Harris + Hoole, Euphorium, Giraffe - Tesco is one of the biggest investors in the food and retail industries. If you're still irked by the Harris + Hoole backlash, it might be time to remember that the multinational's strategy has always been based on investments in smaller companies.
Has a Euphorium bakery stand popped up at your local Tesco yet? If not, it will soon. It already has at mine. Tesco bought an undisclosed stake in the artisanal bakery chain a few months ago. Now, Euphorium's bread is rapidly making its way through the aisles of the retail giant.
“The outlet is no different to any of our other locations,” Euphorium operations director, Andrew Green told British Baker in January, when the bakery's first outlet opened in a Tesco in Kensington. ”Our staff [is] baking in the store and supplying a full product range, as well as other products coming from our manufacturing facility in Islington.”
But nobody paid much attention to Tesco's stakes in Euphorium this year, thanks to the multinational's involvement in quirky coffee shop chain, Harris + Hoole, and the backlash that followed the investment. Anti-corporate coffee lovers stormed the barricades when it came to light that the chic coffee chain that so effortlessly ticks all the indie boxes is, indeed, piggy-backing a Tesco stake of “up to 49 per cent”.
Why so much ill feeling towards this particular David-and-Goliath symbiosis? It's not the first time a multinational has bought into an independent-looking brand. Walk up the aisles from Tesco's Euphorium stand and try not to come by a former indie brand now owned by large corporations. High-end tea manufacturer Teapigs is 100 per cent owned by Tata, which owns Tetley. Ben and Jerry's ice cream? Unilever. Innocent Smoothies? Coca Cola. Green and Black's chocolate? Cadbury and Kraft.
It's not unusual for superficially indie brands to hide their corporate roots. They know it's not popular – but getting involved with a multinational is tempting, and sometimes the only way to growth in the grocery market, where Tesco, Asda and Sainsbury's alone hold a market share of some 70 per cent.
Strategy á la Tesco
The not-so-secret truth is that Tesco is an investor. A big one. The multinational is the largest food retailer in the UK, operating around 200 stores across the country. Throughout its history, the brand grew through acquisitions. During the 50s and 60s alone the company purchased 70 Williamsons stores, 200 Harrow Stores outlets, 212 Irwins stores, 97 Charles Phillips stores, and the Victor Value chain. In the 80s, Tesco completed a rather hostile takeover of the Hillards chain of 40 supermarkets in the North of England. And thanks to that, Tesco overtook Sainsbury's as the UK's largest supermarket in 1995.
The company's expansion into foreign markets in the 90s was mainly made possible by purchasing already existing stores or joining the local retail leader. For example, the first Tesco stores in the Czech Republic were opened by buying US corporation Kmart's operations in the country. In 1997, Tesco purchased the retail arm of Associated British Foods, which consisted of Quinnsworth, Stewarts and Crazy Prices chains in the Republic of Ireland and Northern Ireland, as well as associated businesses, for £640m. The result: a major presence in Ireland.
Come the 00s we can watch Tesco picking up shares like we do our morning coffee. In 2001, for example, a 35 per cent share of Grocery Works allowed the company to get involved in US internet grocery retailing. This was complemented by the purchase of 13 HIT hypermarkets in Poland, T&S Stores - owner of 870 convenience stores in the One Stop, Dillons and Day & Nite chains -, the C Two-Network in Japan, and a majority stake in Turkish supermarket chain Kipa. In 2004, Tesco buys Adminstore, owner of 45 Cullens, Europe, and Harts convenience stores in and around London. In late 2005, Tesco acquires the 21 remaining Safeway/BP stores after Morrisons dissolved the partnership.
More recently, Tesco's 80 per cent stake in movie-streaming site Blinkbox comes to mind, and the very recent news this month that also family-friendly restaurant chain Giraffe will be snapped up by the retail giant, to serve its plans for turning supermarkets into “retail destinations” with dining at their core.
When size matters
It irks us that smaller organisations, such as Giraffe and Harris + Hoole, are swallowed up by “greedy” corporate giants. In the grocery industry, Tesco's share of the market is so enormous that smaller shops wind it almost impossible to compete. Large retailers – not just Tesco, but also Asda, Sainsbury's and co. – are constantly trying to acquire existing small-scale operations and open their own stores in local towns and city centres. Their huge buying power pushes out their smaller counterparts; on average, Tesco's contracts with wholesalers are 11.5 per cent cheaper than for private independent retailers. “Corner shop” brand Londis has even claimed that it is cheaper to purchase brands from Tesco and resell them than it is to buy them from wholesalers.
This doesn't just have its effect on smaller retailers. The supplier side itself is constantly under pressure of losing their business to the supermarket chain, which they depend on. UK-based suppliers are vulnerable to big retailers sourcing their products abroad at a cheaper price. This gives the chains enormous bargaining power. The UK Competition Commission found that Tesco steadily paid its suppliers four per cent below the industry average on the 2000 date.
This powerful force has had a major impact on privately owned shops and smaller retailers. It is undoubtedly a huge blockade for companies trying to enter the market. Having a multinational involved in your business, on the other hand, would open doors that might otherwise stay solidly shut, wouldn't it? "Tesco invests to help build brands where we believe we can add value," a spokesman defended the brand. This, say entrepreneurs, is a point the anti-corporate campaigners tend to overlook. For some, “big” means necessarily “evil”.
But it's the consumers who feel better supporting independent enterprise than large corporations. That's why multinationals are getting smarter at working with smaller brands without ruining their authenticity. Well-made coffee, artisan bread – people love a product that feels authentic. And doesn't a coffee shop and a bakery go well together?
Tesco's strategy is built on three pillars: growing the core UK business; being a serious international retailer; and being versatile (as good in non-food products as they are in food). Each of these pillars is growing stronger with acquisitions and investments in smaller companies. The only question is, who's next?
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