The Friday interview/Sir Terry Leahy Tesco:Tesco chief Sir Terry Leahy has devoted his entire working life to the supermarket operator. Now approaching the end of his 11th year in the top seat of a firm he joined in 1979, he's still in for the long run. "There's plenty to do, I'm not that old."
He turns 52 next month. Regarded as Britain's supreme retailer, Leahy has a reputation for unforgiving doggedness in business but has a low-key manner and speaks quietly. Still, he has referred in the past to his "Irish temper".
In Dublin this evening, he will receive the Seán Lemass Gold Medal for Business Leadership from Trinity College and the Irish Management Institute. The award recognises his achievements in the corporate world and his Irish background - his father was from Co Sligo and his mother is from Co Armagh.
Interviewed for the first time by an Irish newspaper, he says Tesco will defy the economic downturn here to continue its expansion.
Once the third-largest British supermarket chain by sales, the group has transformed itself under his stewardship into the third-largest in the world with 400,000 direct staff worldwide and £46.6 billion (€61.7 billion) in sales in its last fiscal year.
In Ireland, Tesco is the largest supermarket chain, selling everything from bank loans to clothes to mobile phone services, CDs, kitchen equipment and televisions.
"You can't stay a leading firm selling baked beans," says Leahy, whose strategy for Tesco is to increase its core market, develop non-food offerings and expand in international markets.
He defends globalisation, dismisses critics who say Tesco is becoming too big for the good of society at large, and says the group will meet its objective of opening 200 new discount stores in the US under a new brand called Fresh & Easy within 15 months of entering that market late last year.
"Your first reaction to these things," he says of the Lemass award, "is that they're normally an albatross around your neck. They normally foreshadow a rapid fall from prominence.
"People know that I'm quite loyal to my background and that includes Tesco obviously, where I grew up, and Liverpool, my home city, and also Ireland, where my roots are. So it's especially pleasing to receive an award from Ireland," he says.
We are sitting in Tesco's headquarters in Cheshunt, some 40 minutes by road from central London on a good day. He occupies a corner office on a floor dominated by partitions around which dozens of staff seem to be at work. On his desk sits a copy of John Horgan's biography of Seán Lemass, The Enigmatic Patriot.
While it's a given that leadership of a FTSE 100 company is not the typical occupation of the second-generation Irish in Britain, Leahy, when asked whether this is due to a meritocracy in Tesco or in the country generally, says "both are true".
"I think you have to say both are true. I was very lucky because I went to what was the Catholic Institute and, in my time, St Edward's College. That was set up 150 years ago by the Christian Brothers to educate the Irish in Liverpool because it was almost like a refugee centre after the Famine.
"It became a prominent school in Liverpool and I won a scholarship there. So it was really the Catholic education system that got me out of the council estate and then to university. And university was free.
"There is no question but that my family could not have afforded to send me to university. As with so many young people at that time, once you'd got off to university you got a pretty good start in life.
"As you say, a place like Tesco is a remarkable meritocracy. It doesn't matter what your background is. We have people who left without any exams and people who went to the finest colleges in Oxford and Cambridge."
Leahy's late father was related to Con Leahy, who won a gold medal for the high jump in the 1906 Olympic Games in Athens. The youngest of 10 children, he grew up in a railway cottage on the line between Sligo and Leitrim. Most of the family emigrated to the US. "My dad had won some money on St Helens dog track - in Lancashire - so he decided to stay in England."
That was in the 1930s. Leahy's father joined the merchant navy during the war, was sunk three times and was invalided out.
His mother, who left Ireland at 16 to become a nurse in Britain in the war years, is still alive. Born McParland, she grew up on a farm in Mullaghbawn, Co Armagh, near Slieve Gullion. "It's what was known as Bandit Country subsequently," he says of the area.
Growing up, how conscious was he of his Irish background? "It would be more an unconscious thing in Liverpool because the city is so influenced by Ireland. All the schools were Catholic schools. The churches were Catholic churches. So you went on holiday to Ireland - on the farm in Armagh. It's a Celtic city really."
Leahy recognises difficulties faced by some of the Irish in Britain in the 1970s and 1980s as a result of the political situation in the North. "People almost hid their Irish background, I think, at that time. You used to read occasionally these sort of surveys in the newspapers that anyone from an Irish background struggled to get a job and anyone from Liverpool struggled to get a job.
"Thankfully we moved through that period. The remarkable economic renaissance in Ireland and the cultural flowering that followed has transformed the perception of Ireland in the United Kingdom."
Did he hide his Irish background? "I don't think so particularly, no. As I say, if you come from Liverpool anyway . . . you weren't trading on where you were coming from, you were trading on where you were going to."
If the drab industrial complex in which Leahy's office is situated says rather a lot about Tesco's sparing attitude to costs, equally telling is the fact that clocks in the building are set to five time zones.
He heads a business on the march in Europe, Asia and the US. Tesco is a very big beast in Irish terms; its operations here contribute little more than 4 per cent of its overall revenues.
Leahy was in command of Tesco for only a few weeks in March 1997 when the group re-entered the Irish market, although the deal had been in gestation for some time. Some 10 years after an earlier ignominious retreat from Ireland, the £630 million (€799.9 million) purchase of Quinnsworth operator Power Supermarkets from Associated British Foods met a storm of resistance from some local business interests.
"There were some campaigns, largely from competitors, some competitors anyway," he says.
"What surprised me in 1997 was how big an event in Ireland was the purchase of Power Supermarkets, as it was called, by Tesco. I think it had a significance beyond just the industry. That's what I think I've come to understand.
"It was part and parcel, of course, of the great modernisation of Ireland. As Ireland became such an economic success, it was inevitable that it would attract investors from all parts of the world. That meant change and that would be unsettling because you were already seeing the economy rapidly changing.
"I think people were concerned about it and were suspicious of Tesco, because we'd been there before, hadn't done a great job and so it was clear that we were going to have to earn our reputation in Ireland and not come with a reputation already made."
Tesco acquired 76 Quinnsworth stores in the deal. It has opened five shops since last February, when its fiscal year started, bringing the current total to 100. Another 10 stores will be opened in the coming year.
The financial expansion has been no less rapid. While annual Irish revenues broke through the €2 billion barrier in the year to February 2005, they are likely to be in the region of €3 billion in the period ending next month.
Tesco doesn't publish its profit margins here, but recent figures for the first half of the financial year show that its international operations at large had an operating profit margin of 4.7 per cent. He won't say whether the profit margin in Ireland is higher or lower than that in the UK - many analysts believe it is greater. "There's a lot more money gone into Ireland than has come out," he says.
Leahy is not at one with critics who have claimed the group doesn't do enough business with local suppliers. Citing a report that Tesco Ireland commissioned from economic consultants Indecon, he says the business is worth €2.5 billion a year to the Irish economy.
"Tesco as a group is a bigger customer of Ireland than most countries," he says. "There's quite a record to be proud of, I think. Tesco has invested hundreds of millions of pounds in Ireland. That's gone into suppliers and into the stores and to modernise the network.
"I think we've worked very hard to retail as an Irish company and to understand Irish customers as unique, and also to work, not just in the whole of Ireland, but in local towns and local communities and understand their particular needs, whether it's planning or local products or job creation - in other words to settle into the landscape of Ireland and to be a positive and helpful part of modern Irish life."
So what characterises Irish shoppers? "They're a new consumer. The economy has doubled in size in a short period of time. It's been the fastest-growing developed country in Europe so there's a new wealth in Ireland and, to some extent, there's money to spend and nowhere to spend it.
"I think growing sales of 8 or 9 per cent in an economy that's growing at 4 or 5 is a good performance but it's not an extraordinary performance. So we hope to be able to maintain that for as long as the Irish economy continues to maintain the good record that it has had for 10 or more years."
While the Government says the economy has passed a "turning point" and is now on a lower growth path, Leahy says that will not curtail Tesco's expansion.
"There's a lot of catch-up in the physical infrastructure."
Tesco was known to be an ardent critic of the Groceries Order, which banned the below-cost selling of packaged goods. So what of recent suggestions the Government might ban below-cost selling of alcohol?
"I think they're slightly different subjects. I think the broad principle of measures to control below-cost selling, as we said in our evidence at the time, are probably unhelpful. Tesco is in favour of open competition provided it's beneficial to the public interest," he says.
"I think that obviously you get for different reasons specific concerns about product groups like tobacco or alcohol, where there are social and health considerations to be weighed alongside competition and consumer considerations. So I can understand that people call for a debate around alcohol.
"It needs to be a very broad-based debate, looking at all of the issues involved and I'd be very happy for Tesco, and indeed the retail industry, to participate in that debate."
Leahy is adamant that Tesco is doing more than most companies to introduce environmentally friendly practices into the business. In Ireland, the group plans to spend €30 million in Ireland in the next five years to reduce energy consumption by half and introduce 100 per cent recycling of store waste and packaging by 2010.
"I think Tesco has become a leader in changing the way we do business in order to preserve the environment," he says.
How tangibly? "Enormously. We're changing every part of our business. Our stores have got to operate on half the carbon emissions that they used to operate on, so everything has got to change - the design, refrigeration systems, the way the stores are laid out, what they're built from, what they look like. The distribution systems have to change - it's a root and branch change in the business."
He is equally firm in his dismissal of the critique of Tesco by writer Andrew Simms in his book Tescopoly. Simms is policy director and head of climate change at the New Economics Foundation, which describes itself a "think and do tank". Arguing that Tesco is the living embodiment of standardisation, his book is billed as an account of "modern corporate greed" and why it should be resisted.
Leahy disagrees profoundly. "If you look into the detail of it, there's not much substance there. It's a list of fairly thin complaints, which, if you had to sum it up, was people being worried about Tesco being successful.
"Whilst you can understand that, you mustn't give it too much credence . . . I suppose it's a little in the British character that we prefer a good loser to a winner. The best of all is a good winner and I think Tesco is a good winner.
"You need great firms for a successful society. You want those to be public companies that everyone can invest in, participate in. Millions of people benefit from Tesco's success, people who work in supplying factories, people who shop in stores."
Globalisation and free trade is a good thing, he says. "It's the strongest driving force for world economic growth and that's how people come out of poverty. That's the starting position for me and the evidence supports that view.
"Companies that have prospered in globalisation have a responsibility to demonstrate that the benefits are shared broadly and that there are not too many losers in the process and also that the environment's cared for, that you're not stealing from your children."
Leahy was encouraged "in a broad sense" by the findings of an inquiry last November by Britain's Competition Commission, which essentially cleared supermarkets in the UK of anti-competitive practices.
"It's found once again that ours is a very competitive industry that serves consumers. It's operating exactly as an industry should. the consumers are in charge.
"You've got to remember, some people in society don't want consumers to be in charge. They prefer consumers to be patronised. I much prefer a democracy where people actually have control over their own lives. I think Tesco is a very important force in that because it actually enables people to express choice over how they live their own lives."
Leahy was speaking before an update on Tesco's Christmas and new year trade last Tuesday, a market described by his Marks & Spencer counterpart Sir Stuart Rose as "the toughest" he had seen in a decade.
Tesco reported what it called a "strong" performance, with group sales up 12.8 per cent, but the growth was driven largely by international sales. In the UK, an increase of 3.1 per cent in like-for-like sales (sales that exclude new stores and new floor space) fell short of forecasts and intensified fears that British consumers will rein back spending in 2008.
Still, Leahy says Tesco is doing well. "We're growing in Asia and Europe and the United States at a rapid rate, probably the fastest-growing large retailer in the world. The US is an important part of those plans. It's different because it's a start-up from scratch with an entirely new type of store. Obviously we plan ahead for a period of time, so we have the sites already available to us to open 200 this year."
The up-front investment in the stores - already trading as local discount food markets around Los Angeles, Las Vegas and Phoenix - is about £1 billion over three or four years.
"It's a significant investment but the kind of investment that a group the size of Tesco can afford. It makes more sense than going out and buying an existing US business for £10 billion or something."
Leahy sees considerable scope to grow this business, stating that sales equivalent to its British revenues of £35.58 billion are possible in the long run.
"We've said that the US obviously is still 30 per cent of the world's GDP, or close to it anyway. The part of the market we're addressing is a very big part - convenience in the broad sense of the word. I've said already that a successful business in that sector of American retailing could easily be as big as Tesco in the UK."
In Ireland, he says, the group has earned respect in the last 10 years. A man whose business seems always to be in acceleration mode, he sees no threat to its Irish expansion from the economic downturn.
"No, because a lot of what we sell is basic stuff, we don't suffer from the lows"
ON THE RECORD
Name: Sir Terry Leahy
Age:51
Job: Chief executive of Tesco plc.
Background: From an Irish family in Liverpool, he joined Tesco in 1979 as a marketing executive and became marketing manager in 1981. He became chief executive in 1997.
Knighted for services to food retailing in 2002, he is regarded as Britain's most powerful retailer.
Why he is in the news: He receives the Seán Lemass Gold Medal for Business Leadership tonight from Trinity College Dublin and the Irish Management Institute (IMI) Graduate School of Management.
"Sir Terry has not been well recognised in Ireland for his success despite his roots," says IMI chief Dr Tom McCarthy.
Other duties: He is a director on the Liverpool Vision Regeneration Board and Co-Chancellor of Manchester University.
Family: His wife Alison is a hospital doctor. They have three children.
When he's not working: he enjoys sport, reading, theatre and architecture.
Something you might expect: He is an Everton supporter.
Something you might not: He's so low-key you'd hardly notice him if he sat beside you on a train.
What Sir Terry says about his Irish rivals:
"These are family businesses and I admire family businesses. I think that to run a successful enterprise as a family in a very competitive industry in a global world is very commendable. SuperQuinn, I know they've sold their business now. I know the family well, they've done a great job and I think Dunnes are doing a great job."
What he says about his predecessor Ian McLaurin and his colleague David Malpass:
"Ian was a great charismatic man, a great club captain if you like, always with a word for every member of the team, an attractive leader. Somebody less well-known was his managing director David Malpass, who was a great strategic thinker, very clear-sighted man, very low profile.
If you could combine the qualities of those two individuals, you'd have a great manager ... I try but it would be a tall order to match those two."
On a businessman he admires:
"If you take Procter & Gamble: [ chief executive] AG Lafley is a quiet man but an intelligent man and has done a terrific job at Procter & Gamble. It's regarded as one of the world's best companies and he's done it without a lot of flash. He's low profile."
On a business he admires:
"You look at Nestlé in a different sense. They're a business that has shown an ability to operate in 150 countries over a long period of time. For a large company based in a small country - Switzerland - it's a remarkable cultural adaptability. Sometimes, maybe, it's an advantage, small countries. They don't have all of the imperial baggage. They can go more freely around the global world."
On how the mix in Tesco's business will evolve:
"If you look at change in Tesco, the biggest factor has been the move internationally to go to other countries; the next biggest effect has been to go to non-food products, but if you said to me over the long term, what would be the most significant, it could be the move into services."
