Analysis: Why M&S ‘milestone’ acquisition of Gist will boost its food supply chain

M&S made the “milestone” move of acquiring its long-term food logistics partner Gist last week in a deal worth up to £255 million.

With the whole grocery industry battling ongoing supply chain issues, Marks and Spencer has made the savvy move of taking matters into its own hands. By bringing the 90-year partnership in-house, the high street retailer has made the strategic decision to take full control of its food supply chain for the first time in the company’s history.

The multi-million acquisition of Gist, a subsidiary of The BOC Group Limited, is expected to increase the company’s earnings per share within the next year, accelerating M&S’s multi-year plan to modernise its food supply chain network and support growth.

According to M&S’ CEO, Stuart Machin, the move is a “major next step in our supply chain transformation as we shape the future of M&S”.

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 What does the Gist acquisition mean for M&S?

Gist currently provides the majority of M&S’ food logistic services, via eight primary and 10 secondary distribution centres dotted around the UK and the Republic of Ireland, including a number of freehold warehouses.

The retailer said the acquisition would generate immediate benefits to the company by eliminating contractual costs and fees while also aligning the execution of operational processes.

Machin said: “M&S has been tied to a higher cost legacy contract, limiting both our incentive to invest and our growth. The last two years have shown what can be achieved by working collaboratively alongside our partners at Gist.”

Gist recently generated a proforma EBITDA of £55 million in the year ended December 2021, despite of Brexit and the Covid-19 pandemic.

Machin adds: “This has given me confidence that now is the time to take action and remove an impediment to our growth. We have therefore acted decisively to acquire Gist, taking control of our food supply chain for the first time in our history.

“This is the first step in a multi-year plan which will transform the entire supply chain.”

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Is buying Gist the right move?

According to Helen Dawson, director at the strategy consultancy eponymous firm, the transaction is a “quick win”, as the grocer will immediately save management fees it pays to the logistics firm.

Dawson also says M&S is making a “bold” move by working towards the “strategic goal of enabling its supply chain transformation to happen faster, delivering reduced waste and better availability”, adding that a lot of organisations would be reluctant to put assets and headcount onto their profits and loss.

Marks and Spencer also claims that there is “substantial opportunity” to create a more efficient and effective supply chain through investment in the network. This will reduce the cost to serve, update legacy systems and improve automation.

Commenting on the acquisition, Siobhán Géhin, senior partner at consultancy firm Roland Berger, pointed out that “food supply is becoming a strategic issue”.

“Consumers have always expected an ample supply of fresh food, well merchandised at a reasonable price, from grocers,” she said.

“Demands are evolving now and putting more pressure on supply chains, as consumer demands shift. This is massively exacerbated by supply side pressures, with strong inflation, disruption and shortfalls in global supply chains, Brexit effects, labour shortages and less locally-produced food in the UK.”

READ MORE: Supply chain crisis leads to 60% surge in food waste

Mike Sacker, head of supply chain at Libra Europe also believes the move comes on the back of the Covid-19 pandemic and the impact on supply chains, which resulted in collaboration becoming much harder between companies.

He tells Grocery Gazette the move will give M&S “more direct control”, by removing some contract costs through outsourcing. Despite this, Sacker is not 100% convinced by the move which he says risks “taking away the autonomy of a third party logistics company”.

The move also removes the sometimes useful distance given by the partnership approach, as the Gist workforce will now reporting directly to M&S.

Since Marks and Spencer has taken the decision to keep operating as a separate company and not bringing it under the M&S banner, it is still offering their services out to other clients.

However, Sacker points out that other Gist customers will always come in second place to M&S.

Companies often outsource services in order to outsource responsibility. Following the acquisition M&S will now have to invest directly in the company in terms of the latest technology, fleet and workforce, rather than being able to rely on a third-party source.

In this case, M&S is also likely to add additional internal resource to help manage the food supply chain, even though Gist will remain a separate entity.

Are other supermarkets going to follow?

Sacker believes there is a good possibility that more grocers will follow in M&S footsteps, as Big 4 grocer’s Sainsbury’s and Asda recently took their primary distribution network in-house, following the collapse of EV Chill.

“Bigger supermarkets are not going to move down this route, they will just find a more open and collaborative way to work with their third-parties,” he adds.

While supermarkets are prioritising the ongoing cost-of-living crisis, bringing in their supply chain in-house is probably not high on their agenda right now. But all eyes are likely to be on how M&S manages its new food supply chain relationship as grocers weigh up the benefits and additional responsibilities – M&S will be paving the way for others to follow.

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