When Tesco announced the appointment of Sir Terry Leahy’s successor in typically seamless fashion in June, it provided further evidence to support an emerging trend. Four times in the past year major grocery retailers have changed their chief executives. Four times finance directors have been heavily tipped to succeed them – and four times they have been overlooked.
Marks & Spencer’s finance director Ian Dyson lost out to supermarket giant Morrisons’ chief executive Marc Bolland in the race to replace Sir Stuart Rose. Morrisons’ highly respected FD Richard Pennycook was immediately installed as bookies’ favourite to succeed Bolland – only for Dalton Philips, then chief operating officer for Canadian supermarket chain Loblaw, to get the nod. Not long after, Asda CFO Judith McKenna missed out on the CEO role there, one of a clutch of good finance heads who have been overlooked in favour of candidates with broader, international operational experience. And many thought that Tesco’s former FD Andy Higginson, who was made chief executive of its retail bank operation in 2008, was a front-runner for Sir Leahy’s job.
There is a growing body of opinion that the demands of running a modern supermarket do not play to the strengths of accountants. “There is a feeling that you want a really sharp finance person as number two – but an entrepreneur as number one,” says Peter Burgess, managing director of retail recruitment agency RHR.
Burgess believes that failures by previous supermarket leaders with a background in finance remain a millstone around the necks of current FDs. Sainsbury’s lost its status as the UK’s biggest grocery retailer under David Sainsbury – who served as both its financial controller and FD between 1971 and 1990 – and has only recently begun to move forward again under Justin King. Safeway, meanwhile, went backwards under Colin Smith, who had become chief executive after occupying the FD seat, culminating in it being swallowed by Morrisons.
There is also an underlying feeling that FDs lack the flair to run a major retail operation. “On the whole, accountants have less of a feel for retail,” says Burgess. “It’s a very intuitive business which demands quick reactions.”
Attention to detail
And the most successful supermarket chief executives of recent years have retail in their blood. Terry Leahy graduated from shelf-stacker to lead Tesco in its imperious march to the summit of UK grocery retailing. Leahy’s successor, Philip Clarke, has a similar background; both learned their trade at store level and are renowned for attention to detail.
Leahy’s willingness to back his instincts has been pivotal in Tesco’s ascendancy. When discount chains Aldi and Lidl were eating into mainstream supermarkets’ share in 2008, Leahy responded in weeks by launching a discount range of tertiary branded items that directly aped the discount chains’ core proposition. The decision paid dividends as Aldi and Lidl sales growth returned to pre-recession levels in 2009, while Tesco sales topped the £1bn-a-week barrier for the first time. Morrisons’ resurgence, meanwhile, was in no small part due to a brilliant marketing effort led by Bolland.
“Retail is so competitive and is being fought out on the merest fractions of market share. I think flair and savvy are more sought after qualities than number crunching,” says Robert Clark, senior retail partner at the Retail Knowledge Bank.
It may be the case that grocery retail needs just one supermarket to take a punt on its FD for the floodgates to open.