Tesco today spoke of "challenging" trading conditions and issued a profit warning as it announced Philip Clarke will be stepping down as CEO after three years in the role and 40 years' service at the business.

The outgoing boss will stay in the supermarket group's hot-seat until 1 October 2014 before being replaced by Dave Lewis, president of personal care at FMCG company Unilever, who will be tasked with repositioning the grocer in the face of significant changes in consumer behaviour and increased market competition.

Although taking a lead in many multichannel initiatives in recent years, including online grocery shopping and click & collect, Tesco has faced a battle to maintain its dominance of the UK grocery market. The rise to continued sales growth of premium supermarkets such as Waitrose and the UK expansion of value grocery chains Aldi and Lidl have taken basket share away from Tesco, while Clarke also had to oversee the company's complicated exit from the US – reversing a decision made prior to his arrival as CEO.

In a statement released this morning, Tesco chairman Sir Richard Broadbent said that the departing chief "achieved a great deal across all areas of the business in the face of considerable pressures", adding that Lewis will bring "a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development".

Clarke commented: "Having taken the business through the huge challenges of the last few years, I think this is the right moment to hand over responsibility and I am delighted that Dave Lewis has agreed to join us. 

"Dave has worked with Tesco directly or indirectly over many years and is well-known within the business. I will do everything in my power to support him in taking the company forward through the next stage of its journey."

Lewis will receive a basic salary of £1.25 million and standard benefits commensurate with his position. 

Analyst reaction:

Steve Dresser, director of supermarket analysis firm Grocery Insight, said that for all of Tesco's multichannel initiatives, it still has "serious weaknesses" in terms of its stores, despite some recent revamps and a programme to modernise its portfolio.

"I'm not of the opinion that people shop online with a retailer who operates poor stores," he said, adding that it is concerning Tesco is "a business that customers don't want to be seen doing business with".

Bryan Roberts, director of retail insights at Kantar Retail, told Essential Retail: "My sense would be that that there were manifold minor improvements being made across the business, rather than several big bets that might have been more impactful, and as a consequence shopper perceptions have not been meaningfully improved.

"Major shareholders have become more frustrated as Tesco continued to suffer at the hands of the discounters as well as being outflanked by Asda, Sainsbury's, Waitrose and M&S, so Clarke's departure became inevitable in 2014. Lewis is well-regarded in Unilever and will certainly bring a fresh point of view.

"Clearly, his lack of direct retail experience might be picked up as a shortcoming, but Tesco is not exactly short of internal retail talent to complement his skills in brand-building."

Chris Beer, Professor of Practice at Warwick Business School, added: "The news of Philip Clarke’s demise at Tesco if not completely unexpected is nevertheless a sad end to an uncomfortable reign.
"It has been an unprecedentedly difficult period for the retailer but how much were the seeds of the failure of Clarke's time in charge already sown when he assumed control?
"The situation looks uncomfortably like that at Manchester United where the expectations of a team already past its best were nevertheless just as high as ever. The pressure to deliver immediate success did not allow David Moyes the time to develop a plan to refresh and redirect the team in his own image.
"Time clearly ran out for Clarke as well.  There have been many initiatives and no shortage of investment but nothing has yet reaped the rewards necessary to keep Clarke in his job.
“The difference is that Clarke was an internal successor and an important part of the previous management team. It must be difficult to drive radical change - which seems to have been needed - when you have been part of the team that has created the current strategy."

Natalie Berg, global research director at Planet Retail, commented: "Despite Clarke's relatively short, bumpy stint at the top, we have to remember that when he inherited the business three years ago, the focus was very much on international operations – some of which have since rightly been divested – while its core UK stores were overrun and underinvested.

"Although we feel Clarke has made significant progress on refreshing existing stores, the fundamental issue remains – shoppers are no longer making that big weekly trip to an out-of-town superstore. Unfortunately for Tesco, over half of its stores (excluding convenience stores) fall in the 50,000+ sq ft bracket.

"A change in leadership may bring some much-needed fresh thinking to Tesco, but the structural shifts in the grocery sector cannot be reversed. Lewis will need to reposition Tesco to adapt to this new normal."

[*Story Updated 12:54 – Monday 21 July] 

Click below for more information:

Grocery Insight

Kantar Retail

Warwick Business School

Planet Retail