Tesco re-focuses on the core by finally selling Giraffe restaurants

Update 1: Tesco reports annual pre-tax profit of £162m vs a record loss of £6.33bn a year ago and a 0.9% rise in UK like-for-like 4th quarter sales, first quarterly growth since 2013, as the group's recovery under Mr Lewis gathers pace.

Update 2: as predicted below, looks like coffee shop Harris+Hoole will also be sold. "Tesco is mulling the sale of its non-core loss-making business Harris & Hoole. The move is expected to help Tesco focus on its core supermarket business", according to this report.

Tesco is planning to sell-off Giraffe, the restaurant chain bought by former CEO Philip Clarke, as it "seeks to rebuild its core UK supermarkets business", according this report. Perhaps Tesco listened to our advice in this post from 2013: "Tesco's Giraffe buying is a distraction from their core. I wouldn't be surprised if in a couple of years they have sold the chain." 

Although likely proceeds from the sale of Giraffe, bought for £50million, is minute in the context of Tesco's £64billion turnover, I still suggest it's an important move. Here is why.

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1. End of a flawed vision

The sale of Giraffe shows new CEO Dave Lewis has given up on Philip Clarke's fatally flawed vision for the brand, following the closure and sale of Blinkbox, a digital content business. "Tesco hopes the acquisition (of Giraffe) will help revitalise its UK business", said this report back in 2013, suggesting that opening Giraffe branches in or near Tesco stores would create "retail destinations" for customers. Sorry, but what a load of total bollocks. Tesco was never, ever going to be a retail destination. The strength of Tesco, during its many years of high performance, was being an efficient, affordable place to get your shopping done.

2. Re-focus on the core

The risk with the Giraffe acquisition was that it was a "new toy" that could distract attention away from main challenge Tesco faced: a long over-due rejuvenation of the core product offer and customer experience, as I posted on here, back in 2012. The issue here is not just about the money invested in Giraffe, which was probably small in the big scheme of things. Its more an issue of what I call "Return on talent": where senior management is investing their time an effort. 

Well, again it seems CEO Dave Lewis is on the same page. "Lewis wanted to continue to dispose of businesses and brands which either dilute Tesco's margins or act as a distraction from its principal revival mission", according to this source.

3. A symbol of change

Strategy is not just about what you do, its also about what you DON'T do, and what you cut. And Dave Lewis' decision to sell Giraffe sends a strong signal to people inside the business and to analysts. It demonstrates with action that Tesco is re-focusing on its core business. 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. Tesco recently took full ownership of this business, but "insiders believe that represented a tidying-up exercise ahead of a likely attempt to offload it", according to this source.

There are some positive signs that Tesco's re-focusing on the core is paying off. The company reported like-for-like sales growth in the UK of 1.3% during the six-weeks to January 9. I expect that 2016 will see this progress continue, which would make my decision to buy Tesco shares when Dave Lewis too over a good one :-)