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  1. Analysis
January 11, 2011

On the money: NPD key to fighting inflation and promos – M&S boss

Marks and Spencer's decision to launch more food products will help the business battle the twin challenges of rising food prices and continued high levels of promotions in the UK grocery sector, according to its chief executive.

By Dean Best

Marks and Spencer’s decision to launch more food products will help the business battle the twin challenges of rising food prices and continued high levels of promotions in the UK grocery sector, according to its chief executive.

The company, which earlier today (11 January) recorded a 1.8% rise in like-for-like food sales for its third quarter to 1 January, cited rising commodity prices in its cautious outlook for the rest of its financial year.

Deeper promotions helped boost M&S’s food sales in the quarter and over Christmas. Yesterday, Morrisons, the UK’s fourth-largest food retailer, said the “promotional intensity” in the UK grocery sector had risen during the festive period.

However, there are signs that commodity pressure is feeding through to supermarket shelves. Data released by Kantar Worldpanel today said grocery inflation was running at 3% during the 12 weeks to 26 December. In the 12 weeks to 28 November, inflation was at 2.8%.

Higher commodity costs could dampen promotional activity among the UK’s food retailers although, with consumer sentiment still weak, supermarkets may still keep promotions level high, meaning a possible squeeze for suppliers.

M&S chief executive Marc Bolland told said the retailer would look to remain competitive on “staple goods” and on the portfolio of brands it sells in its stores.

However, Bolland said M&S said a swathe of “non-comparable goods” – products sold only at the retailer – and these items, fed by the company’s ramped-up innovation pipeline would stand the company in good stead.

“The good thing about the M&S business is that we’ve got so much of what we call non-comparable products because we bring through so much innovation than anyone else,” Bolland said. “So having so much of that typical M&S product means we are not following anyone else’s lead.”

In its trading update, M&S said innovation, as well as promotions, had helped its food sales. The retailer launched 600 food products during the third quarter and Bolland said it would maintain that level of innovation. “The plan for this year is 1,750 new products on a base of 7,000 – so bringing about 25% of new-ness to the market – which is something that other retailers do not do. That sets us apart. We are planning to get the same level of innovation through in the coming quarters.”

With commodity costs rising and the UK grocery sector marked by high levels of promotion, there are concerns that manufacturers could find their margins squeezed, if asked to fund deals while battling higher input costs.

Bolland struck a conciliatory tone, insisting M&S would “work together” with its suppliers to manage commodity prices. “With suppliers, it’s a long-term relationship that we want. We are not pushing them on a weekly or monthly basis because something happens on commodity prices,” Bolland told just-food.

“They are very aware of trends in the market and we have very close contact. We are very much involved with our supply base and we see both of us in discussions with a longer-term view on where commodities are trading. Together with our supply base, we try to manage cost out of the business as much as we can.”

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