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 80.

    49% is usually a controlling interest and is almost certainly the majority shareholder, Murdoch owns 16.3% of news international for example.

  • rate this
    +3

    Comment number 79.

    What are people most annoyed about? the fact that Tesco is encroaching into yet another market? or the fact that THEY aren't as cool and trendy as they thought they were...as it turns out they were just another mindless sheep propping up a corporate giant?

  • rate this
    +2

    Comment number 78.

    Is this any worse than someone going on Dragon's Den and selling Theo a 49% stake in their company to get an investment? In fact the Dragon probably is more interested in the day-to-day running than Tesco would be in their investment in Harris and Hoole.

  • rate this
    -1

    Comment number 77.

    If you think my comments on Tesco were "potentially defamatory" I should point out that one of my closest friends used to be in charge of planning on my local council and has told me in great detail the sort of tricks they pull to get their way. "Land Banking" is the term for it.

  • rate this
    -1

    Comment number 76.

    61.zetheons
    Just now

    Would you rather buy from a National company in which the profits line the pockets of Fatcat investors looking to buy there 3rd house and are Taxed as little as legally possible??

    NOT A HARD DECISION.
    ---
    Judging by the number of positve comments towards Tesco here I would beg to differ. Maybe they've all had a chip inserted!

  • rate this
    +95

    Comment number 75.

    We are to blame for generic high streets. If they all look the same, that means we must go to the same places. I've seen independent coffee shops virtually empty whilst Starbucks packed - people know what they're going to get rather than trying something new.

    If you don't like the generic, vote with your feet - don't just bitch about it.

  • rate this
    +2

    Comment number 74.

    62.Sam
    "The key point for me is where the profits go. The longer the money stays in the LOCAL economy the better. For me it's a fraud when you make an ethical decision to spend your money with local businesses whenever possible and actually all of the profits are going straight to a multinational that you would never knowingly support."

    Well said!

  • rate this
    +5

    Comment number 73.

    I don't feel the need to run a check at Companies House everytime I buy something in the town.

    If I get what I want at a price I can afford then I don't care if Tesco were part of the process.

  • rate this
    -2

    Comment number 72.

    It will mean less choice and sub-standard products as there used to be plenty of Bakers on the High st selling superior products and Grocers with fresher fruit n veg.

    My local Waitrose manages to sell out of Birds Eye peas nerly every week, but oddly never their own brand, possibly hoping you will eventually succumb, not moi though.

    No choice really, they want you to buy their own brands.

  • rate this
    -4

    Comment number 71.

    36. jzc008 "If you've never been into a McDonalds the how can you have any knowledge of their product"

    Knowledge of their product is the reason I have never been in. I do not lead a solitary and insular life - I receive data from many sources - friends and relatives, colleagues. It is not hard to keep up with without feeling the need to perosnally experience every single thing on the planet.

  • rate this
    +2

    Comment number 70.

    I have no problem with Tesco being a backer. My problem is that it serves a 'POOR PRODUCT'. The coffee it sells is served luke warm. They have now put up signs saying this is indeed how they serve their coffee, it is the AUSTRALIAN WAY !!! Are Australians known for their coffee?

  • Comment number 69.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +2

    Comment number 68.

    This is hardly a new phenomenon, 'Indie' music may have started as small independent music labels, but has long been ransacked by massive producers. If the business is lucrative, it will attract investment from the big players.

  • rate this
    +3

    Comment number 67.

    Isn't this more an example of how banks have completely reneged on one of their primary functions, to invest in small businesses.
    Now banks will only lend to those that can afford to pay the loan back, i.e. those that don't need the loan in the first place.
    To expand the business they now have to go to the 'big' multinationals as they are prepared to invest and in many cases take a back seat.

  • rate this
    0

    Comment number 66.

    Manufactured brands are like manufactured bands, assembled based on what "sells" and polished to mimic passion and authenticity, but ultimately lacking any soul. They pander to the ignorant and vain - but hey, who can argue with success?

  • rate this
    0

    Comment number 65.

    In answer to people who are blaiming the banks rather than Tesco... Tesco have a banking license and Tesco Bank was originally a joint venture with RBS. They could have lent the money (at whatever interest rate) instead of taking a stake in the company if they wanted to but they didn't.

    I think more people should boycott things when they aren't happy - if they did then things would change.

  • rate this
    -6

    Comment number 64.

    TeaPigs being owned by TaTa is a showstopper for me. Last teabag i buy off them. I wouldn't knowingly give TaTa the steam off my kettle.

  • rate this
    0

    Comment number 63.

    @41
    Agreed! I'd gladly do so if only pubs didn't stop serving tea and coffee in the late afternoon (most do, where I live) because they're understaffed and cannot be doing hot drinks alongside alcohol.

  • rate this
    +1

    Comment number 62.

    The key point for me is where the profits go. The longer the money stays in the LOCAL economy the better. For me it's a fraud when you make an ethical decision to spend your money with local businesses whenever possible and actually all of the profits are going straight to a multinational that you would never knowingly support.

  • rate this
    +1

    Comment number 61.

    I guess you have to ask yourself this:

    Would you rather buy from a locally run shop, which profits provide a living to the owner & get taxed fairly OR

    Would you rather buy from a National company in which the profits line the pockets of Fatcat investors looking to buy there 3rd house and are Taxed as little as legally possible??

    NOT A HARD DECISION.

 

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