The grocer’s One Stop convenience business is scouting for franchise partners to pit it against symbol groups.
Why are we talking about it now?
Tesco-owned convenience business One Stop Stores is to try out a new franchise model with independent retailers that will pit it against symbol group giants.
It is hunting for independent retailers to trade under the One Stop brand and will also continue to open company-owned stores. One Stop said it was uncertain at present what proportion of its estate would be franchised.
What is the One Stop business and what are the benefits of franchising?
The 640-store retailer was acquired by Tesco for £325m in 2003. It is run as a separate business under chief executive Tony Reed, while Tesco developing businesses director Jill Easterbrook is responsible for One Stop among a raft of Tesco offshoots.
Reed said the franchise model will enable the retailer to tap into the “years of local relationships and commitment to their customers” that independent retailers can offer.
Kantar retail insights director Bryan Roberts believes there are other benefits for One Stop’s parent.
He says the franchise model will help Tesco to grow organically in middle-class areas where there might be complaints if it opened a company-owned store. “It is a clever PR move,” says Roberts. “It will be the ultimate irony if Tesco helps indies fight back against Tesco.”
Reed said franchisees would benefit from the relationship, which would give them access to One Stop’s low-cost operating and distribution model. “We want to offer our expertise in distribution and store proposition,” he said.
What are the drawbacks?
Franchised One Stop shops will not make the same margins as company-owned stores, from which Tesco takes home a larger slice of profits. The scheme would also pit One Stop against strong competition from symbol groups such as Booker’s Premier fascia, Budgens-owner Musgrave, Costcutter, Spar and Nisa. They all aim to increase their store estates through the recruitment of new retailers.
Does Tesco have any other existing franchise operations?
It has set a precedent of franchising in central Europe with convenience chain Zabka. Tesco also uses a franchise model for its fashion brand F&F.
Roberts says franchising offers a lower risk form of expansion overseas as the bulk of the capex comes from the individual retailers.