Philip Clarke has begun in his role as CEO of Tesco

Philip Clarke has begun in his role as CEO of Tesco

As new Tesco CEO Philip Clarke gets his feet under the table today (3 March) at the UK's largest grocer, just-food considers what his priorities may be in the coming months.

Philip Clarke joined Tesco in 1974 and has worked his way from the shop floor, while still at school, through to the top floor to lead its international operations.

As a Tesco lifer, a large part of his agenda will be "continuity", as Shore Capital analyst Clive Black argues that Clarke has been "handed a fantastic corporate baton from Terry Leahy".

While Clarke may be inheriting a company with a strong balance sheet and growth plans, Black adds that the new chief executive will also want to "impress his own view and character on where Tesco goes in the future, and in that we will see change".

Black expects that Clarke will bring a "renewed focus and drive" to the retailer's UK operations, in which he already sees some evidence with its recent pricing and value initiatives.

Despite Tesco's seemingly unassailable position as the UK's largest grocery retailer, Matt Piner, an analyst at Datamonitor's retail arm Verdict, it will face challenges in at home, but suggests that Clarke's background could lead to an increased international focus at the company.

"Tesco is quite mature in the UK, and the space growth that has driven a lot of its sales increases over the last few years are becoming more limited. While Tesco is much bigger than its competitors, they're struggling to achieve growth. So I think it's going to be a lot about pushing out into new international markets."

Tesco's UK growth will continue to be driven through the continued expansion of its convenience format with Piner suggesting that the retailer "probably has an aim to overtake The Co-operative Group and become the largest convenience retailer in terms of store numbers".

He also thinks there is a "lot more" that Tesco can do online and that it can "encourage increased take-up" of internet shopping. Piner also thinks Clarke will be consider whether it will roll out Homeplus, its UK non-food only stores and focus on pushing its non-food offer further.

"I think they will be considering whether they can drive fresh growth there. Is it worth going into furniture and white goods, which Tesco hasn't really pushed into yet," Piner said.

Considering Tesco's international plans, Clarke simply needs to "see through" the plans he is already put into place in Europe and Asia, says Black. However, the Shore Capital analyst does think that Tesco might withdraw from Japan, where its operations are "sub-scale".

Opportunites are likely to open up in other developing markets that Tesco will need to look to exploit. Piner expects to see changes in legislation in Asia and India over the next few years and Clarke, he says, will be "wanting to make sure that Tesco is well-placed to achieve rapid growth out there".

The retailer is set to continue to work on developing its US presence, a venture that has been marked by set-backs and ongoing losses. Black says Clarke "has already set an ultimatum in our minds" that either it "demonstrates within a year or so a trajectory towards materially improved financial performance or it's going to be either closed, or sold".

However, if Tesco is able to show "material improvement" in its US stores, Black says the retailer will find itself in a very "virtuous situation" where it will be able to offset the "very large cost base" that includes its headquarters, distribution and food processing facilities.

Piner was more positive on the retailer's US operations, saying that Tesco has been quick to work to rectify its mistakes in the US and expects that it will continue to develop in the market. "We've seen this with Fresh and Easy, it failed to gain traction in the beginning, and they've made changes to it, changing the format and the pricing, and now it seems to be gaining a bit more momentum again."

However, Tesco may face challenges in balancing the development of new revenue channels - like banking and mobile - while not losing its its core focus.

"What we saw in 2008 and 2009, for the first time, we really saw them slip back a bit as people were more focused on price, so they started trading down, [and] Asda did well and the discounters did well. So there is a risk of that trend coming in again during 2011 and 2012, and one of the challenges for Tesco is to make sure it doesn't take its eye off the ball this time. It has to make sure it doesn't lose customers at that value end," says Piner.

Black emphasises that he has faith in Clarke's ability to lead the company. "Phil's worked on the business for 20 years in the UK, he's ran Europe, he's run Asia, he's run group logistics, he's run group IT, so there's likely to be little that he hasn't been involved in and that he hasn't touched. It's about things that need to be fine-tuned rather than rebuilding the engine."