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Tesco buys child-friendly restaurant chain Giraffe for £50m Tesco buys child-friendly restaurant chain Giraffe for £50m
(about 11 hours later)
Tesco has bought child-friendly restaurant chain Giraffe for almost £50m in a move that underlines chief executive Phil Clarke's determination to make use of excess space as shopping moves online and make a weekly trip to the supermarket a more tolerable prospect for families. For two decades, supermarket chains Tesco and Asda have set Britain's shopping agenda, attracting hordes of customers to huge out-of-town stores to stock up on weekly groceries at unbeatable prices. But all that is changing, according to rattled industry leaders, who are scrabbling to win back customers increasingly buying online or defecting to smaller outlets.
Where possible, Tesco plans to open new Giraffe restaurants next to larger stores, hoping the dining experience will feel separate from the grocery shop. The first site alongside a Tesco will open later this year. As part of its efforts to restore its fortunes, Tesco on Wednesday paid nearly £50m for Giraffe, a family-friendly chain of restaurants with just 48 outlets, mainly in upmarket London suburbs. It claims to have brought brunch to the high street, serves mojitos alongside baby breakfasts and there is always ample parking for Bugaboo prams.
The business, which will open its 49th restaurant in Leeds later this month, was founded by married couple Russel and Juliette Joffe in Hampstead in 1998. They said: "When we opened we wanted somewhere that families would feel welcome. When our kids were growing up there was really nowhere to take them." The Joffes received backing from serial restaurant entrepreneur Luke Johnson, the former chairman of Channel 4 who made his first fortune backing the expansion of PizzaExpress into a national chain. Giraffe is also backed by venture capital firm 3i. Yesterday, the impact of being gobbled up by the UK's biggest grocer was immediate: its website crashed and was simply displaying a message explaining that it was out of action "due to today's Tesco announcement".
Tesco's acquisition of Giraffe follows the group's purchase of a near-50% stake in new espresso chain Harris + Hoole and an investment in Euphorium Bakery. In February it emerged Tesco was preparing to open the first Harris + Hoole inside a "concept store" near London Bridge station. For a retailer that accounts for more than one in every £8 spent in UK shops, with UK sales of £47.3bn, the deal is pocket change. But added to the grocer's recent 49% investment in artisan coffee shop Harris + Hoole, the group's Dobbies garden centre business, and a stake in the embryonic, luxury bakery Euphorium, and the beginnings of a bold strategic shift begin to emerge.
Britain's largest retailer – which accounts for one in every eight pounds spent in UK shops – hopes its partnership with Giraffe and Harris + Hoole will not tarnish the smaller business' appeal. It said one of the attractions of Giraffe was that it was "a family run business". Despite Tesco acquiring all of the company's shares in a deal valuing Giraffe at £48.6m, it is expected that the Joffes will stay involved in the business. Asda, meanwhile, is believed to be in discussions with the administrators of high street chain HMV in a move that could see the 90-year-old music and DVD brand salvaged and stores opened inside Asdas. Talks are tentative, but the aspiration to transform is clear. Chief executive Andy Clarke yesterday talked of creating "mini high streets" in Asda's largest stores as it battles with shoppers' shift to the internet.
The flurry of acquisitions is part of Clarke's wider strategy to overhaul the supermarket shopping experience. He is wrestling with how to redevelop aisles currently given over to non-food goods. While expansion away from groceries had been a major sales driver for Tesco in years past, Clarke has increasingly noticed customers preferring to shop for these goods online. For the Asda boss, part of way to win back customers is to experiment with bringing in, for example, respected local butchers to run sections of its meat departments. "The principle of concession retail in big stores is not new but we are going to see an acceleration of that," he explained at a retail conference in London yesterday. Asda already hosts concessions from the likes of cobblers Timpson and Disney.
Tesco's commercial director, Kevin Grace, said on the supermarket's blog: "We've been doing a lot of thinking about retail destinations and how our stores might become somewhere that people spend more time, as well as shop. With more general merchandise moving online, we have a great opportunity to rethink how we use the space in some of our larger stores." For much of the past decade the priority for Tesco and Asda superstores has been the race beyond core grocery retailing, expanding into ever-larger stores with new aisles given over to clothes, electricals, toys, home furnishings, pharmacy products and more. Now the rise of Amazon, eBay – and the supermarkets' own websites – is eating away at the shopping patterns on which the out-of-town model was built. Market analysis firm IGD put it starkly – predicting that supermarket stores over 25,000 sq ft will see just 6.4% sales growth in the five years to 2017. Out-of-town superstores are some 40,000sq ft. In contrast, online grocery sales are expected to almost double in that period.
He suggested Tesco ought to operate as a mall hub, and that other neighbouring businesses catering to Tesco shoppers should not be an "afterthought". Tesco has already been tweaking the look of stores – putting more prices on chalk boards, adding wood fittings and specialists butcher and bakery counters – but the addition of satellite dining is part of a plan to make out-of-town shopping less of a chore.
"If you've ever visited Westfield, you'll know that people go there to meet, eat and drink as much as they do to shop," he said. "They have a fantastic collection of restaurants – around 50 different concepts serving fresh, quality food and a variety of cuisines. The brands are accessible yet aspirational and the comfortable dining space allows customers to relax, socialise, recharge. It's not an afterthought – it's central to their offer." Tesco is determined to keep on Russel Joffe, co-founder of Giraffe, to run the business, with the first restaurant alongside a Tesco store expected to open later this year. Started by Joffe and his wife Juliette in Hampstead in 1998, Giraffe will open its 49th restaurant in Leeds later this month.
Juliette Joffe said: "When we opened we wanted somewhere that families would feel welcome. When our kids were growing up there was really nowhere to take them." With ample buggy storage capacity, stacks of high chairs, balloons and crayons, Giraffe hit on a formula that won over a generation of well-heeled young families.
Among the first to see its potential was serial restaurant entrepreneur Luke Johnson, the former chairman of Channel 4, who made an early fortune expanding Pizza Express into a national chain. He invested in Giraffe, as did venture capital group 3i. Stepping down as chairman of Giraffe he predicted yesterday the supermarket group could build Giraffe into a 200-strong chain in five years. "For middle-class families with children it is the next step up from fast food," he said.
"Russel was one of the pioneers in bringing brunch to the high street — he brings a buzz and verve which is at the heart of Giraffe's success.
"There are not that many casual dining options out of town. And those that are there are dull, down market and not very good quality... It is always a challenge for a big company buying a smaller business to keep the espirt de corps that makes a business different."
But Neil Saunders, of retail research firm Conlumino, said: "Giraffe is a small and friendly brand and there is just a nice feel about it. There is a danger that could be lost if Tesco imposes too many of its corporate processes." The Cafe Rouge chain was acquired by FTSE 100 leisure group Whitbread in the mid 1990s and was quickly suffocated within the larger group.
Chris Wade, chief executive of national charity Action for Market Towns warned that Asda's plan to create in-store high streets could be a further blow to town centres. "It could be a case of giving a thin slice of what's on offer in a vibrant town centre and splitting the footfall so the real and the pretend high street are in competition. With free parking this might offer convenience but ultimately will only reduce real choice," he said.
Meanwhile, rival grocer Morrisons will is to unveil its long-awaited plans for an online grocery service. It is expected to start home deliveries next year.
Asda's fashion tips
Asda has drafted in its fashion team to advise on improving the "integrity" of its meat supply chain as a result of the horsemeat scandal. Andy Clarke, chief executive, said the team behind the George brand had developed expertise in improving supply chains through its work tackling labour-rights issues at suppliers in Bangladesh.
Clarke warned that the scandal would go on to affect non-food retailers as well. "It started in food but if you're not in a food business don't believe you shouldn't be thinking about it. It's about supply chains," he said, adding that the British public had lost trust in retailers just as they had previously lost trust in politicians, the police and banks. "It is up to all of us to … rebuild confidence."