Tesco cuts the coffee to complete core focus

Tesco announced yesterday that it is selling upmarket coffee chain Harris and Hoole to Caffe Nero, for an undisclosed sum. This follows the sale of restaurant chain Giraffe, that I posted on here, back in April, when I said: “I expect the next step in re-focusing on the core will be the sale of upmarket coffee shop, Harris + Hoole, another piece in the doomed vision of making Tesco a retail destination.”

Below I suggest why this move makes sense for both Tesco and Caffe Nero.

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1. Final end to a flawed vision

The sale of Harris and Hoole is the final act in dismantling the fatally flawed vision for Tesco created by former CEO Philip Clarke. This vision was to create “retail destinations” for customers, who would want to turn a Tesco shopping trip into a day out. For examples, the new Tesco Extra in Watford is described as “A brand new shopping and leisure destination, home to a number of new food concepts including Harris + Hoole, Euphorium, The Bakery Project and Giraffe”. However, with this vision Clarke forgot what made Tesco famous during its many years of high performance, which was being an efficient, affordable place to get your shopping done. I always doubted how many people would see Tesco as a “leisure destination”.

A further problem with this growth vision was that Tesco ended up having to manage these non-core businesses. Yes, a number of Giraffes and Harris and Hoole outlets were opened in Tesco supermarkets, but Tesco also had to manage the many other non-Tesco outlets of these chains that had zero benefit for the core business.

2. Focus on the core

The benefits of selling off Harris and Hoole, Giraffe and also the Dobbies Garden Centres were summed up by a Tesco spokesperson here as follows: “Together, these sales allow us to place even greater focus on our core UK business.” The benefit here is not just about re-directing of financial resources, which was probably small in the big scheme of things. The bigger benefit is what I call “Return on talent”: getting senior management focused on investing their time and effort on the core.

3. Better brand fit

I found Tesco’s acquisition of Harris and Hoole particularly strange, given what I saw as a lack of brand fit. Tesco is a mainstream, down-to-earth supermarket that was all about making life easier and cheaper for people of all backgrounds. In contrast, Harris and Hoole is an upmarket, quite fancy, “artisanal” coffee shop chain.

In contrast, you can see the logic of Caffe Nero buying Harris and Hoole. The coffee shop market is now well developed in the UK. And peoples’ tastes in food are becoming more sophisticated. Caffe Nero could have tried to stretch its brand more upmarket, with a sub-brand for example. But Harris and Hoole may be a better option, giving it a second brand in its portfolio to focus on this more upscale opportunity. And of course, unlike Tesco, Caffe Nero is an expert at opening, growing and running coffee shops.

In conclusion, Tesco’s divestment of Harris and Hoole shows the recognition of how important it is to focus on your core business for brand success. And early results suggest this focus on the core is paying off, with Tesco reporting a second successive quarter of sales growth for the first time in more than five years, with UK like-for-like sales up 0.3% in the latest quarter.