The group, which is seeing its worst sales performance in four decades, announced Mr Clarke’s departure as it issued a fresh warning on profits.
He will step down from the board on October 1 to be replaced by Unilever executive Dave Lewis, though he will continue in a support role until the end of January.
Tesco chairman Sir Richard Broadbent said: “Having guided Tesco through a substantial re-positioning in challenging markets, Philip Clarke agreed with the board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile.”
Mr Clarke said: “Having taken the business through the huge challenges of the last few years, I think this is the right moment to hand over responsibility and I am delighted that Dave Lewis has agreed to join us.
“Dave has worked with Tesco directly or indirectly over many years and is well-known within the business. I will do everything in my power to support him in taking the company forward through the next stage of its journey.”
Mr Clarke, who had worked his way up from the shop floor to lead Tesco, admitted last month that the store’s quarterly like-for-like sales, which posted a 3.7% drop, were the worst he had known in 40 years.
But today’s statement said conditions had become even worse than had been thought at that time.
“The overall market is weaker and, combined with increasing investments we are making to improve the customer offer and to build long-term loyalty, this means that sales and trading profit in the first half of the year are somewhat below expectations.”
Tesco has been battling with intense competition from discount rivals amid a continuing upheaval in customers’ shopping habits and a squeeze on household budgets.
It said a better picture for the full year would be reliant on seeing improvements as a result of its investments and in an upturn in the market, as well as “any steps that may be taken during the remainder of the year to improve our customer offer further”.
The group said: “Philip has done a huge amount to set a clear direction and re-position Tesco to meet the rapid changes taking place in the retail market.
“He has achieved a great deal across all areas of the business in the face of considerable pressures.
“The board are deeply grateful to Philip for his contribution to Tesco, over the last four decades, as well as more recently as chief executive. His has been an outstanding achievement.
“Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development.
“He is already known to many people inside Tesco, having worked with the business over many years in his roles at Unilever.
“The board believes that, with Dave’s leadership, Tesco will sustain and improve its leading position in the retail market.”
Mr Clarke’s time in charge coincided with an unprecedented period of pressure on the established “big four” players as discounters captured a bigger share of the market. Here is a timeline of Tesco’s performance since he took the helm in 2011.
• February 2011
Sir Terry Leahy steps down as chief executive on his 55th birthday after 14 years in charge, overseeing a leap in pre-tax profits from £750 million in 1997 to £3.4 billion at the group’s last set of annual figures in April 2010. His record includes the launch of Tesco.com and premium range Tesco Finest and its expansion into America with the Fresh & Easy chain. The market share of the group stands at 30.5%.
• January 2012
Less than a year into Mr Clarke’s tenure, Tesco shocks the market with its first profit warning in almost 20 years after poor Christmas trading. Shares plunge by as much as 15%, or more than £4 billion. Tesco, in common with the country’s three other leading grocers - Wal-Mart’s Asda, Sainsbury’s and Morrisons - finds itself squeezed by discounters Aldi and Lidl and upmarket grocers Waitrose and Marks & Spencer.
• April 2012
Tesco unveils a £1 billion UK revival plan, which includes upgrading stores, the recruitment of more staff and better prices and value. The initiative follows complaints that its 2,800 stores are cold and industrial with poor levels of service.
• April 2013
The retailer reports its first fall in annual profits in 19 years, with post-tax profit tumbling almost 96% to £120 million from a year earlier. The figure is hit by a £1.2 billion charge on the retailer’s US Fresh & Easy chain of around 200 stores as it confirms it will leave the country. The firm also suffers a £804 million write-down in the UK on land for more than 100 major stores, bought at the height of the property boom, which will no longer be developed.
• February 2014
The supermarket promises to spend an additional £200 million on lower prices for basic products, such as carrots, tomatoes, onions, peppers and cucumbers. It will also rein in annual capital spending to no more than £2.5 billion for at least the next three years as a result of the dramatic reduction in store expansion - nearly half the £4.7 billion spent in 2008/09.
• April 2014
Mr Clarke brushes off speculation about his future despite little sign that his £1 billion plan to turn around the retail juggernaut is bearing fruit. Profits fall 6.9% to £3.05 billion for the year to February 22 while fourth-quarter like-for-like sales slump by 3% as its UK market share falls to 28.6% in the 12 weeks to March 31, from 29.7% in the same period a year earlier.
• June 2014
Till-roll figures from Kantar Worldpanel show a decline in Tesco’s market share to 29% in the 12 weeks to May 25, compared with 30.5% a year earlier. A day later, the chain reports a 3.7% fall in like-for-like sales for the first quarter of its financial year. It is a performance that Mr Clarke admits is the worst he has seen in four decades at the supermarket chain. At the company’s annual meeting, chairman Sir Richard Broadbent asks shareholders to give management more time to complete their turnaround plans.
• July 2014
Tesco announces that Mr Clarke will step down from the board on October 1 to be replaced by Unilever executive Dave Lewis. Sales and trading profit in the first half of the year are “somewhat below” expectations, the company adds.