Leahy left 'poisoned chalice' at Tesco, claims investor

The supermarket expanded too aggressively in the UK, devoting too much of its new space to televisions, DVDs and other items which customers now tend to purchase online, Mr Herro argued. It also expanded “haphazardly” overseas, including in the US, where it recently sold its operations at a loss.

“I don’t know if [Mr Clarke] realised how poisoned the chalice … and in Tesco’s defence, the chalice became more poison as a result of the weak market conditions, and as a result of customers not buying electronics. There were some structural shifts: one big structural one, and one cyclical one that really hit then hard.

“Tesco got too addicted to overly fat margins, and took advantage of their position as market leader, and let quality and customer service slip,” the American investor added.

Many critics of the supermarket have suggested that it should now lower its prices, to help it compete with low-cost supermarkets such as Lidl and Aldi.

However, Mr Herro argued that Tesco should resist entering a price war with companies that are privately owned and “are going to be cheaper, no matter what”.

Instead he argued that Tesco should “compete on value and service – the total value proposition” and praised the steps Mr Clarke has already taken in this regard. “He has put forward a very good effort on customer service and quality. I think Phil Clarke is doing some smart things. Tesco has a bunch of gas stations, so what do you do, you use it as a lever. This Tesco bank – he’s using that as a lever,” he says, referring to the supermarket’s recent initiative to offer customers current accounts.

“Give the guy a chance. He is extremely bright … today he has come up with solutions and we need to see over the next 12 to 18 months if those solutions are bearing fruit.”

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