Food Retail

Tesco has issues, but be patient: Shareholder

Tesco has 'issues', be patient: Shareholder

A major Tesco shareholder has admitted the supermarket "has issues", but called for patience as the retailer attempts to turn around its fortunes.

Speaking ahead of Tesco's AGM, David Herro, CIO of Harris Associates, which owns a close-to 3.5 percent stake in the retailer, said he was confident things would start picking up soon.

"Clearly they have issues, clearly they have to address these issues (and) in our view they're doing just that," he told CNBC.

The AGM comes at a difficult time for Tesco, following a run of disappointing sales figures. Earlier this month, the supermarket – which is the world's third-largest retailer in terms of revenue after Walmart and Carrefour - reported a 3.7 percent fall in first-quarter same-store sales, excluding fuel.

Read MoreTesco reports 3.7% drop in same-store sales

John Phillips | UK Press | Getty Images

The group has dialed back on its expansion overseas - such as in the U.S. - and has found market share eroded at both the high and low ends of the market. Budget grocers from Germany like Aldi and Lidl have succeeded in targeting budget-conscious consumers and sucked up market share, while Waitrose has enjoyed success at the higher-end of the scale.

"We recognize (Tesco) is a turnaround story; we think it has the tools necessary to complete a turnaround," Herro told CNBC.

He said Tesco was "at least half way through" fixing its problems, and called on shareholders to "be patient".

Read MoreSupermarket wars hit UK retail sales

But he added: "If we're sitting here two years from today and we're in the same situation, then perhaps we have to look at new solutions to these problems."

What should Tesco do next?

Over the past 12 months, Tesco's share price has fallen by around 13 percent. The chain's former chief executive, Terry Leahy, who stood down in 2011, said he was "disappointed" with the group's recent performance earlier this month.

But Herro said he didn't think criticisms of current boss Philip Clarke were fair - especially because some of the current issues dated back to "the Leahy era".

He said these were firstly, expanding too quickly both at home and abroad, and secondly, letting quality and service levels slip.

"These are not and were not new problems, these are problems that took years to develop and they're going to take some time to solve," he added. "So people have to be patient in allowing the cures that the current management team are implementing to take hold."

Read MoreTesco sees tough trading environment ahead

Herro highlighted a "number of strengths" that Tesco was using to turn things around, including store redesigns, its customer relationship management (CRM), and "second to none" multi-channel offerings.

In February, Clarke presented a new strategy to investors and analysts, which he said would accelerate the turnaround of its U.K. division in particular. It involved cutting prices, revamping its stores and investing its online services.

—By CNBC's Katrina Bishop

Correction: This story has been updated to reflect that David Herro is the CIO of Harris Associates.