Tesco: testing foodservice with Taylor Street coffee chain

By investing in a joint venture to learn from the upmarket coffee chain Taylor Street, Tesco is highlighting the increasing interest of grocers in the foodservice sector. The retailer has learned from the unsuccessful standalone venture of competitor Sainsbury's and will take a more subtle role in researching the market before possible entry.

The joint venture as reported by Retail Week on August 7 will give the UK's largest grocer insight into the operations, opportunities, and challenges of the foodservice sector. The planned buyout of between 10 and 15 Clinton Cards outlets by the coffee chain makes it a viable investment in terms of growth prospects. However, Tesco plans to reinvest any profits back into the chain, seeking to learn rather than profit from the venture.

The coffee chain will be named Harris and Hoole; significantly, it will carry no Tesco branding or Tesco products, giving the retailer the flexibility to assess the foodservice market without risking its brand reputation through exposure to a new environment. Lessons have been learned from Sainsbury's standalone Fresh Kitchen outlet, which offered food-to-go on London's Fleet Street from July 2011 until its closure in March 2012. Competitive pressure in lunchtime trade made life difficult for Sainsbury's standalone venture, and Tesco is showing more caution in entering the foodservice sector through a joint venture.

This latest investment follows the launch of a dedicated food-to-go area within Tesco's Chester store, which opened at the end of July 2012. Morrison's has created a similar food-to-go store-in-store in its St. Albans supermarket. This type of innovation in food-to-go is bringing the grocer's offer into closer competition with foodservice outlets, blurring the boundaries between food-to-go and foodservice.

While the foodservice market may appear lucrative, it is important that grocers do not underestimate existing foodservice competitors which will be fighting to retain share. As Sainsbury's learned the hard way, there must be a sufficient gap in the market for a new entrant. Alternatively the entrant must be able to introduce something significantly different from the store offer, with new and exciting products and instore ambience to tempt shoppers.

For further details please contact Cliona Lynch at clional@verdict.co.uk.

The expansion of grocers into food-to-go is one of five key trends covered in Verdict's latest Trends and Innovations in European Convenience Retail report. For further information and/or an interview with Cliona Lynch or one of the Verdict team of analysts, please contact enquiries@verdict.co.uk.