation to investors that bought shares in the two-ish months after it overstated its profits in 2014.
‘Over the last two and a half years, we have fully cooperated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business,’ Lewis said in a statement. ‘We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.’
The deals don't affect the pending cases against former Tesco execs John Scouler, Christopher Bush and Carl Rogberg (who deny wrongdoing) and the supermarket is still the subject of two private lawsuits on behalf of investors. But today nonetheless brings to a close a difficult chapter in the company’s history.
It’s not back to business as usual though. In the time since the scandal Tesco’s market share has gone into reverse, eaten away by the fast-growing German discount supermarket chains Aldi and Lidl, which now sell more than 10% of the UK’s groceries. Lewis also faces disquiet from some shareholders over the price of Tesco’s acquisition of Booker Group.
Tesco posted a profit of £162m last year, minute by its standards but a damn sight better than the previous year’s £6.4bn loss. Sales figures since then have been encouraging, but with its bottom line under pressure from the rising minimum wage and higher food prices post-Brexit, the supermarket chain faces a big challenge in returning to the bumper times of yore.
Timeline: How Tesco’s fortunes went south
2011: Terry Leahy jumps ship. It’s a common trait of effective leaders that they know when to get out (see Tony Blair’s resignation just a year before the financial crisis kicked off). Terry Leahy, who was credited with turning Tesco into a globally significant behemoth in his 14 years as CEO, left the supermarket in 2011, the year before its profits reached their zenith.
June 2014: Sales plummet. Leahy’s successor Philip Clarke will be remembered less fondly. Clarke continued to diversify the company, launching a tablet computer called Hudl and buying the coffee chain Harris+Hoole, Giraffe restaurants and Euphorium Bakery in the hope of enticing more customers into the stores. They didn’t salvage Tesco’s fortunes, and in June 2014 it reported a 3.8% drop in like-for-like sales, the biggest decline in decades. Clarke was asked to leave the following month.
September 2014: A new broom. If Tesco’s shareholders thought its new CEO Dave Lewis would hail the dawn of a new era they were right, but not in the way they might have hoped. Three weeks after joining Tesco from Unilever, Lewis was forced to announce the company had overstated its profits by £250m. Its shares plummeted more than 10% to an 11-year low.
October 2014: The long arm of the law. The Financial Conduct Authority and Serious Fraud Office announced separate investigations into the company’s conduct.
January 2015: Lewis’s plan of action. ‘Drastic’ Dave revealed his masterplan for turning things around. He closed the company’s HQ at Cheshunt and 43 unprofitable stores, and cancelled plans for 49 new stores. The grocer also sold off Tesco Broadband and its streaming service Blinkbox to TalkTalk.
April 2015: Monumental loss. Massive write downs on the value of its property led Tesco to post an annual loss of £6.4bn, the biggest in its history and one of the biggest ever in the UK. Lewis was said to be ‘kitchen sinking’ – getting the worst of all the bad news out in one go.
October 2015: Buttering up suppliers. Tesco has long had a reputation as a difficult company for suppliers to do business with (more on that in this terrifying mea culpa) and its financial relationship with them came under greater scrutiny after the accounting scandal. In October Lewis pledged to restore that relationship, speeding up payments to small suppliers and simplifying its commercial revenue streams.
April 2016: A return to profit. The grocer bounced back from its loss in 2015 to post a £162m profit in the year to February but that didn’t stop its shares dipping after Lewis warned investors of a ‘challenging, deflationary and uncertain market’.
June 2016: More disposals. Lewis has been keen to strip Tesco of its bells and whistles and refocus on flogging food. After selling off its South Korean Homeplus business in 2015, Tesco disposed of another four businesses last June – Harris+Hool, Giraffe, Euphorium and Dobbies Garden Centre.
January 2017: Proposed Booker bid. Lewis showed there’s still fire in the Tesco belly with plans to acquire Booker, the food wholesaler whose assets include the Premier, Budgens and Londis convenience store brands. Tesco said the merger will ‘delight customers’ but some shareholders have expressed scepticism about it.
March 2017: Drawing a line. After two and a half years with a criminal investigation over its head, Tesco agreed to pay a £129m fine in a Delayed Prosecution Agreement with the SFO, and to pay £85m in compensation to investors.
Image source: Tesco