Visionary who changed the face of shopping: Page 14
SIR TERRY LEAHY’S reign as chief executive of Tesco matches almost exactly the period t hat New Labour occupied Downing Street. As Leahy prepares to hang up his apron at Britain’s biggest grocer, the contrast between his achievements and those of the wasted Blair-Brown years could not be greater.
Leahy has been a transforming figure, creating a world-class corporation that has left its challengers J Sainsbury, Wm Morrison, Asda and Marks & Spencer for dust.
Under his stewardship, Tesco’s operating profits more than tripled to £3.5 billion, and £1 in every £3 spent on groceries in this country lands in a Tesco till. It is a measure of the man that on the day he announced his departure, £778 million was wiped off the value of the company, with even the smoothest of successions planned.
In contrast, under New Labour the nation was effectively beggared as Blair and Brown ran up the highest budget deficit in the nation’s history.
The Tesco boss has been well rewarded for his work, taking home more than £5 million in total earnings last year.
Despite the wealth and the accolades, he has never lost touch with his modest working-class roots in Liverpool. Not for him are the baubles of high office — so important to Blair and his cronies and a whole political class. Quite the contrary.
When I last had lunch with him at Tesco’s unprepossessing headquarters on an industrial estate in Cheshunt, in Hertfordshire, the head of one of Britain’s biggest company’s ate in an open-plan canteen.
The women who served lunch were addressed by their first names and passing executives felt comfortable interrupting the boss for a chat.
Indeed, it is no wonder that when Gordon Brown was casting around for someone to pilot the changes in the NHS — as the health budget soared f rom £42billion to £110 billion — he saw Leahy as t he i deal candidate.
At the time the Tesco chief, who knows the NHS well (his wife is a doctor), never took the government bait, deciding he still had important work to do in business.
What is certain, however, is that had Leahy taken charge of Britain’s health system, the money would have been far better spent, the standards of cleanliness would be far higher and the productivity improvements — the holy grail for the public sector — would have been of a different quantum.
For Leahy and his collegiate team at Tesco have shown not just an ability to control costs and invest, but also demonstrated an extraordinary imagination in delivering changes to their business.
It is this ability to see the future and jump in ahead of competitors which could have made such a difference had the same kind of commercial freedom been
If our leaders had one iota of Tesco boss Sir Terry Leahy’s drive and flair, Britain wouldn’t be in such a mess
by Alex Brummer
allowed to thrive in the sclerotic, jobsworth public sector. So how did Leahy change Tesco? He recognised early on that ‘ the pile-it-high, sell it cheap’ model of the group’s founder — the former market trader Sir Jack Cohen — was reaching its natural limits.
With some 30 per cent of the UK’s grocery trade already sown up, it had to head in different directions. So Leahy turned the business model on its head and re-colonised the high streets, the corner shops, the newsagents and petrol stations.
Where he led, other grocers followed, including Marks & Spencer with Simply Foods, but they struggled to match its adventurism.
Leahy also recognised that his superstores could be out-oftown departmental stores selling everything from TVs to Levi jeans, bought directly on the ‘grey market’ in the Far East.
Admittedly, Tesco was accused of destroying the nation’s villages and high streets with its vast out-of-town superstores — but it was simply responding to consumer demand.
When online shopping became the rage, it chose to service customers from local stores, rather than distant warehouses, maintaining a crucial relationship with
the customer. It conquered rural areas by buying into Wyevale garden centres, transforming the whole nursery experience.
In short, Terry Leahy transformed Tesco from just another High Street grocery supermarket to also be a bank, a £1bn-a-year clothing business, the UK’s biggest internet retailer, and it is in the top five retailers for books, toys, electrical equipment and home products.
It is also Britain’s biggest private sector employer, with more than 300,000 staff in this country. But while it was thinking of ever more ways to dominate the British shopping market, it also looked overseas.
When the barriers came down in Eastern Europe, Leahy dispatched his property team to the Czech Republic, Hungary and other Eastern countries where they bought up sites and brought ‘Tesco capitalism’ to the former Communist bloc.
He dared to tread where other UK retailers failed to venture. It also embarked on a massive expansion in the Far East from Thailand to China.
Recognising the property opportunity in China, it is establishing Tesco-malls — owning the land wherever possible — and drawing in retailers from across Asia.
Rather than jumping in and making huge mistakes, the firm’s research is meticulous. For example, because of the cultural barriers in Japan, it bought a shopping chain around suburban Tokyo, leaving the business intact and unchanged, so it could best understand consumer habits before recklessly expanding.
As a result, it was opening stores when other British companies — such as Boots — were busy closing them.
The global push has not been cheap. The investment has been in the region of £10 billion and occasionally — when the returns were not immediate as at Fresh & Easy (the convenience store it set up in the American West and which posted £160million losses) — the City has complained.
But Leahy tends to receive the benefit of the doubt.
Of course, any company which expands with the speed and boldness of Tesco creates enemies.
In Britain, its build-up of an estimated £14 billion unused property portfolio ( held for years in readiness until planning applications are submitted) frequently attracted the attention of the regulators who claimed smaller chains were stopped from opening stores as most available sites for development were already owned by Tesco.
It also has been regularly accused of price-fixing and bullying suppliers.
As for the firm’s 475,000 global employees, Leahy told me recently that they are not paid huge wages. Indeed, cashiers, shelf-stackers and warehouse workers were often paid below the national average.
However, there is a generous bonus scheme in which all workers share. In addition, Tesco has insisted on maintaining a gold standard final-salary pension plan, open to everyone, when almost every corporation of comparable size has given theirs up.
Above all, Leahy respects heritage. As in the greatest American companies, the succession is always internal. There is no brash head-hunting process.
Leahy’s successor will be Philip Clarke, a fellow scouser who started as a shelf-stacker before going t o Liverpool University and becoming a local store manager.
Such rags-to-riches careers mean that Tesco bosses are often more hungry than their rivals. Above all, it also means they understand the shortcomings of the political world in which we live.
So, for example, Leahy struck a chord late last year when he railed against the ‘woeful’ standards of youngsters leaving Britain’s schools and complained that employers were too often ‘left to pick up the pieces’.
His record of creating one of the strongest business cultures i n Britain and using i t to conquer the world speaks for itself. How disappointing that the same creativity, loyalty and vision i s missing f rom our governing classes.
Even a little of Tesco’s philosophy could have helped create a different, more economically robust, Britain.