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June 6, 2008

M&S no longer just taking care of its own

As Marks & Spencer reported its year-end results last month, the UK retailer also announced that it planned to introduce branded goods into some of its stores on a trial basis. With the pilot project now underway, Ben Cooper reports on a move that runs counter both to long-standing principles at M&S and current trends in the grocery market.

As Marks & Spencer reported its year-end results last month, the UK retailer also announced that it planned to introduce branded goods into some of its stores on a trial basis. With the pilot project now underway, Ben Cooper reports on a move that runs counter both to long-standing principles at M&S and current trends in the grocery market.


When Marks & Spencer reported its annual results just over a fortnight ago, there was much for the media to get their teeth into.


The performance itself was mixed. Pre-tax profits may have broken the GBP1bn (US$2bn) ceiling for the first time, but quarterly like-for-like sales slipped for the second quarter in succession, while M&S’s relationship with key suppliers remained in a state of flux with its “Project Genesis” supplier review underway.


However, for many, the most notable feature of M&S’s year-end announcement will have been the news that it would be piloting the sale of certain branded goods in some of its stores this month.


Granted the trial only extends to 350 branded lines, representing around 7% of the product range, and will only be run in 19 stores in the north-east of England, but the move nonetheless marks a major change for a retailer that is founded on the success and reputation of its own brand.


M&S is a retail phenomenon in a number of ways. There may be strong national retail leaders in many countries but arguably none wears the mantle of “the nation’s retailer” in quite the same way that M&S does. Moreover, it has achieved this status, along with a reputation for quality and a premium price position, exclusively on the back of its own label. 


The idea of the brand pilot, however, is to give consumers access to certain “must have” brands, such as Marmite and Heinz Tomato Ketchup, while retaining the “unique positioning” that the M&S own-brand emphasis affords.


The company’s chief executive, Sir Stuart Rose, has been credited with turning round M&S’s fortunes since he returned to the company in 2004, and he has arguably done so by not shying away from difficult decisions, and backing his own judgment. Very much in the style to which M&S watchers have become accustomed, Sir Stuart defended the decision stoutly.


“It will strengthen [the M&S brand],” says Sir Stuart. “Our customers are a bit frustrated. They say to us: ‘We love what you do [and] your shop is fantastic but my husband only wants Marmite’. The move is recognition of two things: first that we are listening to our customers and, second, that were putting our efforts in food into customer service and convenience.”


In its shock value at least, the move is reminiscent of the decision taken by the then chairman Luc Vandevelde in 2000 to ditch the St Michael brand, which had been the M&S house mark since the 1920s. That step was taken during another – and far more serious – slump in the retailer’s fortunes.


However, the fact that M&S eventually got back on its feet suggests any conservative doom-mongers who said the abandonment of St Michael was the beginning of the end have had to eat their words.


That will no doubt be the tenor of Sir Stuart’s defence of the decision to doubters within and without M&S. But the move not only represents something of a revolution at M&S; it also seems to run counter to prevailing trends in food retailing.


Own label has been a growth area in the UK grocery sector for some years. According to research firm TNS Worldpanel, own label currently accounts for 47.69% of the grocery market in the UK, up from 46.23% in 2006.


Mainstream supermarket chains have not only been successful at marketing their own-label ranges on a value-for-money proposition but have also had success marketing premium-priced own-label products. TNS calculates that premium own-label accounts for as much as 2.57% of the total grocery sector. Indeed, TNS notes that branded products appear to be under increasing pressure not only from premium own-label but from specialised and targeted ranges such as organic and Fairtrade.


So it is somewhat ironic that the founding father of own-label in the UK, and the company that demonstrates through its very existence that own-brand and premium positioning are not mutually exclusive, should choose this moment to take on branded lines.


Nick Bubb, retail analyst at stockbrokers Pali International, describes the trial move as “fairly radical” but is doubtful about it proving effective or being retained as a strategy. “I don’t think it will work,” Bubb tells just-food. “The stores aren’t really big enough for a big move into branded lines.”


Bubb also believes the addition of branded lines represents a pricing dilemma for a retailer with a premium positioning. “It [M&S] is clearly not a cheap place to shop. If they do match prices on low-priced branded goods it will make their core ready meal and fresh ranges look expensive.”


Regarding Sir Stuart’s contention that the move adds convenience for M&S shoppers by providing “must-have” purchases they would have to go elsewhere for, Bubb adds: “To carry that argument through it would be logical for them to sell everything. Ultimately they stand or fall by the quality of their branded range.”


Consumers go to M&S for a different shopping experience from a mainstream supermarket. Bubb describes that fact as both a strength and a weakness of the retailer but, significantly, he adds that the retailer “can’t be all things to all men”.


He concedes, however, that M&S’s move to carry more ingredient lines – the retailer added 300 food ingredient products not previously available at its stores in January – has been more successful than he expected.


Branded food companies, however, who have seen own-label erode their market shares for some years, are understandably delighted. “We’re delighted that M&S have decided to include so many of Unilever’s brands in its trial to stock branded consumer products in 19 of its stores in the north-east,” a Unilever spokesperson tells just-food.


Underlining the “must have” idea behind the move, the Unilever spokesperson adds: “Brands like Persil, Dove, Sure, Flora, Knorr and Hellmann’s have been built over many years and have won their places in the hearts and cupboards of UK consumers. We are optimistic that the trial will prove to be a success over the coming months and look forward to working with M&S to making it work as well as possible.”


M&S has attempted to play down the move but there is no doubt that the trial does represent a significant change in its approach. It is of course only a trial and it remains to be seen if the strategy will be retained in the long term.


And, given the current data on own-label share, it may represent only a minor adjustment in the prevailing balance of power between brands and retailer own-brand.

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