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By James Davey
LONDON (Reuters) – When the little known Ken Murphy takes over next year as CEO of Tesco (L:), Britain’s biggest retailer, he will inherit something current boss Dave Lewis did not have the luxury of when he joined in 2014 – a strategy and a stable business.
But the 52-year-old veteran of healthcare retailing will still have to work hard for his $1.7 million a year salary, with Britain facing a potentially disruptive exit from the European Union and German discounters Aldi and Lidl grabbing market share from the country’s top supermarket chains.
When former Unilever (LON:) executive Lewis became CEO of Tesco on Sept. 1, 2014, the supermarket group was already reeling from a dramatic downturn in trading. Three weeks later, an accounting scandal plunged it into the biggest crisis in its history.
Fast forward five years and Lewis, 54, has declared Tesco’s turnaround complete. He will hand over to Murphy, a former executive at healthcare group Walgreens Boots Alliance (O:), next summer.
“I don’t think we had a strategy in September 2014,” Lewis told reporters when reflecting on his arrival at Tesco.
Jason Tarry, now Tesco’s UK and Ireland CEO, said the strategy then was “survival”.
Lewis said Murphy, an Irish national, would be in a much better place because he would inherit a “super clear strategy” that he could evolve.
Lewis’ strategy has focused on differentiating the Tesco brand from competitors, reducing costs and generating cash, improving profit margins, maximizing value from property and driving innovation.
He has also pursued growth by buying wholesaler Booker, forming a global purchasing alliance with Carrefour (PA:) and launching discount format Jack’s.
“The good thing is – all the heavy lifting of the turnaround and getting us back financially secure and stable again has been done and so now it’s much more in terms of investment choices that he’ll have to make,” said Lewis.
CHOICES
Analysts say those choices revolve around taking the fight on prices to Aldi and Lidl who have been gobbling up market share, as well as investment in technology, online grocery capacity, convenience stores, Booker and overseas ventures.
Murphy, a qualified accountant who has studied at Harvard, will also have to decide if excess cash should be returned to shareholders.
Alasdair McKinnon, lead fund manager of Tesco shareholder, the Scottish Investment Trust, said Murphy was “potentially well placed to deliver the next stage of Tesco’s transformation.”
HSBC analyst Andrew Porteous said Murphy was “a strong choice” whose key challenge was to drive sales growth.
But Murphy’s appointment has left others puzzled.
“Walgreens-Boots has material strategic challenges in the U.S. and the UK. What is it about Ken’s track record there that impressed the board?” asked Bernstein analyst Bruno Monteyne.
Murphy led the turnaround of drugs wholesale and retail group Alliance UniChem in Italy, then shared the top operations job at health and beauty business Boots UK & Ireland before becoming executive vice president, chief commercial officer and president of global brands at Walgreens Boots Alliance.
His appointment came in a big week for UK grocery sector moves. On Tuesday, John Rogers, the boss of Sainsbury’s (L:) Argos business who was seen as the favorite to succeed Mike Coupe as Sainsbury’s CEO, quit to become finance chief of advertising group WPP (LON:), while Waitrose [JLPLC.UL] boss Rob Collins said he would step down next year.
Lewis has no doubt Murphy, who began his retail career helping in his father’s shop at the age of 15, will succeed, dismissing his lack of major UK grocery retailing experience as an irrelevance.
“What Ken needs to have and I do know him and I do believe he has it is – have you got a strategic perspective? Do you understand brand, do you understand the customer? Have you got the interpersonal skills to engage with 450,000 people,”
His advice to Murphy – “use his ears more than his mouth”.
