Will putting Giraffes in Tesco help grow their core?

Will Tesco's purchase of the Giraffe chain of family restaurants for £48.6 million take focus away from the core supermarket business, or help grow it? Let's look at the arguments for and against this move.

For: growing the core?

"Tesco hope that the acquisition will help revitalise its UK business", according to this report. The idea is that opening Giraffe branches in or near Tesco stores will create "retail destinations" for customers. These restaurants could also use up retail space once devoted CDs and movies that are now sold online. Buying Giraffes follows on from Tesco taking a 49% stake in the Harris and Hoole coffee shop chain.

But hang on a minute, is a Tesco really going to become a retail destination, just because it has a Giraffe in it? I'm really not sure.

And anyway, how many stores are really going to have Giraffes in the next 2-3 years?

Tesco has 700 superstores and Tesco Extras.

In 15 years Giraffe has opened 46 stores.

So, even if the same number of Giraffes arrive in Tesco in the next 3 years, that's only 7% of Tesco stores. Not enough to really make a big impact is it?

For: new revenue streams?

Neil Saunders, managing director of Conlumino told BBC News here, "Traditional retailing is seeing much more sluggish growth. Wider areas of spending including leisure and dining out exposes Tesco to much more lucrative growth."

But hang on Neil. Giraffe's turnover = £40million.

Tesco turnover = £64 billion.

So, if Tesco doubled the number of Giraffes, the extra £40million would be only 0.06% growth.

Against: distracting focus from the core?

Tesco's troubles with their core business were covered in an ealier post here. Key to success is a long over-due rejuvenation of the core offer, in terms of product offer and customer experience.

The risk with the Giraffe acquisition is that this "new toy" could distract attention away from the core business to run the newly acquired chain of restaurants. In addition, Tesco's capabilities come from operating a cost conscious supermarket, not running a restaurant chain. The Giraffe management say they will stay, but for how long?

And all the effort put into Giraffe is growing this brand, rather than directly rejuvenating the core Tesco brand.

In conclusion, I have to say Tesco's Giraffe buying looks to me like a distraction from their core. I wouldn't be surprised if in a couple of years they have sold the chain.

But, what do you think?