Marks & Spencer may be struggling but its food division continues to innovate. The UK high street favourite recently lauched “& more,” an own-label brand of functional foods delivering soy protein. How are they pricing these premium products? And if more retailers start doing functional foods for themselves, where does this leave manufacturers of branded foods? Dr Michael Heasman and Julian Mellentin of New Nutrition Business share their insight.
The world’s first-ever range of retailer-branded functional foods has been launched in the UK. It is a move of potential strategic significance for retailers, food processors and ingredients companies alike.
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In an ambitious move Marks & Spencer (M&S), a UK food and clothing retailer, has launched the “& more” range of functional foods and in so doing becomes, to the best of our knowledge, the first food retailer in the world to develop a full range of own-brand functional foods.
M&S teamed up with Protein Technologies International (PTI) to develop its new “& more” range. Each product delivers 6.25g of soy protein, using PTI’s Supro brand soy protein. The new range extends to twenty everyday foods, including cereals, pasta, pasta sauces, smoothies, yogurts, cereal bars and bread. Initially planned for roll-out in 25 stores in March, M&S says that it will go into a further 25 stores. Of the potential total of 20 “& more” products M&S says it will begin with 15.
The products carry the following claim on side panels, which clearly owes its inspiration to the FDA-approved claim used in the US: “Clinical research has shown that a daily diet containing 25g of soy protein will help reduce cholesterol as part of a balanced diet. Each serving of [name of product] contains a quarter of your daily requirements.”
The front panel of the pack also states: “Helps maintain healthy cholesterol levels“and also: “Scientifically tested. Soy protein helps maintain a healthy heart.” PTI’s Supro soy protein is GMO-free and the fact that “& more” is GMO free is stated on the packaging. Marks & Spencer has a GMO-free policy which extends to ensuring that meats and fish it retails come from animals fed on a GMO-free diet.
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By GlobalDataAs well as soy protein “& more”products are fortified with anti-oxidant vitamins C and E – the Smoothie, for example, delivering 152% of the RDA of the former and 440% of the RDA of the latter – and fructooligosaccharides.
Although M&S points in support of its claim to the growing dossier of clinical evidence on the heart-health benefits of soy it also carried out one small clinical trial of its own on its products “as consumed,” running a ten-week trial on 40 subjects at the Cardiothoracic Unit of London’s St. Thomas’ Hospital, the results of which are expected to be published in a peer-reviewed journal later this year.
Asked about pricing David Gregory, Head of Food Technology at M&S, told New Nutrition Business in an interview that the range will be priced at a premium of no more than 20% to comparable “regular” products, saying that the company had made a commitment not to take a higher percentage margin on this range than on comparable products in a bid to make them more affordable.
Our own analysis, however, (see table) reveals that while for some products the premium is around 20%, for others it is much higher – in one case 40% and in another over 100%. Based on past experience from the many other functional brands which have come to the market, consumers are likely to notice the higher premiums since they can easily make product-for-product, like-for-like comparisons and these products may prove to have the poorer rates of sale.
M&S consumers are typically thought of as bastions of the middle class (a group often referred to as “middle England”). Cardiovascular disease in the UK – which has one of the highest incidences of CVD in the industrialised world – is concentrated among lower income groups, however. Asked about this, David Gregory told New Nutrition Business that it planned to put the range into stores in regions with high CVD rates, such as Glasgow, Scotland, early on and had kept its price premium to a minimum, covering only extra raw material costs, precisely to make the range more accessible to the income groups most in need of help.
M&S prides itself on high ethical standards – for example, the company donates 1% of its profits to charity each year. To most of our readers the name Marks & Spencer will mean little, but to those in the UK and Ireland the name is synonymous with underwear – Marks & Spencer once sold 30% of all the underwear worn by the British. The troubled company, whose profits fell by half in 1999 after a decade of complacent management and whose share price has never recovered, has 5% of UK grocery sales, making it the country’s seventh- largest food retailer. The top six chains control 84% of the grocery market; market leader Tesco has share of 24.6%.
The company sells only one brand – its own St. Michael brand (named after the founding father of the company, Michael Marks).
Stragegic implications for brand owners
A survey last year by management consultants KPMG found that European food industry CEOs believed that functional foods offered the best prospect for growth. Food processors are investing millions in developing new functional brands in a bid to gain higher margins. The survey also revealed, too, that the European CEOs saw retailer power as their greatest threat. But what happens if retailers decide that they can do functional foods themselves?
This development poses an interesting conundrum for branded food companies. The main business ambition behind functional foods is to gain higher margins in an in industry in which, thanks to increasing retailer concentration, margins are under continuing downward pressure. However, many ingredients companies – which supply the active ingredients which make foods functional – are becoming increasingly frustrated with some food companies’ inability to successfully innovate, a problem arising from food companies’ low levels of R&D spending and – industry insiders say – the often parlous state of technical and marketing skills inside many branded foods companies.
One food ingredients giant operating in health told us it actually has to teach its clients’ marketing departments how to market foods with health benefits. Others describe having to carry out most of the product development on behalf of their clients, such is the lack of NPD skills in some brand-owners R&D departments. This raises the question for many ingredients companies of just what value the food processors are actually adding – and the M&S case highlights how things might develop in the future, with ingredients companies working directly with retailers. Retailers’ brands are often bigger and more trusted than those of most food companies, and this trend might increase as increased retail concentration makes the retailers’ brands yet bigger and better-known. Many food processors could be faced with a future in which they are more than contract manufacturers. Such a scenario – while still far off – should give CEOs pause for thought.
The answer to this conundrum lies in branding. Food processors who can develop brand propositions which are credible to consumers and incorporate, taste, health, convenience and naturalness should have little to fear.
The M&S “& more” products also illustrate how global the business of food and health has become and how propositions approved by regulators in one country are being rolled out in others. The “& more” range carries the health claim which clearly owes its inspiration to the FDA-approved claim used in the US.
Another interesting aspect of the “& more” range is that M&S now stocks a broader range of soy-fortified products than any other UK supermarket. This may prompt its larger rivals to look harder at what would be – for the UK market – innovations, such as soy pasta.
Marks & Spencer has already proven it can make a success of foods sold on a health proposition. The M&S calorie-counted “Count on Us” range, for example, has achieved sales in excess of £100m (US$140m), putting it among the UK’s top-ten brands. The company’s choice of soy as its health proposition is probably an astute one, given the increasing awareness of the health benefits of soy in the UK. All eyes will now be on M&S.
To find out more about Michael Heasman and Julian Mellentin’s book The Functional Foods Revolution: Healthy People, Healthy Profits? please click here.
