Scott Reid: Tesco will take time to turn around

Tesco's new chief executive says the culture of the company must change. Photograph: PA
Tesco's new chief executive says the culture of the company must change. Photograph: PA
Share this article
Have your say

IT WILL be the week that Tesco will want to forget. A week that saw Britain’s biggest retailer admit to a £250 million over-egging of its profits, suspend four of its senior executives and launch an invest­igation that will keep scores of forensic accountants and lawyers busy for some time.

The market reaction was damning, with some £3 billion wiped from the value of Tesco’s shares. Major investor Blackrock slashed its holding in the crestfallen grocer.

Equally scathing was the backlash from lawmakers – Adrian Bailey, chairman of the UK parliament’s business select committee, described Tesco’s earnings overstatement as a “stratospheric error”, which is something of an understatement. His intervention is likely to lead to bosses being hauled before politicians for a ritual grilling.

Rarely has such a corporate blunder caught the eye of the wider public, yet one red-top newspaper last week published the outpourings of several readers concerned about the potential knock-on effect for prices as those loyal shoppers threatened to boycott the chain.

As if to rub salt into its wounds, arch rival Sainsbury’s capped Tesco’s week to forget by announcing reductions across thousands of product lines.

It will come as little surprise, then, following such a dramatic few days, to discover that Tesco’s freshly installed chief executive has admitted that the culture of the company must change.

In an email sent to staff on Friday, and revealed yesterday, Dave Lewis talks of creating “a business which is open, transparent, fair and honest” and calls on workers “to pull together as a total Tesco team”.

Lewis, who only took over the reins from predecessor Philip Clarke at the start of this month, warns that due to the complexity of the investigation little else will be said before the publication of interim results in about four weeks’ time.

That’s quite a pregnant pause for a twitchy stock market. Tesco’s shares had already lost about 40 per cent of their value this year following previous profit alerts and the ongoing supermarket price wars. Last week’s mauling may offer a buying opportunity and provide some relief for the stock. Having entered into a put option on a small stake, Sports Direct boss Mike Ashley is certainly betting on a bounce.

The underlying issues remain, however. Lewis’s challenge in re-energising Tesco is akin to turning the supertanker in the choppiest of waters. Any further slip-ups could prove catastrophic. Takeover talk is not out of the question, though any predator would need deep pockets – Asian or Middle Eastern wealth funds perhaps.

Amid the mess, there may be a silver lining for hundreds of hard-pressed supermarket suppliers.Tesco’s profit overstatement related to the mis-booking of rebate payments from suppliers and Bailey has indic­ated that any investigation could be extended to the wider UK industry.

It’s an issue that has reared its head before. A competition inquiry five years ago recommended the industry set up an independent ombudsman. Resistance led, instead, and belatedly, to the creation of an adjudicator.

Suppliers – often small businesses with little clout – have attacked that new watchdog for being a watered- down version of what had been intended. The Tesco fiasco presents an opportunity to level the playing field.