Tesco ends disposals chapter as Caffè Nero buys Harris & Hoole

Tesco (TSCO) has offloaded its Harris & Hoole coffee chain to Caffè Nero, marking the end of the second chapter of its turnaroud according to CEO Dave Lewis.

Harris & Hoole, which has 43 sites, has been lossmaking since Tesco invested in 2013, with Tesco buying the final 51% stake from the chain’s founders in February this year.

Tesco has now streamlined its portfolio considerably to focus more clearly on the core UK retail market, with a string of assets sold off in recent months, including Dobbies Garden Centres, Giraffe restaurants and Turkish business Kipa.

It marks a dramatic reversal of the expansion at Tesco in the past decade under previous management.

Lewis has also sold the Homeplus South Korean business for £4.2bn, a stake in South East Asian e-commerce group Lazada for $129m (£90.5m), and the heavily loss-making Blinkbox movie service for £5m since taking the reins at Tesco in September 2014, as well as closing the Nutricentre health food stores and concessions in March.

A sale of data arm Dunnhumby was shelved after failing to generate enough interest at the £2bn asking price.

Lewis refused to rule out more disposals but said the asset sell-off had now reached a natural end. “Never say never. I can’t say there is no plan to sell any more assets. However, you should see this as the end of a second chapter in the turnaround.”

He also hinted that Tesco would be looking to extend its tie-ups with external companies as it looks to repurpose its biggest stores. This could include expanding its trials with Arcadia, which last year saw it open branches of Dorothy Perkins, Burton and Evans alongside F&F. He added there would be more news in the next results in three months’ time.

HSBC analyst Dave McCarthy welcomed the asset disposals as removing “management distractions”. He said the sale of Kipa in Turkey was “a good deal” for a business which lost more than £40m last year.

“Although we would like to see more disposals (mainland Europe), the business is much cleaner and management is more free to focus on fundamentals,” McCarthy added.

David Gray, senior retail analyst at Planet Retail, noted that Tesco could now focus its resources on further improvement in the UK.

“The big story of the [first] quarter is that Tesco is now free of the shackles of the failing Turkish business - an operation which, for years, has been a drain on vital group cash and management resources,” he said. “The disposal will liberate resources to sustain focus on domestic improvements.

“However, this exit, alongside Korea, does leave Thailand and Malaysia looking increasingly isolated among Tesco’s portfolio. The latter has limited growth potential due to restrictive regulation. Therefore, longer term we still see some scope for further international rationalisation.”

Tesco revealed a 0.9% rise in group like-for-like sales in the first quarter to 28 May, with Asia and Europe contributing a 3% hike in like-for-like revenues.