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Retail

Flight Of Fancy For Dove Man?

By square1
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Flight Of Fancy For Dove Man?

Now that the dust has settled on yesterday's shock announcement that Dave Lewis will take over from Philip Clarke as CEO of Tesco, it's time to look at what may have been happening over the past few weeks, and what we can expect in the coming weeks.

Lewis can expect to receive a generous remuneration package. We understand that he will receive a basic salary of £1.25m and standard benefits commensurate with his position. Interestingly, he will receive a sum of £525,000 in lieu of his current-year cash bonus from Unilever. In addition, he will receive restricted Tesco plc awards of equivalent expected value in lieu of his deferred share awards from Unilever. In both cases, these would otherwise be forfeit when he joins Tesco.

This suggests that the Tesco board has been hunting for a successor to Philip Clarke for a while. In particular, it is likely to have taken some time to negotiate Lewis' compensation for the loss of his Unilever bonus.

Lewis is the first outsider to take control of Tesco since its foundation, and there has been many a comment in the press about the whole affair. Retail analyst Nick Bubb said, “Dave Lewis knows nothing about retailing, but maybe that doesn’t matter because as a leading supplier, he certainly knows how to win price wars, and perhaps that is the big issue now facing Tesco in the UK.”

Supermarket price wars seem to be a topic for daily debate, and the strategy that Tesco has taken up to now to enter the fray obviously hasn't really been working. Consumers looking for discounts can easily go to Aldi and Lidl, while consumers looking for higher quality can go to Waitrose and Marks & Spencer. Many believe that Tesco's downfall is trying too hard to be all things to everyone, so maybe this fresh approach is exactly what Tesco needs, and maybe Lewis can provide the company with a clear idea of where it wants to focus its efforts.

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Although, it could just as easily be a dangerous choice, as Carrefour found out by hiring Lars Olofsson as CEO from Nestlé. It had to lower profit guidance five times under Olofsson, and his strategies to lower prices and introduce more private label failed to boost sales and profits. This culminated in Olofsson leaving in 2012, and his replacement, Georges Plassat, having to fix the damage that had been done, especially regarding the discount range. Hopefully, Lewis won't make the same mistakes at Tesco.

Amongst all the furore, Tesco is sure to be pleased that the City of London took the news well. Tesco shares rose throughout yesterday on the London Stock Exchange and closed up 1.28 per cent at 288.6 pence. Quite encouraging, when you consider that the CEO announcement also came with a profit warning.

However, running a division of Unilever is far less demanding than running one of the world's largest retailers. Unilever is notoriously bureaucratic. Lots of research is undertaken before any executive decision is made. This simply does not happen in retail, where you are required to respond and react to your competitors' decisions in a timely manner. Is Lewis up for the challenge?

Whatever happens, analysts and the City of London will undoubtedly have the Dove man in their sights.

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© 2014 European Supermarket Magazine by Nicole Gernon and Kevin Kelly

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