No wonder Tesco is known as "the Wal-Mart (WMT) of Europe." In the past five years the British retailer has seen its pretax profits more than double, to nearly $4 billion, as sales have skyrocketed, to $70 billion. The company's growing product range and aggressive price-cutting have attracted so many customers that it has forced traditional British retail icons such as Marks & Spencer and grocer J Sainsbury PLC to engage in deep soul-searching about their future. And, unlike its domestic competitors, Tesco has managed to expand successfully beyond Britain into Eastern Europe and even into parts of Asia.
The architect of this transformation is Sir Terry Leahy, the company's unassuming chief executive. A Tesco veteran who took over in 1997, the 49-year-old Leahy is viewed by his own management team and his rivals as a creative leader who is willing to take risks on new products, store formats, and lines of business. If the company's extensive customer research shows that shoppers at its 2,300-plus stores want a particular product, chances are that Tesco will introduce it. "We've managed to maintain a strong entrepreneurial streak," says Leahy, who has an undergraduate degree in management sciences from the University of Manchester Institute of Science & Technology.
Leahy, a native of Liverpool, has disrupted the business of his competitors most seriously by expanding Tesco's nonfood product line. Customers now go to Tesco for everything from clothing to CDs to vacuum cleaners. The move has been profitable, since nonfood items have higher margins. At the same time, Tesco, one of the top ten global retailers, has managed to keep prices low. "Tesco offers good quality and value for the money," says Edward Whitefield, chairman of Management Horizons Europe, a retail consultant in London.
How does Leahy do it? Experts say his success stems from his hands-on style and his marketing prowess. Leahy, who started at Tesco back in 1979, visits different stores every week and even works the registers and stocks shelves. In a survey he did when he was a marketing director in the early 1990s, Leahy discovered that shoppers didn't like Tesco imitating others. So he decided to refine the company's image and pay closer attention to the customer. As a result, he launched the Value range of inexpensive goods and developed Tesco's club card, which lured shoppers with points toward purchases while tracking crucial data on their shopping habits.
Still, while Tesco has been a success in parts of Europe and Asia, it has yet to make the leap across the Atlantic to the U.S. On the topic of whether Tesco will ever enter the American market, the normally plain-spoken executive is a bit coy. "Never say never," Leahy says, noting that he has been visiting the U.S. for 25 years. Then, after a second, he adds: "You could call it an extended research exercise without an end date."
In other words, despite Leahy's willingness to take some risks to feed Tesco's rapid growth, he isn't quite ready to go up against the formidable Wal-Mart on its home turf.
By Laura Cohn