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Tesco CEO to Step Down After Turnaround Drive

Drugstore operator’s Ken Murphy to succeed Tesco’s Dave Lewis.

Tesco CEO to Step Down After Turnaround Drive
Dave Lewis, chief executive officer of Tesco Plc, poses for a photograph inside a newly opened ‘Jack’s’ discount store, operated by Tesco Plc, in Chatteris, U.K. (Photographer: David Levenson/Bloomberg)

(Bloomberg) --

After Tesco Plc said Chief Executive Officer Dave Lewis will hand the baton to drugstore executive Ken Murphy, one analyst summed up his surprise by quipping, “Ken who?”

While Murphy is known inside Walgreens Boots Alliance Inc. for spearheading its push into China, he’s a relative unknown in London financial circles. Next summer he’ll take over the top job at the U.K.’s biggest retailer, where he’s got big shoes to fill.

Under Lewis, who became CEO in 2014, Tesco has bounced back from a massive accounting scandal, streamlined its domestic business with thousands of job cuts and pulled back from some international markets. Now Murphy will have to wrestle with a growing U.K. retail crisis exacerbated by Brexit, the shift to online shopping and competition from discounters Lidl and Aldi.

“Ken Murphy has some tough calls to make as there are some big questions hanging over Tesco right now,” said Nick Everitt, research director at digital insights firm Ascential. “What is its international business footprint going forward? What is its long-term plan for e-commerce?”

The 52-year-old Murphy will join the supermarket operator with abundant retail experience. The incoming CEO worked at Boots U.K. & Ireland before rising to chief commercial officer and president of global brands at the transatlantic drugstore operator formed through a merger.

Tesco CEO to Step Down After Turnaround Drive

Tesco shares rose 1.1% in London, reversing early losses, after the company reported first-half operating profit that beat analysts’ estimates.

Like Lewis, 54, who came to Tesco from Hellmann’s mayonnaise owner Unilever, Murphy has a background in the consumer-goods business. After studying at Harvard Business School, the Irish executive worked at Procter & Gamble Co. before joining Walgreens Boots.

“We wanted a combination of experience, proven leadership in international retail businesses, a strong strategic mind,” Tesco Chairman John Allan said on a call with reporters. “Dave will be a hard act to follow, but Ken is unquestionably a seasoned, growth-orientated business leader.”

At Walgreens, Murphy oversaw the opening of a flagship store in Alibaba Group Holding Ltd.’s Tmall online retail store in 2018. Later that year he attended the inaugural China International Import Expo in Shanghai, saying it “reflects the Chinese government’s determination and commitment to continue to further open up its market to the world.”

Tesco’s focus has been closer to home of late. After reporting the biggest loss in its century-long history in the wake of the accounting scandal, the company under Lewis leveraged its position as U.K. grocery market leader to boost profits steadily, even as its market share has continued to erode.

‘Bigger Question’

While Lewis’s turnaround is complete, “the bigger question is why Tesco overlooked an array of internal candidates for the new CEO position and have gone outside and appointed Ken Murphy from Boots (a.k.a. ‘Ken who?’),” said Nick Bubb, an independent retail analyst.

Tesco CEO to Step Down After Turnaround Drive

There’s been speculation that Lewis was ready to move on, but the succession spotlight previously was on internal candidates such as Charles Wilson, former chief of wholesaler Booker, which Tesco acquired last year. He subsequently stepped down from his role running the retailer’s U.K. arm after being diagnosed with cancer.

Under Lewis, Tesco has been streamlining its store operations, cutting thousands of jobs and closing fresh-food counters in some U.K. outlets while starting a discount brand called Jack’s.

Facing new competition from the likes of Amazon.com Inc. and U.K. online grocer Ocado Group Plc, the supermarket operator is looking into checkout-free stores, robot delivery and other technology. Tesco on Wednesday launched a new subscription-based loyalty program under its Clubcard, which gathers customer data and offers discounts.

The company moved to bolster Booker on Wednesday by agreeing to acquire Best Food Logistics, which supplies clients like Pret A Manger, KFC and Burger King. The deal will add 1.1 billion pounds ($1.4 billion) in food-service sales, Tesco said.

The company ended a short-lived foray into the U.S. before the CEO’s arrival, and he continued the international retrenchment by selling South Korean and Turkish assets, while eyeing expansion in markets like Thailand. On a call, Lewis confirmed a Bloomberg report that Tesco has been weighing options for its Polish business.

More Restructuring?

“Investors may see scope for more restructuring, whether through continued cost efficiency, products and supply-chain optimization, as well as turnaround in some of its geographies outside the U.K.,” Morgan Stanley analyst Maria-Laura Adurno said in a note.

Tesco shares have returned about 2.1% a year since Lewis took the helm in 2014, according to data compiled by Bloomberg, compared with an 11% annual decline under his predecessor, Philip Clarke. Walgreens Boots Alliance shares have fallen around 20% so far this year and the company has said it will close 200 U.K. stores.

Lewis said he’s leaving for personal reasons and doesn’t have another job lined up. As he prepares to hand off to Murphy, he offered the next CEO a tip based on his own experience as an outsider when he arrived:

“My advice would be, respect the expertise that exists within the business. Use your ears more than your mouth.”

--With assistance from Lisa Pham.

To contact the reporters on this story: Ellen Milligan in London at emilligan11@bloomberg.net;Greg Ritchie in London at gritchie10@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman

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