Has Tesco stretched its neck out too far with Giraffe?

When Jack Cohen found himself with a shipment of tea from Thomas Edward Stockwell in 1924 he needed a new brand name to sell the merchandise. So he took the three initials of the tea brand and the first two letters of his surname to create Tesco and the approach to branding that his supermarket would take for the next 80 years. Everything created by the company would be sold using the Tesco brand. It was the quintessential branded house.

Mark Ritson

In 1993, for example, when Tesco was troubled by the first Aldi stores in the UK, it launched a low-priced private label range called Tesco Value. The name might seem obvious now - but Tesco could have followed Marks & Spencer and used an endorsement approach (St. Michael), Sainsbury’s with a sub-brand (Taste the Difference) or even copied Aldi’s house of brands approach and used pseudo-brands such as Diplomat or Romano.

Tesco’s singular approach to brand architecture was not just reserved for its private labels. As Tesco diversified it continued under the single-branded house model. In 1997, the retailer set up its own bank in partnership with RBS and named it Tesco Personal Finance and then later, simply Tesco Bank. When the internet arrived, Tesco responded with the first major online retail site - Tesco Direct in 1997. In 2003, the supermarket ambitiously launched its mobile phone operation in partnership with O2 - again in the same vein, it was branded Tesco Mobile.

The same approach was used even when a brand was acquired. In 2008 when Tesco bought a small IT support company called The PC Guys, the company was quickly rebranded as Tesco Tech Support and rolled out across many of the supermarket’s largest stores.

Whether it was a line extension, brand extension or acquisition - Tesco kept everything simple and within the same branded house. But for the past seven years, things have been changing at Tesco. First, we had the decision to open Fresh & Easy in the US in 2007. A year later, Tesco launched its Discount Brands range in an attempt to combat Aldi’s increasing success in the UK. For the first time, Tesco no longer offered its private label products using its masterbrand but under pseudo-brands instead, such as Packers Best and Trattoria Verdi.

And these were not the only new brands. Tesco launched Technika - its in-house electrical goods line. The F&F clothing line was expanded and then taken international across its stores in Europe and Asia. Its Chokablok ice cream brand was launched in store in 2011 and distributed to non-Tesco retail locations.

There has also been a spate of acquisitions. In 2007, the retailer bought Scottish garden centre Dobbies. In 2010, Tesco finally took total control of CRM master Dunnhumby. In 2011, it bought a controlling stake in video streaming brand Blinkbox. Last year, it was music streaming service WE7 and artisan coffee chain Harris + Hoole. Earlier this month, we learned of Tesco’s acquisition of family restaurant chain Giraffe and more acquisitions are said to be on the way.

Under new chief executive Philip Clarke, this diversification is now enshrined as part of Tesco’s future. Thanks to brand creation and acquisition the company has massively increased the number of brands in its portfolio - and dramatically changed its brand architecture. Where once Tesco was a branded house, today it is at the other end of the spectrum as a house of brands.

The addition of so many new brands might help Tesco in the short term to boost sales now that competition in the grocery sector is so stiff. But it also prompts the question as to whether Tesco can successfully shift so quickly from a single brand to a multi-brand operator and whether the retailer really has the core competence to build so many brands. Selling them is one thing, creating and building them quite another.

According to Philip Clarke, the company has always had the capability. “We like backing great brands, helping them to grow and to realise their potential,” he recently told The Guardian. “We’ve done it with suppliers for years.” Gulp. I am sure his newly acquired brands will be hoping for better treatment than the kind Tesco has been doling out to its suppliers over the years.

So far, Tesco has had an amazing record of success when it operates under its own brand. When it strays into new brand territory, however, the results are far less impressive. Fresh & Easy is unlikely to survive. Its Discount Brands hardly held back Aldi or Lidl in the UK. And, despite all the talk of brand creation, the likes of Chokablok required enormous levels of sales promotion to survive.

But the biggest issue is brand focus. The more Tesco diversifies into new territories and launches new brands, the more diluted and distracted its management could become. The joys of the branded house approach it exemplified for so long are those of focus: one culture, one brand, one team, one strategy and one hell of a model to now walk away from.

Readers' comments (5)

  • Dear Dr Ritson,

    I Congratulate you on your mastery of the Tardis. I see your article was originally published tomorrow...

    On the subject of Tesco, I understood that their original plan in the 70s and 80s was to aggressively expand and enter every aspect of retail under their own brand and at one point it seemed as though they were going to take over all of the total GNP of the UK.

    However, they have obviously discovered the obvious; firstly, with major efficient competitors, there is a limit to market share under organic growth and they are too big to be allowed any more major takeovers in their own (grocery) market.

    If they cannot extend their customer base easily, then they must sell more to their current customer base, so what can they sell them? Cars, banking services, electronic products, pharmaceutical products etc etc. most things...

    However, there is also a limit to brand extension. There are some areas where even a highly credible brand like Tesco cannot tread and make anything more than a faint impression. They have their market segment and will find it tough to appeal to everyone. You can appeal to some of the people some of the time and all of the people some of the time, but not all of the people all of the time. Sorry for the paraphrase...

    So if they are to continue to expand over the next 50 years, they will have to sell more to non-Tesco customers as well as loyal Tesco customers. However, if you are a non-Tesco customer, you won't go to Tesco's Kids Restaurants or Tesco's Gardening Centres etc etc.

    Because of their reliance on volume, the brand would never be able to carry off anything more than low to medium price/quality products and services and those mainly to its own loyal customer base. If you are giving Christmas presents or birthday presents, then you will probably avoid retailers own brand products and go for an independent branded product. Amongst a lot of consumers, it's embarrassing to give a retailer own brand as a gift, proving that the brand is not valued sufficiently externally to compete with higher priced products and therefore services.

    Lastly, it's also a fact that a tainted brand will find it difficult to shake off pr problems in other divisions so they can infect other parts of an operation. Therefore, having multiple brands will provide internal fire-breaks.

    Knowing how they are allowing the Dobbies management develop the business, it seems to me that they are not top-down imposing a Tesco's philosophy or branding on buying or marketing strategy. They appear to be providing access to capital and other resources to enable an already successful business to thrive. They are not at the moment, as far as I am aware, combining head office functions and resources to save expenditure and run an in-house multi-brand operation. They are trying to engender a more “Virgin management” philosophy: the guys running these businesses have built them up and know how to run them, we'll just give them the time and money to continue to do that to the best of their entrepreneurial ability. It's also a philosophy which can be taken abroad quite easily. Running lots of little businesses means they will never be the number one in any of these businesses, but by being big enough in each business, add them together and you have one VBB... (very big business)

    Of course, at some point in the future, when the share price is depressed, some “clever” financially trained CEO (interesting article- I hope- http://www.analysemarkets.co.uk/#/typical-md-background/4573711737 ) might bring them all under one house and save money for a couple of years to boost shareholder value, increase share prices, boost his or her own income and then retire for someone else to clean up the mess...

    Of course, I have no connection with Tesco, or it's management and all the above is complete speculation on my part. (Are you signing David Cameron's “Press Motor-Mouth Control” Order?)

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  • Isn’t this simply a case of Tesco coming to the end of the brand extension line (so to speak)?

    Also isn’t the core Tesco brand a little devalued compared to the glory and exciting expansion years a few years ago? Hence Giraffe at Tesco sounds more exciting (I would imagine) than Tesco Café (which presumably will continue to serve value meals in some bigger stores).
    May be they want to create a type of ‘Westfield’ experience.

    The big question is of course, how can you continue to be a growth story in spite of having scale.

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  • Another classic case of unchecked, unnecessary and reckless growth. Find your customer base and deliver what they want, relentlessly. If more of us were happy with that (and its more than enough) the world would be a better place. I hope they fail.

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  • I for one will never step foot in Giraffe again, which is a great shame as they provide good food, good service and are very child friendly. But having watched Chickens, Hugh and Tesco too a few years ago I was repulsed by Tesco's PR dept and management attitude to traceability and quality of meat sourcing. And we all know how well that's panned out for them... Neigh!

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  • Just read this article having returned from a comically noisy yet enjoyable brunch at one of Giraffe’s restaurants. I agree with Mark’s thinking on some levels. On the surface, the Giraffe acquisition demonstrates a possible case of overreach, and will probably be viewed as another example of corporate over-ambition.
    Having said this, I don’t think Tesco’s peers or the market will see it this way. More so, and in spite of certain examples given of mixed performance across some of its business units, Tesco is an adaptable business, cultivated and proven to manage cross-sector activities regardless of brand origins, and has the multifaceted expertise to realise expected synergies from the acquisition – a relatively small one at that. I would also argue that Giraffe is actually a logical in-store proposition and extension to the Tesco stable, and more importantly a great platform to experiment and learn from, then scale up.
    With a portfolio of 40 or so sites, Giraffe has a strong brand synonymous with family and kids, allied with a well-defined value proposition understood by consumers. On this backdrop, Tesco’s financial muscle will accelerate the chains growth potential and penetration through new restaurant openings. From there, incremental sales opportunities can be taken advantage of where Tesco and Giraffe share a site in turn increasing and improving total spend and retail experience respectively. And as Tesco is aware, its core shopper demographic are now increasingly hardwired to optimise their shopping trips, so it makes sense to couple a Giraffe alongside a Tesco to enhance its destination value credentials, supplement revenue streams, optimise and sweat real-estate space, and redesign consumers autopilot thinking around out-of-home shopping.
    Tesco can do all of this with relative ease, the two brands attract a similar target market, Tesco’s customer base will provide a ready market for Giraffe, and there wouldn’t be significant organisational or supply chain upheaval. My opinion is Tesco has picked a winning horse and Giraffe will become part of shopper’s repertoire, whether as an in-store format, sharing a large out-of-town site, or a stand-alone unit.
    In this way, the question is not so much whether it has stuck its neck out too far or if the business can manage a house of brands – it’s been doing this for a while now. Instead, the acquisition gets me thinking whether we are actually seeing the onset of a lifecycle transformation of the Tesco business? Similar shades to a Keiretsu-styled system, and whereby the future Tesco will metamorphose into a group of companies centered on the core retail business as we know it to bankroll and manage a portfolio of integrated retail and leisure solutions.
    Putting this aside, I won’t be surprised if on future trips through Asia if I see Giraffe signage out of the corner of my eye, whether under a license or franchise-styled system at an airport departure hall, or at a Tesco Express store in Shanghai packed with equally noisy aspirational Chinese middle class families.

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