Analyst believe new CEO Ken Murphy faces Tesco growth challenge

The key challenge facing Corkman Ken Murphy when he takes over as Tesco's group chief executive next year will be to drive sales growth, analysts have said.

Mr Murphy - a senior executive at healthcare giant Walgreens Boots Alliance - was named earlier this week as the next boss of the international supermarket group. He is due to succeed Dave Lewis next summer.

Mr Lewis' departure announcement - greeted with surprise - came as the outgoing CEO declared the turnaround he was tasked with as being complete.

Tesco is five years into a recovery plan that Mr Lewis launched after a 2014 accounting scandal capped a dramatic downturn in trading.

HSBC analyst Andrew Porteous said Mr Murphy was “a strong choice”, but that his key challenge will be to drive sales growth.

But his appointment has left others puzzled.

Murphy was listed as chief commercial officer on Walgreen Boots Alliance’s website until earlier this year (£)

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“Walgreens-Boots has material strategic challenges in the US and the UK. What is it about Ken’s track record there that impressed the board?” asked Bernstein analyst Bruno Monteyne.

Mr Murphy led the turnaround of drugs wholesale and retail group Alliance UniChem in Italy, then shared the top operations job at health and beauty business Boots UK & Ireland before becoming executive vice president, chief commercial officer and president of global brands at Walgreens Boots Alliance.

“The good thing is - all the heavy lifting of the turnaround and getting us back financially secure and stable again has been done and so now it’s much more in terms of investment choices that he’ll have to make,” said Mr Lewis this week.

Analysts say those choices revolve around taking the fight on prices to Aldi and Lidl who have been gobbling up market share in the UK, as well as investment in technology, online grocery capacity, convenience stores, Booker and overseas ventures.

Mr Murphy, a qualified accountant, will also have to decide if excess cash should be returned to shareholders.

Alasdair McKinnon, lead fund manager of Tesco shareholder, the Scottish Investment Trust, said Mr Murphy was “potentially well placed to deliver the next stage of Tesco’s transformation.”

As part of a forecast-beating set of first half financial results, this week, Tesco reported a 0.5% rise in Irish-based sales to just under €1.3bn. It has a 21.4% share of the Irish market.

“What Ken needs to have and I do know him and I do believe he has it is - have you got a strategic perspective? Do you understand brand, do you understand the customer? Have you got the interpersonal skills to engage with 450,000 people,” Mr Lewis said.

- additional reporting Reuters