Waitrose booked a stellar set of results for 2012, a year of tough trading that nevertheless saw the upmarket supermarket group prosper. Katy Askew takes a look at how.
Waitrose increased its market share from 4.7% of total UK grocery sales in 2011 to 4.9% in 2012 – its fourth consecutive year of share expansion. The supermarket group saw total sales rise 7.6%; some of this gain can be attributed to space expansion, as the company increased its presence in London and the south through store openings, but just over half of this increase came through like-for-like gains.
In the UK, today’s operating environment remains shaped by high unemployment, declining real incomes, inflationary pressures and governmental austerity measures. These pressures meant Waitrose was feeling the pressure this time last year, Charlie Mayfield, chairman of Waitrose parent The John Lewis Partnership said today – but he said a down economy has come to represent the new normal for many consumers.
“If you think back to a year ago, there was a serious risk of a eurozone crisis hanging over the market and there were a number of other economic issues as well,” Mayfield told journalists during a press conference this morning. “Customers are becoming used to that and we are seeing more stability in terms of customer confidence… we see this as a time of opportunity in a market that we continue to expect to grow slowly.”
On the one hand, the growth of Waitrose’s market share reflects the impact of the split market that we have witnessed in the wider industry – where companies at the premium and value ends of the market prosper at the expense of those occupying the middle ground.
On the other hand, it is important to note Waitrose has been able to capitalise on the opportunity afforded by this trend through its strategic initiatives and operational execution.
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While consumers may have become acclimatised to a down economy, to book 3.4% like-for-like growth in a lacklustre market that has been characterised by declining volumes and intense competition remains no mean feat. To do so as an upmarket retailer that caters to decidedly middle-class tastes suggests Waitrose has been able to convey the value of its offer effectively.
While Waitrose remains more expensive than some of the other multiples, an element of its effectiveness over the past year is undoubtedly connected to price. Commenting on the group’s results, Waitrose management said sales gains were weighted to the second half of the year, when investments it made in pricing fed through.
However, for Waitrose shoppers, the value the high-end retailer offers clearly goes beyond price to take in issues around quality and branding. The success Waitrose has experienced clearly demonstrates that “value” is defined by consumers as much more that “cheap”. The supermarket has consistently invested in innovation for a number of years and, over the past 12 months, the group launched or improved 4,700 products.
Like others in the grocery space, Waitrose has invested heavily in developing its multi-format approach. It has expanded its online presence and been rewarded with a near-50% increase in e-commerce sales. Waitrose has also been driving into the convenience sector, and the group opened eight Little Waitrose convenience outlets during the year, with plans to ramp up expansion in the coming 12 months.
According to Conlumino MD Neil Saunders, Waitrose’s expansion as a multi-format retailer is not just one of the key’s to its current success – the move could drive growth for years to come.
“Today’s grocery consumer shops across far more store types than they did ten years ago. As such, a critical part of attaining growth in the market is to provide a number of routes to market which maximises customer reach,” Saunders suggests.
“To this end, Waitrose’s investment in convenience through its Little Waitrose format and the continued improvements in its online business are both allowing it to fish in areas of the market that are currently growing strongly and will continue to outperform the total grocery market over the next three to five years.”
As the group has developed these strategic initiatives, it has benefited from the strength of the Waitrose brand, which is taken as a mark of quality and service for many UK consumers. And, in the coming year, Waitrose looks set to continue to reap the rewards of this perception, as quality and provenance have dramatically been put on the agenda for many consumers by the horsemeat scandal sweeping Europe.
It seems, then, that Waitrose could be well-placed to continue to capitalise on the factors that have propelled its sales expansion over the last 12 months in the coming year. And the fact that the group was able to expand its margin, with operating profit up 12.2% in 2012, while investing in growing the top line suggests that the firm’s bottom line will continue to benefit from this success in 2013.