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Tesco Searches For
American CEO Of Fresh & Easy

Jim Prevor’s Perishable Pundit, April 22, 2008

During the course of our extensive reporting on Tesco and its roll-out in America under the Fresh & Easy banner, we have often suggested that sending so many British executives to the US was an error.

This is not to reflect poorly on any of the British executives; they were all selected for this high priority project because they are superstars. Tim Mason, the CEO of Fresh & Easy, has been spoken of as the next CEO of Tesco — although he has supposedly ruled himself out of the job.

He won a place in the legion of retail luminaries by spearheading the introduction of Tesco’s famed Clubcard and working with Sir Terry Leahy to come up with Tesco’s “Every little helps” slogan. An avid triathlete, father of five and once named the “most powerful marketer” in the UK, he has certainly earned his spurs. All this is quite laudatory, perhaps especially so because he may not have needed to work so hard. After all, he is quite well connected; his father-in-law is Lord MacLaurin, the well-respected former Chairman of Tesco who named Sir Terry Leahy as his successor.

Yet we have long thought that, as a matter of business practice, it is desirable to hire local executives whenever local expertise is available. In other words, if you are opening in a developing nation and you need skills that aren’t available, you bring in expatriates, but if we were opening a chain in a developed market, such as the UK, we would want to hire British people because they would have more insight into the consumers and better connections with the trade. They would know in their bones when something wouldn’t play right with the locals.

We could understand having a financial officer sent from the home office to watch the money but, in general, the more local expertise, the more likely the chance for success.

Tesco has disagreed that sending a team of Brits was an error, pointed out that it has also hired many Americans and not said much else.

Now, however, we have learned that Tesco is actively recruiting for a new American CEO for its Fresh & Easy division. It is expected that Tim Mason and several other key executives will be returning to Britain. The interesting question is why is this happening? After months of resistance, what is moving this action now? Four possibilities:

1) The “Official” Story

The story being told candidates for the position is that Tesco needs Tim Mason and several other British executives tasked to Fresh & Easy back in the UK.

It is possible this is the whole story. Tesco has been under pressure from a resurgent Morrisons and, to a lesser extent, ASDA, as well as facing tough competition from deep discounters such as Aldi, Lidl, Netto and frozen food specialist Iceland, and, as we have written before, the leverage is enormous. If an executive of Tim Mason’s abilities can increase Fresh & Easy sales by 10%, it is equivalent to a rounding error on Tesco’s financials. If his abilities are such that he can increase sales in the UK by 1%, he can add billions to the stock market capitalization of the company.

2) The “Mission Accomplished” Story

As with President Bush standing on that air carrier announcing “mission accomplished,” we may come to hear that the job of establishing Fresh & Easy is complete and so it can be passed onto a less exceptional team.

People say a lot of things, but this doesn’t seem credible. After all, Tesco just announced that analysts need to increase their expectations for losses this year four-fold — to about $200 million. That is about $150 million in losses above what was anticipated a few months ago.

3) The “Yanks Are Coming” Story

It is also, of course, true that Tesco may have come to the same conclusion we did — that it will be best served by an American team and is moving in this direction.

This seems an unlikely position for Tesco to take as it has been so adamant that it did plenty of consumer research and hired plenty of Americans. But on some level, Tesco top executives may have started to think the main advantage in sending their own people over was the comfort of Tesco executives in London and that success may come from a different path.

4) The “Pull Out Our Team Before The Building Collapses” Story

The most frequently repeated explanation for what is going on is that Tesco’s top executives are looking to protect the reputation of its own people. Despite the “stiff upper lip” attitude that everything is going great, Fresh & Easy lost approximately $125 million in the first year of operation, and Tesco itself is expecting to lose about $200 million in the current year of operation.

This means that despite capitalizing many costs, such as the building of a distribution center, operating losses for the 200 stores Tesco hopes to open by year-end will have exceeded $3 million US dollars per store — despite the fact that the stores will have mostly been open for less than half a year.

As one food industry executive close to the situation put it: “They want to pull the ‘good old boys’ out of the US for fear the concept will collapse and these co-workers, friends and relatives will get hung with the failure.”

So Fresh & Easy is looking for a new CEO. This time they want an American. If you qualify, get your resume ready.

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