Analysis: What do Tesco’s senior management cuts mean for the structure of the grocer?

When Noel ‘Bob’ Robbins retired last Wednesday he ended a four decade career at the grocer. Although the Geordie’s lengthy career with Tesco was marred by controversy over a share sale shortly before its profit warning last year, his departure marks the end of a significant era for the grocer.

In his time there, Tesco has powered into the lead in the UK grocery sector, taken up poll position in online grocery and used its Clubcard to breed loyalty from its customer base.

But amid a rapidly changing retail market, chief executive Philip Clarke has moved to reshape the retailer which is in the throes of a turnaround following its first fall in profits in 20 years.

Retail Week last week revealed Clarke has cut 50 senior positions at its Cheshunt head office and Welwyn Garden City base at levels three, four and five of the business – directors just below the main board.

Departures included Tesco Clubcard marketing director Ian Crook, Tesco Mobile chief executive Roger Fogg, Dobbies chief executive James Barnes and food marketing director Tim Lee, Retail Week can reveal.

With Clarke under pressure to deliver an improvement in profits, taking out the salaries of several big hitters will certainly help the bank balance. But the move is not necessarily that simple.

A source close to the retailer said: “There’s no doubt cost is a significant element of the decision as cutting from the top can protect far more jobs further down the chain.”

However, it is understood removing duplication of roles and reshaping the business for the new retail world were factors in Clarke’s decision.

A Tesco buyer told Retail Week that over the last two years there has been a restructuring of roles in food sourcing which has meant UK buyers are more focused on the selling side while international departments take on most of the sourcing.

In 2010, Tesco set up its new Group Food Sourcing division which aims to source more products directly for markets across the group under the stewardship of group food commercial director Matt Simister.

In a column for Retail Week last month, Clarke explained how he is re-engineering the business to become a “multichannel leader”.

“From marketing, finance and operations through to commercial and corporate affairs, the skill-sets required by retail leaders are changing. That means bringing in outstanding talent with these new skills to work alongside the best of Tesco,” he wrote.

It appears significant that the marketing department has been the hardest hit in Clarke’s cuts. The transformation triggered by multichannel has forced Tesco to rework its marketing to encompass digital and incorporate data gleaned from Clubcard via partner Dunnhumby.

“The marketing department has changed quite a lot, there been a lot of change as the business has been reoriented towards the internet,” one former senior Tesco executive said.

Moreover, Tesco is becoming an increasingly diverse business following a spate of leisure investments including Euphorium, Harris + Hoole, Giraffe and new venture Decks as well as new digital interests including Blinkbox and ebook specialist Mobcast. With this diversification, Tesco will likely be changing its structure and culture accordingly.

Clarke will also be keen to make the most of Tesco’s global business, which operates in 13 markets. As the former European, Asian and IT boss, Clarke will be keen to leverage links overseas and its ‘Tesco in a Box’ IT strategy aims to achieve this.

A new generation

The new departures follow a generational shift which has seen a number of big hitters from Sir Terry Leahy’s reign including Asia chief David Potts, executive director Lucy Neville-Rolfe and US boss Tim Mason depart.

One source said: “There’s been a lot of talk about a brain drain at the top but in reality there’s plenty of fresh talent coming through.”

Indeed, a new generation appear to have risen through the ranks at Tesco. Developing business director Jill Easterbrook has taken on an increasing number of businesses under her wide-ranging remit with aplomb and Andrew Yaxley has been handed the role of managing director for London. Meanwhile, the bosses of its various UK formats Neil McCourt (Metro), Tony Hoggett (Extra), Andrew Rowlinson (Express) and Richard Baker (Superstore) are all highly-rated.

Clarke and UK managing director Chris Bush provide the embodiment of those who rise through the ranks taking top positions, the next wave of upcoming Tesco executives will be keen to replicate their success.

With the impressive legacy of Sir Terry Leahy hanging over Cheshunt – albeit slightly tarnished by Lord MacLaurin’s speech at Tesco’s AGM earlier this summer – Clarke is keen to make his mark.

Never afraid to take a tough decision, the Liverpudlian has rolled up his sleeves and got to work in reshaping the UK’s largest retailer for a new retail world.