Tesco effect: How big firms quietly own little brands

 
Clockwise from left, smoothie, coffee, ice cream, granola, tea

There's been negative coverage over a new "family" coffee chain that is actually backed by Tesco. Why do people become vexed?

With its exposed brickwork, muted lighting and expensive decor, Harris and Hoole is the epitome of a modern, upmarket coffee shop of the kind that has colonised the UK's High Streets in recent years.

The one sound you won't hear amid the tinkle of ceramic cups and relaxed chat, is a tannoy announcement saying "clean-up in aisle seven".

Yet Harris and Hoole would not be expanding quite as rapidly as it is without the financial backing of supermarket giant Tesco.

Tesco's stake has been reported at 49%, but the coffee chain will only say it is "up to 49%". Not that you would know this from a visit to one of its 10 outlets or the company's website, where Tesco barely merits a mention.

The Guardian reported on the supermarket's stake last year and this week Mail Online featured it prominently, although many readers left comments in support of Tesco and the chain.

Uxbridge branch Harris and Hoole in Uxbridge

There's been some ill feeling on social media. One alienated customer tweeted: "Appalled to discover seemingly independent #Harris+Hoole coffee shop @N8CrouchEnd 49% owned by #Tesco. Never go again". Another questioned Tesco's record on paying tax and tweeted: "#Harris + Hoole will be added to my boycott list."

It is not hard to see why Tesco would want to get into coffee shops - they are among the few growth areas in a bleak retail landscape.

Fitting the indie template

Five doors down from Harris and Hoole in Crouch End, north London, is a Tesco. Neither makes reference to the other in store.

With its expensive light fittings, exposed brickwork and red velvet cakes, it fits the current indie cafe template to a T. The customers tote sleek laptops, sleek buggies, or both. Coffees come in artfully mismatched cups. Tea brews in retro-chic pots topped with egg-timers filled with coloured sand.

Unlike the uniformed staff at the next-door Starbucks, those behind the counter are in mufti - mainly stripy T-shirts for the women and skinny cardigans for the men. And they're friendly. Very friendly. "Love your frames!" says one to a spectacle-wearing customer.

Sipping a takeaway flat white, Michael, a civil servant, says he's a regular at the Southgate branch near his office. "There's not much competition there except Costa and Starbucks - nah."

Despite mistaking Harris and Hoole for an independent mini-chain, Michael says he's not put off by Tesco's involvement. "It's well-made coffee, good prices and the people are friendly."

And Tesco is not the first multinational to buy into a self-consciously cool, quirky and independent-sounding brand.

"Large global brands realise there is a generic dislike of super brands, so they often like to appear smaller than they are to avoid negative publicity," says Stuart Roper, a corporate reputation expert at Manchester Business School.

Ben and Jerry's ice cream (Unilever), Innocent Smoothies (Coca Cola), Green and Black's chocolate (Cadbury/Kraft) and Copella apple juice (Tropicana/Pepsi) are among the many formerly independent brands now owned by large corporations.

But what seems to have irked anti-corporate coffee lovers about Harris and Hoole is that Tesco has not bought into an existing brand, but is instead attempting to build one from scratch.

"Our main objection is that they are masquerading as a little, independent shop. They are a wolf in sheep's clothing," says Brian Hitcham, of Save Whitstable Shops. Hitcham has campaigned to stop a Harris and Hoole opening in his town.

Hitcham, an antiquarian bookseller, fears the arrival of Harris and Hoole and other chains will damage the character of the Kent seaside town and force genuine independents out of business by driving up rents.

The new coffee chain is treading carefully.

Its Australian founder, Nick Tolley, met Hitcham and other campaigners in December in an attempt to convince them he is not out to destroy their town.

"Our priority is to get the Whitstable shop right and the process may take time but we'll keep the local community informed as the project continues," he says.

Anti Harris + Hoole poster from Save Whitstable Shops campaigns Poster from Save Whitstable Shops campaign

Tesco, for its part, says it has never hidden its involvement with Harris and Hoole. It has taken a non-controlling stake in a string of businesses in recent years, from a garden centre to an online streaming service.

"Tesco invests to help build brands where we believe we can add value," says a spokesman.

This, argue entrepreneurs, is the crucial point that anti-corporate campaigners always overlook.

Banks are reluctant to lend money to start-ups unless they are already making a profit, so if you want to expand your business, getting into bed with a multinational is often the only game in town.

Teapigs, a high-end tea manufacturer, is another company that has come under fire for allegedly hiding its corporate roots.

Its website, with pictures of the office dog Harvey and tales of founders Nick and Louise's passion for "real tea", ticks all the cute and quirky boxes.

It's not easy to spot any mention of Teapigs being a subsidiary of Tetley which in turn is owned by giant Indian industrial conglomerate Tata.

There has been a predictable backlash from bloggers.

Who are Harris and Hoole?

Coffee house, 1660s

Design company SomeOne named the chain after two coffee-loving characters in Samuel Pepys' diary.

On 3 February 1664, Pepys wrote of popping into a Covent Garden coffee house of the type pictured above.

"I stopped at the great coffee-house there, where I never was before; where Dryden the poet (I knew at Cambridge), and all the wits of the town, and Harris the player, and Mr Hoole of our College. And had I had time then, or could at ether times, it will be good coming thither, for there, I perceive, is very witty and pleasant discourse."

The Foodie Gift Hunter says she felt "miffed" and "duped" by Teapigs.

"To me, you can set a business up any way you like. You can be owned by who you like. Just don't expect us not to be disappointed when you turn out to be something different to how you portray yourselves," she wrote, adding that she would no longer be purchasing their teabags.

Digital consultant Alex Balfour says his wife was similarly disappointed.

"Upset wife by telling her Teapigs is effectively Tetley spin off - ex-tetley execs, 100% owned by Tata which owns Tetley. That's marketing," he tweeted.

But self-styled "tea evangelist" Nick Kilby, who started Teapigs in 2006, thinks the criticism is unfair.

"If people were in our shoes they would probably have done the same thing. If they had actually been through what we went through they wouldn't be making these sort of comments. They are very ill-advised."

If the company had received financial backing from a bank, then it would not have come under pressure to reveal the name of the financial institution on its website, he argues.

The firm operates as a separate business, with no interference from Tetley, he says.

"That sort of criticism is never going to go away. Some people are always going to think 'big is evil' and yes it is in some cases but in many other cases it isn't. We all rely on big companies and big institutions."

Ben and Jerry of Ben and Jerry's ice cream Ben and Jerry started in a Vermont garage, and sold to Unilever in 2000

Brian Millar, director of strategy at branding agency Sense Worldwide, says corporations have had a crash course in how not to trample over the family firms they buy into.

"Multinationals are getting smarter at working with these small brands without ruining their authenticity.

Independent coffee republic of Totnes

Clonestoppers poster of anti-Costa campaign

Totnes is not exactly typical of a small British town. It has long hosted incomers attracted by its eco-friendly and New Age reputation.

In this settlement of fewer than 8,000 souls, there are 41 different places to buy a coffee.

Yet plans to open just one more coffee outlet have provoked fury. The latest addition will be a branch of Costa - the first coffee chain to breach the citadel of a community fiercely proud of its independently owned outlets.

There is something about coffee that puts it at the vanguard of protest movements. Naomi Klein's anti-corporate bible No Logo was harshly critical of Starbucks conduct in particular.

"The key is often to keep the founder in the business and not have them waltz off to the beach, while the brand they have lavished so much care on becomes just another name in a big house of brands."

Entrepreneur Harry Cragoe, who invented PJ's smoothies in 1994, knows all about this.

He sold out to Pepsico in 2005 and watched with mounting horror as the product to which he had dedicated his life was rebranded, repriced and, within 18 months, ditched altogether.

"It was mortifying," he recalls.

It had always been his intention to sell the firm - that is often the only way an entrepreneur can reap the financial rewards of their years of effort.

But if a key part of your business strategy is being "open, honest and transparent" or "ethical" then it puts you in a difficult position, he says.

He decided to walk away from the business after the Pepsico deal ("I have got nothing against multinationals. It is just wasn't something I wanted to be involved in") heading for the beaches, not of the Caribbean, but Camber Sands, where he has set-up a luxury hotel.

His main competitor, Innocent, sold a 58% stake to Coca-Cola, but the firm's founders retained day-to-day control of the business, building it into Europe's leading smoothie brand.

The UK's coffee love affair

  • Coffee shop market grew by 7.5% in 2012, with £5.8bn in turnover
  • 15,723 branded, independent and non-specialist coffee shops, such as supermarket cafes
  • One in five people now visit coffee shops on a daily basis compared with one in nine in 2009
  • They drink on average three cups of coffee shop coffee a week
  • Three biggest chains are Costa (1,552 outlets), Starbucks (757) and Caffe Nero (530)

Source: Allegra Strategies

Consumer surveys suggest people think less of a brand when they discover it is owned by a multinational - but that does not mean they stop buying it.

People love products that look and feel authentic.

Only a small percentage will take the trouble to find out whether they really are - and an even smaller number will be so outraged by what they find that they will boycott it.

"It's hard to tell how long the reputational damage lasts," says Stuart Roper.

It's very much a minority of customers that inconvenience themselves to change brands. Significantly less than 10%."

Additional reporting by Megan Lane

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  • rate this
    -1

    Comment number 40.

    Chain stores can promote mediocrity, but the issue of corporate ownership is silly.

    People buy a product because of need or desirability and not because who owns the shop. People go to chains because of the consistency of the product. I have had some truly awful coffee from independent cafe's and at £2.50 per cup want to enjoy the product!

  • rate this
    +2

    Comment number 39.

    I dispise tesco with a passion.

    Work for or with them, even for just a short while and you to will feel my passion of dispise for them.

  • rate this
    +3

    Comment number 38.

    So, avoid the coffee shop that's 49% owned by a huge supermarket chain. Stay at home and make yourself a nice cup of coffee using a product from a really ethical company...
    http://info.babymilkaction.org/nestlefree

  • rate this
    -1

    Comment number 37.

    For all the moaning, whether it be Costa, Starbucks, McDonalds or Tesco funnily enough you never see stores empty. You see them packed full of people all the time, but not empty. If there wasn't the demand then they wouldn't want to open. That they have lots of customers shows they were right. Don't like it, don't shop there. Oh you do despite your moaning as it's so convenient and cheap.

  • rate this
    +1

    Comment number 36.

    #6.giovanna:

    If you've never been into a McDonalds the how can you have any knowledge of their product. Often a large corporation has a more transparent food purchasing policy than a small independant.

    I will shop wherever I get the best deal without any predjudices.

  • rate this
    0

    Comment number 35.

    As if boycotting these places will make a jot of difference. I can't afford designer coffee but if it wasn't for Tesco/Sainsbury economy lines I and many millions of others would starve. If you can choose where to buy you ChiChi or what ever..well aren't you lucky.

  • rate this
    +2

    Comment number 34.

    Since when has having a 49% stake in something been seen as having "ownership"?

    If this company has the financial backing of a large corporation to help them on their way, but still retains majority control - then fair play to them.

  • rate this
    +1

    Comment number 33.

    If it saves a shop from going under its great. This is similar to the idea professed here about franchising departments from the big supermarkets as independent shops to save high streets. http://bit.ly/UFX6yZ

  • rate this
    0

    Comment number 32.

    @no1-JM Maybe this image will shed some light for you!

    http://i.imgur.com/pnMMj.jpg

  • rate this
    0

    Comment number 31.

    JM - there is - Ethical Consumer magazine and website review different companies in a sector, and give details on all sorts of environmental, ethical, political issues with companies and their parent companies.

  • rate this
    +3

    Comment number 30.

    The test will be if they are used and valued, that will depend on good pricing, qaulity and customer service alongside ambience.

    Many of the large chains understand this better than the independents. I would prefer to use more owner run businesses but they must raise their standards, especially customer service and take what they can from the chains while retaining their individuality.

  • rate this
    0

    Comment number 29.

    I Can see why people don't like one company owning everything, because look @ gas water & electric, once a few company's own everything they secretly work together to Suck the consumer Dry.

  • rate this
    +9

    Comment number 28.

    From an economy point of view we need as much independents as possible as they keep the finances the earn local and are less likely to have dodgy accounting for tax that takes millions out of the public purse.

  • rate this
    +1

    Comment number 27.

    Neil at #7 must live in Chelmsford which is being taken over by Costa Coffee (appropriately named - such expensive rubbish in my opinion. Costa in Waterstones, Smiths, Tesco's garages just to mention a few. A new chain? Give it a chance - it can't be worse than the big coffee shops chains we've already got.

  • rate this
    +1

    Comment number 26.

    "Lets be honest, Tesco only invests to make money. Any 'added' value will soon be harvested for the benefit of its shareholders/senior management."

    Funnily enough it's called Capitalism. Duh...

  • rate this
    +2

    Comment number 25.

    More poor reporting - Tesco has a 49% stake in the business - it DOESN'T OWN IT! Come on BBC for goodness sake.

  • rate this
    +4

    Comment number 24.

    I support investment in small companies but I do not think corporate giants should hide themselves as independent shops. If you are a chain behave like a chain. People like independant coffee shops as they are ran within the community by people from the community and they are generally more friendly. This is due to this being the person behind the tills life rather than a job between jobs.

  • rate this
    +1

    Comment number 23.

    Are you sure its just not a tax thing?

  • rate this
    +3

    Comment number 22.

    If the Banks would lend to small independent traders a little more generously, after all the money the taxpayer has spent bailing them out, entrenpreneurs wouldn't have to turn to the likes of Tesco. about time the Banks did what they were supposed to.

  • rate this
    -1

    Comment number 21.

    Come on, was there such a huge outcry when McDonald's bought a 33% stake in Pret in 2001? I didn'gt hear anyone saying they weren't going to Pret because McD's were involved.
    If Harris & Hoole want to expand they need to get financial backing from somewhere. We simply don't know whether the banks wouldn't give them the necessary funds or not, this was possibly the best option open to them

 

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