After three years in the ownership of retailer Tesco, Giraffe is now under the wing of Harry Ramsden’s backer Boparan Ventures, which finds itself looking to revive another brand. Mark Wingett looks at where it went wrong for the chain and what the future could hold under new ownership.
In the continued sell-off of its non-core assets, it’s easy to forget that the City broadly welcomed Tesco’s strategy of buying into “cosy, family-owned businesses” back in 2013. However, it did come with a caveat. “There is always a danger that when a big corporation takes on a brand it could kill it. But as long as it keeps the chain separate and maintains the entrepreneurial spirit it should be fine,” Shore Capital analyst Clive Black said at the time.
He added that Tesco’s purchase of the Dobbies garden centre chain in 2008 has worked well, with outlets growing from 22 to 31. This morning that business, now 35-centres strong, was the latest non-core asset to be sold by the retailer to an investor group led by Hattington Capital – the backers of Crussh - for £217m, a £67m profit on its acquisition price. Harris + Hoole is set to follow later this summer, with two groups, including a private equity firm, believed to be currently in the running for the business.
And what of that entrepreneurial spirit at Giraffe? Just over a year after the £48.5m deal, co-founders Russel and Juliette Joffe had stepped aside, leaving fellow co-founder Andrew Jacobs to carry the original Giraffe spirit forward as its new managing director. Just over a year later, Jacobs stepped down to be replaced by operations director and former Mitchells & Butlers retail director Tom Crowley. During this time, the rate of openings, especially in Tesco’s Extra stores had slowed, whilst the group consolidated its existing London estate with disposals in Islington, Richmond and Hampstead.
Earlier this year, it announced it would close seven out of the 10 restaurants it operated within or next to an Extra site. News that the whole business was on the market quickly followed. At the time of the acquisition, Tesco’s then commercial director Kevin Grace explained the thinking behind the deal: “We’ve been doing a lot of thinking about retail destinations and how our stores might become somewhere our 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.” He pointed to the success of shopping centres, with many customers attracted by food outlets, and concluded “there’s no reason why supermarkets can’t offer something similar”.
This theory was based on consumers still wanting to come to Tesco to shop. However, over the last 18 months a good number of consumers have moved upmarket in their food shopping habits, increasingly preferring Waitrose, which now accounts for 5.3% of the UK’s food shopping, up from 4.6% in 2012 and the biggest winners - the discount food-retail segment, with Aldi and Lidl growing quickly in the UK over the past four years, with their combined market share rising from just 5.8% in 2012 to 10.4% today. The situation was not helped with Tesco understood to have placed a number of Giraffe units in already under-performing Extra sites, putting them at a disadvantage from the start.
It could be argued that the writing was on the wall for Giraffe when Tesco entered into agreements to acquire 266 in-store cafes for around £9m and is now focused on converting the majority of that estate to its new café format that operates under the banner ‘Café – Great Food & Drink’ – a fate that seemingly also awaits its in-house developed Decks format.
In offloading Giraffe, Tesco chief executive Dave Lewis said: “Giraffe is a much-loved brand and while casual dining remains an important part of the shopping trip for many of our customers, we will continue to meet these needs through our Tesco Cafés and other providers.” Casual-dining, arguably fast-casual dining, remains an important part of a shopping trip, but not as yet as part of a trip to the supermarket, where I would argue the grey pound, students and mums make up the majority of its café clientele still; looking for a well-priced hot drink rather that a menu featuring grilled options and burgers.
So what is Boparan Ventures left with? It has a management and operational team heavily influenced by Mitchells & Butlers, although it remains to be seen whether Adam Fowle, former chief executive of M&B, will remain as Giraffe chairman or as chief executive of Tesco Hospitality (previously Tesco Family Dining) - an increasingly shrinking division. Crowley and his team still have to plenty to prove with Giraffe, which currently has 57 restaurants, including three inside branches of Tesco, and four overseas.
The acquisition price was not disclosed, but speculation suggests that a bid of as low as £15m may have been enough for Boparan, which had previously bid for Strada, to secure Giraffe. An under bidder was thought to have been at the low teens mark. As I have stated previously, I am sure the current management team doesn’t believe Giraffe is a turnaround case, but there certainly needs to be some work put in to regain the momentum it has certainly lost under Tesco’s at times confused ownership.
The question for any interested parties will be whether they believe the brand still has a future, does it still resonate with the wider consumer? One criticism levelled at the brand, even before Tesco acquired it, was that its offer had become too broad. Indeed that negative, that it had a wide offer, was probably seen as a positive to Tesco looking to appeal to a wide demographic. When MCA asked what its new owner had planned, a spokesperson for Boparan said: “The business has been acquired with an excellent and capable management team, we will assist as required in line with the rest of our restaurant estate. They will operate as a standalone business to ensure we retain the entrepreneurial spirit we encourage.”
It has supported the impressive turnaround of Harry Ramden’s under Joe Teixeira, and it would be surprising if Teixeira wasn’t asked his opinion on where Giraffe goes from here. There is also the possibility of some site conversions. The immediate future for the brand will start on 1 July when it opens a site in Bromley, it will be interesting to see if it is ready to enter a new era or has been left on the shelf for too long.
