Morrisons (LSE: MRW) has found a new chairman in the form of Andrew Higginson, a former Tesco (LSE: TSCO) finance director and main board director for 15 years. With new chief executives at the top of Tesco and Sainsbury’s (LSE: SBRY), it’s all change at Britain’s supermarkets.
But can new management make a real difference? The sector is under attack from new incumbents, while there seems to have been a fundamental change in shoppers’ habits.
I think the answer to that question is a big ‘yes‘. Supermarkets don’t face the same kind of existential challenge as, say, firms like HMV or Woolworth did: with a combination of bricks-and-mortar and online businesses, they should survive. But a changed competitive landscape has shaken up the pieces. There will be big winners and losers when the sector settles down to a steady state again — and management will play a large role in determining the outcome.
Heavyweight
That makes Mr Higginson’s appointment significant. He is a strategic heavyweight: only two days ago the Financial Times suggested he might return as Tesco’s chairman. Intriguingly, since leaving Tesco he has been chairman of Poundland, one of the new disruptive forces in value retailing, as well as of N Brown, the clothing retailer that combines catalogue, online and bricks-and-mortar distribution channels.
Mr Higginson joins the board in October and becomes chairman next year. But I suspect he has already started work on his first task: assessing whether CEO Dalton Philips, who is on borrowed time after a slew of strategic reversals, can deliver.
Levers
Dave Lewis, new CEO at Tesco, has two great advantages: he’s an outsider, and there are lots of levers to pull. One effect of Tesco’s pioneering strategy — overseas, in banking, non-food, out-of-town, video-on-demand, etc — is that there are many options available to a new boss with no attachment to the past. Disposals and radical restructuring — maybe even a break-up — are possible.
I believe predecessor Philip Clarke’s biggest single mistake was to fire UK head Richard Brasher, saying at the time “there can only be one captain of the ship”. Subsequently, more and more lieutenants left their posts. Hopefully, once Mr Lewis has decided which levers he does want pulling, he’ll prove more adept at delegating the execution.
Hamstrung
In contrast, Sainsbury’s new CEO Mike Coupe is somewhat hamstrung as a company man and lieutenant of former CEO Justin King. Fortunately, he inherits a company in much better shape, with the strongest positioning and branding of the sector. It could be in the best position to come out eventually as a winner.
Investors are compensated with generous dividends while they watch sector developments. Sainsbury and Tesco both yield 5.5%, with Morrison’s 7.9% payout looking vulnerable.