Tesco boss plots fightback after shock of fall in group profits Tesco chief executive, Philip Clarke, says the retailer must 'not look back, but foward', as profits are set to fall for the first time in 20 years. Photograph: Punit Paranjpe/Reuters It's early Monday morning in a leafy corner of Hertfordshire and a cabal of senior Tesco executives are starting the week with a no-nonsense meeting in the staff canteen at the back of its Bishop's Stortford superstore. They are the top secret "Baldock group" - named after the Tesco Extra near its head office in Cheshunt where they first gathered - charged with stopping the rot at the UK's biggest retailer, which will report its first fall in profits in nearly 20 years next week. Philip Clarke, under pressure as chief executive, is at the head of the table and is close to losing his voice. Not, as it turns out, from balling out the group, whose members include internet boss Ken Towle and UK chief operating officer Chris Bush. The previous day the Liverpool supporter was among the angry fans at Anfield lambasting the referee for sending off Jonjo Shelvey, sealing his team's defeat at the hands of Manchester United. But, after Tesco's shock profit warning in January, Clarke has also been banging his fists in the boardroom, prompting the unexpected departure of UK head Richard Brasher in March. On Wednesday he will be the one carrying the can for an expected 10% fall in group first half profits to £1.6bn. UK profits are expected to fall 13% to £1.1bn. Until recently Tesco's grip on the nation's weekly grocery shop had looked unassailable, but deep fault lines were exposed when poor Christmas figures meant the retailer could no longer deny that shoppers, put off by grubby aisles and long queues at the checkout, were deserting its supermarkets. Last year, UK checkouts rang up two-thirds of the group's £3.8bn full year profits, but Clarke said some of the spoils would be sacrificed in the coming year as executives went back on the floor en masse to reinvigorate the chain. At its full-year results in April, Clarke fleshed out a £1bn fightback that would see 430 UK stores given a warmer new look, 8,000 extra staff to improve customer service and a painstaking product by product review of its thousands of own-label foods. The sheer energy of the Baldock group, which picks one of the grocer's 3,000 stores to meet in each week, is likely to strike fear into the hearts of competitors which in recent years have benefitted from apparent complacency at the market leader. There are 150 projects on the boil, with Clarke using the new bank of "self-scan" guns which shoppers use to tot up their shopping as a sign of how quickly it is moving. After just two months they check out 15% of the store's transactions. The service had languished as a five-store trial for two years but, after getting the green light from the Baldock group, will land in 100 stores by Christmas. "Don't ask me why it got stuck," says Clarke pointedly. Ours is not to look back but to look forward. Leading a whirlwind tour of the Hertfordshire store, Clark proudly plucks new products such as his current favourite, the £1.89 frozen pea and asparagus risotto which takes seven minutes to stir-fry, off the shelves. He points to new features ranging from the patisserie to the power shakes in the health and beauty aisle which are in hot demand as Britons carry on the Olympic torch. When other executives are holding court, he straitens up the rows of cans and bottles, revealing a shopfloor pedigree that saw him first clocked in at Tesco as a 14-year-old stacking shelves in the store managed by his father. But good housekeeping is not Clarke's only headache. He picked up the baton from Sir Terry Leahy just as the supermarket industry was being jolted by a shopping revolution. The "space race," which had seen the leading chains spend the best part of two decades slugging it out for planning permissions for new stores, had started to look like an expensive waste of time as Britons increasingly turned to the internet to buy everything from CDs to groceries and garden sheds. With a market share of more than 30% Tesco won the supermarket space race but that victory has looked increasingly hollow as recession accelerates changing shopping habits. Higher prices at the pumps have encouraged Britons to "top up" on groceries at local shops rather than drive to an out-of-town superstore filled with temptations like DVDs and clothing. Suddenly Tesco's 230 sprawling Extras, which underpinned its growth during the last decade, look like "expensive warehousing," says Kantar Retail analyst Bryan Roberts: "There is no doubt that the hypermarket is losing its appeal in mature markets like the UK." Clarke, who took over last March, has acknowledged the shifting sands and axed the amount of new space being opened this year by nearly 40%. But the retailer needs to reinvent its biggest stores fast and Bishop's Stortford Extra suggests a way forward. The clothing and homewares department has been shrunk to threequarters of its previous size with the space used to accommodate 1,000 new food lines instead, part of a renewed focus on food that sees rows of fruit and vegetables once again greeting shoppers at the front door. Analysts think the changes introduced in stores this year are starting to make a difference, with the UK chain expected to end an 18-month losing streak with flat like-for-like sales for the second quarter. Oriel analyst Jonathan Pritchard says it will take time to turn round the Tesco supertanker. There have been some signs of possible green shoots of recovery here and management's increased focus on the food side at the expense of general merchandise does show a degree of realism. However the road to recovery will be a lengthy one and rolling out the improvements from a handful of stores to the whole chain will not be easy. As a footnote to his hand-wringing at Anfield, Clarke adds: "I predict we'll win again before the end of the season." With the market leader rediscovering its form, Tesco might do too.