Tesco's CEO-to-Be Unfolds Map for Global Expansion

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Tesco's CEO-to-Be Unfolds Map for Global Expansion



British supermarket giant Tesco PLC named its Europe and Asia chief, Philip Clarke, to succeed longtime Chief Executive Terry Leahy next March, a sign that one of the world's largest retailers will continue its aggressive global expansion, especially in emerging markets.

Sir Terry, 54 years old, who during his 13-year tenure as CEO has overseen Tesco's transformation from modest British supermarket chain to powerful global retailer, will retire in March to focus on private investing projects. He pioneered the company's use of customer loyalty cards, and more recently steered Tesco through the recession, posting a 9% rise in net profit for the year ended Feb. 27.

Sir Terry is credited with building Tesco into a global powerhouse on the level of Wal-Mart Stores Inc. and Carrefour SA, expanding the retailer's international footprint from five countries to 13. His point person the last six years was Mr. Clarke, 50, who oversaw the company's push into emerging markets such as China and India. In the latest fiscal year, sales, excluding value-added taxes, totaled £57 billion, or about $82.5 billion.

There is a long way to go, as the U.K. still accounts for more than two-thirds of its revenue.

One of the biggest questions facing Mr. Clarke—and one Sir Terry wasn't able to answer—is whether Tesco can finally crack a U.S. market where success has eluded it.

Mr. Clarke joined Tesco as a young teenager working part-time in 1974. After college, he rose through the ranks, eventually leading the company's logistics operation and later heading up information technology. He took on international responsibilities in 2004 and navigated Tesco's entry into important foreign markets, such as China and Turkey.

Under his leadership, Tesco in 2008 bought 36 "hypermarket" stores in South Korea and announced plans to open wholesale outlets in India, the first of which rolls out this fiscal year. Tesco is also supplying wholesale merchandise in India to Tata Group's Star Bazaar supermarket.

Now his primary challenge will be to build larger-scale businesses in China, the U.S. and India.

"The potential market in those countries can give growth for decades," said Christopher Hogbin, retail analyst at Sanford C. Bernstein & Co. "The primary focus is absolutely developing the businesses that they have, so they get scale and good returns in those markets."

Tesco has so far been tripped up in the U.S., where it rolled out its Fresh & Easy chain near new housing developments in California, Nevada and Arizona just as the subprime-mortgage crisis hit in 2007. The U.S. operations produced a loss of £165 million on sales of £349 million, excluding value-added taxes, in the most recent fiscal year.

Mr. Clarke will be supported by a new management structure that creates regional chief executives throughout the world. Retail and logistics director David Potts will take over as the first CEO of the Asian business and commercial director Richard Brasher will become CEO of the U.K. and Ireland.

Tim Mason, currently president of the Fresh & Easy business in the U.S., will continue to run U.S. operations and add duties as deputy CEO of Tesco.
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All three were considered contenders to succeed Sir Terry.

The new structure, Mr. Clarke said, "recognizes the shift to international and growth in Asia."

Retail rollouts in far-flung markets can be tricky, as evidenced by Wal-Mart's pullout from Germany in 2006 and Carrefour's surprise retreat from Russia in 2009. But Tesco's international sales are expected to double in the next five years, says Natalie Berg, research director at London-based consultancy Planet Retail.

"Tesco has been the most successful foreign retailer expanding overseas because it has been much more flexible in adapting its store formats," Ms. Berg said.

Tesco decided to open small-format stores in Poland, for example, as the best way to reach a mainly rural population, said Bernstein analyst Mr. Hogbin.

Mr. Clarke's success will also depend on continued strong execution in the U.K., where the company is moving into the services sector with Tesco Bank and trying to increase its share in nonfood products such as mobile phones and clothing. Services and nonfood products bring higher margins but risk diluting the company brand in the U.K., where one in every three pounds spent on food products is done so at Tesco.

Tesco's announcement on Tuesday comes amid a broader shake-up at the top management of Britain's retail sector, where recent months have seen new CEOs named at Marks & Spencer PLC, Wm Morrison Supermarkets PLC and Wal-Mart's Asda.

Tesco's shares fell 2.4% on the London Stock Exchange Tuesday, a reaction to the departure of one of Britain's most steady and effective CEOs.

Sir Terry's rise to the top of Tesco began in the 1970s when he started stocking shelves at one of the company's stores during school breaks.

He later became head of marketing for the company and, in February 1997, was appointed CEO.

In the U.K., Sir Terry's crowning moment came in the early 1990s when, as marketing director, he spearheaded the development of Tesco's Clubcard, a loyalty program that gave the supermarket a gold mine of data about its customer shopping habits, which Tesco then used to develop targeted promotions.

Developed in conjunction with analytics firm Dunnhumby, which Tesco now owns as a majority shareholder, the Clubcard helped Tesco build its U.K. market share from 14.6% in 1997 to 30.6% today.
—Simon Zekaria contributed to this article

Write to Paul Sonne at paul.sonne@wsj.com