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
    +2

    Comment number 20.

    It says it is 49% owned by Tesco .... so 51% independent. Tesco is primarily owned by UK pension funds and pays its UK corporation tax, I'd rather buy a coffee from them than have it "transfer priced" out of the UK to Luxembourg.

  • rate this
    +3

    Comment number 19.

    I personally worked for Tesco for five years. During this time if I learned anything, it's that Tesco does not give a flying fig about it's customers, it's customer service, the quality of it's products or anything else apart from profit. It is a completely evil corporation filled with jumped up house wifes for managers who don't have a clue about how to run anything let alone a reatil outlet.

  • rate this
    0

    Comment number 18.

    Surprised there's still space in the market for another coffee chain.
    Are Tesco's simply cashing in on the alleged mass boycott of certain other chains by offering a tax paying alternative?

  • rate this
    +1

    Comment number 17.

    The travel industry is just the same. Pretty much every adventure or activity brand is now owned by the largest travel company in the world TUI.

    Funnily enough, they certainly don't go out of their way to advertise the facts.

  • rate this
    +2

    Comment number 16.

    What is wrong with this at all? many small businesses struggle and end up having to close down as they do not have the funding to continue. Cash injections from companies like tesco allow these small businesses to stay afloat and make money for not just tesco here but the other stakeholders of the business

  • rate this
    +4

    Comment number 15.

    I fail to see the difference between a coffee shop that is 49% owned by Tesco (and therefore not 'independent') and one that is effectively 100% owned by Barclays (in the form of loans to an 'independent' coffee shop).
    As a minority share holder, Tesco has no more influence than Barclays would over the operating practices of the business.

  • rate this
    +4

    Comment number 14.

    For me the issue is that when it comes to acquiring a site & seeking planning permission many towns object when its big business because they know that it's arrival will cause the closure of many independents. So if big companies want to use their corporate balance sheet to price out competitors, shouldn't the competitors & customers at least know that its a wolf in sheep's clothing?

  • rate this
    -7

    Comment number 13.

    I fear it is too late but to assist the independents they should have vast reductions in rates and in my opinion the supermarket chains should temporarily subsidise this . When the independents are up and running then the rates could be increased.Also supermarkets should be prohibited from selling certain goods and the only way to buy these are from independent shops. Sadly I fear it is to late.

  • rate this
    +47

    Comment number 12.

    Day 1 visit coffee shop and enjoy
    Day 2 visit coffee shop and enjoy
    Day 3 visit coffee shop and enjoy
    Day 4 find out that the coffee shop you enjoyed is backed by tesco so you boycott.
    Day 5 wish you could go for a coffee you so enjoyed.

    Some people just have too many things to worry about.....

  • rate this
    +3

    Comment number 11.

    What annoys me is it seems that tesco is trying to hoodwink me into believing that it's something it's not. I am not anti-tesco, I regularly shop there and I know what that is - Tesco. Nobody likes to think they've been conned.

  • rate this
    +4

    Comment number 10.

    'Tesco invests to help build brands where we believe we can add value'.

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

  • rate this
    +4

    Comment number 9.

    Investment is the way of the world - would people be complaining if the banks were lending the chain money?

  • rate this
    -1

    Comment number 8.

    Of all those complaining about Tesco's involvement, I wonder how many still do the rounds each week visiting their local grocer, green grocer, fish monger, butcher, deli etc? Thought not. The clock can't be turned back.

  • rate this
    +2

    Comment number 7.

    So why has the Tesco Superstore in my town ripped out an (outsourced) Tesco Cafe, and replaced it with an expensive and unwanted Costa Coffee ?? Surely that would have been an ideal outlet for them.

  • rate this
    -11

    Comment number 6.

    I buy things because I like them, not because they are, or are not, owned by particular individuals or corporations. For example, I would not go into a mcdonalds, and never have, because what they sell is, in my view, toxic waste. Similarly, I would not go into a coffee chain shop and buy the swill they pass off as coffee. People who go into such places and waste their money get what they deserve.

  • rate this
    +88

    Comment number 5.

    A lot of people have the view that 'all chains are nasty' and 'all independents are brilliant', especially when it comes to food and drink (a somewhat snobbish).

    However, there are some very poor independents and equally some very good chains.

    So I don't let the fact the somewhere is chain or independent bother me either way; if it's good I'll use it, if it's poor I won't.

  • rate this
    +4

    Comment number 4.

    With all big brands, including Tescos, when it comes to profits "Every Little Helps".

    We should expect tactics like this - we may want transparency of ownership, but don't hold your breath - it is likely to make you pass out!

  • rate this
    +33

    Comment number 3.

    I am friends with the guy who owns the small independant coffee shop which I frrequent and know that it's not run by a chain. He only has one shop and is making a bomb from being nice to customers, which is more than you can say for some places. But thanks for asking anyway.

  • rate this
    +50

    Comment number 2.

    It not that its Tesco or whoever behind it; and they may well make decent coffee - its the fact we are losing independent small shops up and down the land. The result is that everywhere is just like everywhere else. We are fast becoming a land with the dullest town centres.

  • rate this
    +5

    Comment number 1.

    This really highlights that "backdoor" policy that a lot of companies use. I wish there was a website where you could see if a firm is owned by individuals or faceless companies (either British or foriegn owned). It would also be useful if we could see if a particular company donates to a particular politcal party.

 

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