M&S’ focus on value may have led to full-year profits taking a hit in its food division, however with sales growing 8.7% last year and a “strong” start to its current year, the retailer is firmly focused on growth.
In fact, it is aiming to achieve 1% growth in food market share and an adjusted operating margin of 4% over the next five years.
Grocery Gazette looks at how the retailer is aiming to meet this target.
Boosting its value credentials
Despite M&S’ aim to grow margin, it actually fell in the second half of its financial year.
However, CEO Stuart Machin said this was a purposeful decision so it could “really compete on trusted value,” as shoppers looked to save where possible during the ongoing cost-of-living crisis.
Boosting its value credentials is core to M&S’s plans for food as it broadens the retailer’s appeal.
Over the past year, M&S has sharpened the price of over 100 ‘Remarksable value’ lines with sales up 40%.
The supermarket has also locked prices on 150 everyday products, which drove a 25% sales uplift.
The Remarksable value products featured in over 20% of customer baskets and Machin says M&S was “encouraged” to have “outperformed the market on both value and volume”.
“What’s really evident is our customers are buying slightly less and they’re shopping slightly more, but in saying that the confidence has been improving. We’ve been very competitive on the things people buy most,” he says.
“Our value perception in M&S is the strongest it’s been in history.”
In turn, M&S’ grocery market share has been on the rise, up 20 basis points to 3.6% according to Kantar’s data for the year ending 19 March. The retailer said it was “outperforming all major full-line supermarkets”.
M&S plans to keep this up and Machin vows that when commodity prices fall, the retailer will pass that on to consumers “immediately”.
We have to keep our shape on value, invest in margin and not pass through the full rate of inflation,” he says.
He adds that M&S has been using other initiatives to help customers get the best value, such as through bigger pack sizes with around 50 products having doubled since last year.
Bigger and better stores
It’s no secret that M&S has been right-sizing its store estate, and whilst it has been closing stores, it has also been investing in opening new and revamping existing ones.
M&S revealed plans to expand its store estate, investing £480m into opening new stores and 8 full-line and 10 Food stores will open in the current year.
Each store has been designed with local families in mind, with shoppers able to browse in settings with wider aisles and a clear line of sight.
That includes stores in the former Debenhams units in Leeds White Rose, Liverpool One, Birmingham Bullring, Manchester’s Trafford Centre and Lakeside Thurrock.
It is also planning Food Halls in Stockport, Barnsley and Largs in North Ayrshire.
The new stores, alongside a growing number of revamped stores, are designed with local families in mind, with wider aisles featuring fresh market-style food halls stocking the full M&S food range, brand-new M&S cafes and free car parking.
The retailer revealed that stores it had relocated and renewed to the new format had outperformed, which should drive further growth.
Self-service checkouts
M&S stores new and old will soon feature more self-service checkouts as it rolls out 800 new machines.
Machin said that 70% of transactions within its food stores are now made via self-checkouts.
As well as making the checkout process easier, the shift to self service also enables M&S to make better use of space in store.
“For every full belted checkout, you can get four or five self-scan checkouts in, and therefore you can use the space much better, especially as we’re trying to renew our stores and create more space,” Machin explains.
M&S is also trialing a new full belted self checkout at its London Colney store, which Machin says has been well received by customers.
Having recently visited the store himself, he explains that while the queue to the new checkout was long, this was due to it being “very popular” among shoppers.
“Or job is to use our space. We want to be efficient in our stores at the front service and we need to continue to innovate. The full belted till’s self scan tool is another way of innovating,” he adds.
The Ocado reset plan
M&S’s joint venture with Ocado was designed to drive growth as more customers shop online.
However, over the past year online demand has dampened post-pandemic and Ocado has been a drag on the business.
M&S made a £29.5m loss on the joint venture over he past year and Ocado Retail sales dipped 1.2% to £2.22bn, despite inflationary boosting sales values.
However, new Ocado Retail CEO Hannah Gibson is leading a “customer driven” reset plan as she looks to restore Ocado’s leading service credentials.
The partnership has to improve the availability, quality and life of each product on Ocado, according to Machin.
“We need to do a better job, not just on M&S but on the Ocado range itself,” he says.
It is also focused on re-engaging lapsed and occasional shoppers with not just improved service but by investing in value to broaden appeal, through the Ocado Price Promise.
The pair are seeking to improve operating costs through network optimisation. Ocado recently revealed plans to close its Hatfield site and shift volume to more efficient warehouses.
It is also looking to “provide an easier, better web experience for customers”, according to Machin, as the online-only supermarket moves to a new platform over the next 12 months.
Machin is “quietly confident” that M&S managing director Alex Freudmann and Gibson “have led a combined team effort in not just setting out an ambition to grow M&S sales through Ocado, but more hardwiring in how we work together”.
The pair are looking to strike a “deeper collaboration” between M&S and Ocado.
In recently months, 300 more M&S products have been added to Ocado’s website and they are exploring what efficiencies can be made from joint sourcing and logistics.
Machin says: “The first priority is to have a successful Ocado Retail business, but as part of that I want to make sure there’s a successful and ever-growing M&S business on Ocado as well, and I think we’re in the early stages of putting that together.”
Despite the downturn in the current year, M&S still sees “substantial growth and profit potential” from the online retailer.
“Ocado Retail has grown revenue by 40% since 2019 and has a large, addressable market and substantial invested capacity to grow sales and to recover profitability in the medium term,” it says.
