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November 8, 2010

UK: Marks and Spencer should look to online grocery – analysts

Marks and Spencer chief executive Marc Bolland should expand the UK retailer's online food offer when he launches his strategy for the business tomorrow (8 November), retail analysts have told just-food.

Marks and Spencer chief executive Marc Bolland should expand the UK retailer’s online food offer when he launches his strategy for the business tomorrow (8 November), retail analysts have told just-food.

Speculation has been mounting for weeks about what Marc Bolland, the new CEO of UK retailer M&S has in store for the chain.

Arden Partners analyst Nick Bubb is keen for M&S to expand its online food offer beyond that of “chocolates and flowers”. While he expects the chain to push more of its clothing and homewares online, he believes there is “more it can do” in terms of its grocery offer.

While Bubb thinks M&S’s limited range will make it difficult for the retailer to offer a full online grocery shop to the same degree as that of Sainsbury’s or Asda, Singer Capital analyst Matthew McEachran believes M&S’s branded range could drive this growth.

“Branded food offer will form the key ingredient in a food direct proposition,” McEachran said. “Ocado launched primarily with Waitrose private label products and perhaps M&S will do the same with its branded range.”

McEachran and Bubb diverged on what they think the future of branded products will be for the retailer.

“In conversations we’ve had with management, they seem quite pleased with what branded goods have done for the business. If they are looking to change their branded offer, they must have found some kind of other benefit,” said McEachran.

However, Bubb said: “It sounds as though Bolland is not so keen on branded products. He played down their role in the second quarter results. While I don’t believe he will scrap them completely, he may scale them back.”

In terms of the much rumoured plans for the retailer to re-enter Western Europe, Bubb believes “France is a big market, and it’s crazy they’re not there. In the long-term China and India will be the large growth markets, but there is much business to be done there [France] in the short term.”

RBS analyst John Guy raised a number of concerns around the retailer’s reported plans to re-enter Continental Europe. “At present we have no way of knowing if this is Bolland’s intention,” he said.

“We understand the rationale for a clear, coherent international strategy, given M&S’ brand power as a quintessentially English brand. The obvious concerns revolve around: implications to short-to medium-term group returns; the need for additional funding and the shape of funding; time involved to hit critical size and scale in key regions; planning permission and additional infrastructure spend in order to facilitate logistics; and whether an aggressive European expansion policy would take priority over 20/20 [strategic repositioning] commitments.”

McEachran expects that M&S may accelerate its 20/20 strategic repositioning programme. “The 2020 repositioning is already underway, but we’ll expect to see some commentary on where that can be accelerated,” he said.

Bubb is optimistic about M&S’ prospects despite the City’s bleak view of the retailer just a year ago. “It’s not been the problem people thought it was going to be”, as the chain has “regained momentum” and its customer base has more confidence and are more prepared to spend than those of Tesco or Asda. Additionally he said that Waitrose’s recent expansion push is “not seeming to harm M&S’ sales.

However, McEachran was quick to say that “all of this is pure speculation” and “we’ll just have to wait and see what they announce tomorrow”.

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