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July 3, 2008

UK: M&S should avoid price competition – analysts

Marks & Spencer should not try to compete solely on price with their larger UK grocery rivals in a bid to revitalise its flagging food business, analysts told just-food today (3 July).

Marks & Spencer should not try to compete solely on price with their larger UK grocery rivals in a bid to revitalise its flagging food business, analysts told just-food today (3 July).

Industry watchers and City analysts are questioning M&S’s food strategy in the wake of yesterday’s gloomy trading update from the company, when it revealed underlying sales had dropped 4.5%.

The news – and the announcement that the head of the company’s food business Steven Esom was leaving the company – sent M&S shares plunging by more than 20%.

Keith Bowman of stockbrokers Hargreaves Lansdown acknowledged that M&S, with its focus on upmarket food, was in “a difficult place” but he was sceptical about any attempt to shift emphasis towards the value end of the sector.

“Moving towards value would require a complete shift in the brand and in the business,” Bowman told just-food.

Neil Sanders, a retail analyst at Verdict Research, said increased competition from the likes of Waitrose and the UK’s big four multiples had eroded M&S’s “unique point of difference”.

However, Sanders said the M&S business model was not set up for competition on price with the likes of Tesco and Asda.

“I don’t think they should go down the value path,” Sanders told just-food. “There is no way M&S can compete on price because they have not got the volume of sales. The value route is a dead end for M&S.”

In a bid to lure more shoppers into its food halls, M&S has begun a trial of stocking “must-have” brands including Marmite and Heinz tomato ketchup in a select number of stores in the UK.

Sanders said the move could add sales but insisted that M&S should look deeper at its food offer.

“I don’t necessarily think that stocking third-party brands will harm the business but, certainly, if that is the mainstay of M&S’s strategy, it is missing the point,” Sanders said. “There are fundamental problems and that kind of activity is playing around at the edges and not going to the nub of the issue.”

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