Tesco urged to quit US operation

Tesco was facing fresh scrutiny today after a leading shareholder said quitting America would help it get its UK operation back on track.

The comments from Richard Black at Legal & General Investment Management, which is Tesco’s third biggest shareholder with a 4% stake, come days before chief executive Phil Clarke unveils his blueprint for reviving the chain.

As well as an exit from the loss-making American operation Fresh & Easy, Mr Black has suggested Tesco ditches banking in order to concentrate on the core grocery side of the business in the UK.

He said in the Sunday Times: “Strategically, the business needs to think about its capital allocation and return on capital.

“It needs to think long and hard about what it wants to be – can it be everything to everyone, or should it focus on its gem, the British grocery business? Of course, this is likely to raise questions about other areas of the business, such as America and the bank.”

Tesco’s shares are down 21% this year, compared with 2.2% at Sainsbury’s, after a first profits warning in two decades in January.

Justin King, the chief executive of rival Sainsbury’s, said he believed customer service was the key difference between the two chains.

In an interview with the Sunday Telegraph, he said: “They have not executed well for customers.

“All retailers struggle when they stop doing a great job for customers. It was true of us during the 1990s. We’ve been able to see for a long while that what we deliver in service in our shops is significantly better than Tesco.”

Tesco’s Mr Clarke, who took over as chief executive last year, is expected to unveil a major culture change at the retailer to make it a “warmer” proposition for customers.

According to the Sunday Times, he is expected to say that the UK business must focus less on one-off discounts and look instead to lower prices across the board, focusing on value. And recent innovations at 200 stores will be extended across all its 2,800 UK shops after they resulted in improved sales.