Wednesday, January 9, 2008

Retail Memo: Marks & Spencer Looks for Differentiation With Premium Food Ingredients and Groceries

Food retailing trends are made for bucking--at least for those retailers who are looking for a new point of differentiation.

And that appears to be just what British retailer Marks & Spencer (M&S) plans on doing: bucking the growing retail trend towards expanding prepared foods' and ready meals merchandising, which it helped pioneer, in favor of putting an increased emphasis on selling an expanded selection of premium food ingredients and groceries.

M&S's food group had a less than successful Christmas selling season. In fact, some UK supermarket analysts are predicting the retailer will have a 2% or more drop in same store sales for the crucial holiday shopping season, compared to the same quarter last year. In contrast, upscale grocer Waitrose--which is known for its premium and natural foods ranges of grocery products and ingredients--posted a 4% gain in same store sales for the Christmas holiday season, over last year.

See the reasoning at Marks & Spencer? It appears the retailer is thinking in more of a Waitrose mind set: that the key to growing sales at M&S might just be to merchandise an expanded selection of premium specialty foods ingredients and grocery products.

This doesn't mean Marks & Spencer is cutting back on its signature, prepared and ready-to-eat foods offerings. Nor does it mean M&S doesn't already offer an ample selection of premium groceries. Rather, it appears the retailer will merely put less emphasis on prepared foods in its new product development and merchandising strategy, and put an increased effort into launching more, and better, premium food ingredients and grocery products.

Here's what we know: First, This week a new line of premium food ingredient items and groceries will begin appearing in M&S stores. These items will include lines of upscale sauces, herbs and spices (fresh, dried and packaged), rice and noodles, breads, cake mixes, stocks and soups, and a number of other premium ingredient items and products in various different categories.

Second: These new, premium lines are designed to target the "foodie" market in the UK, particularly those consumers who cook at home. Home gourmets if you will. The idea, according to an M&S executive, is to add to the retailer's stellar reputation as a fresh, prepared foods retailer, a new reputation as the "store" to shop for quality, premium food ingredients and groceries.

This new development coincides with Marks & Spencer's naming of former Waitrose food executive Steven Esom as its new director of foods. M&S says the plans were in place prior to Esom's coming on board.

While sales in the retailer's food division have grown considerably over the last 10 years (in 1996 clothing sales at M&S were about 50% more than food sales; today the two sectors are nearly even), M&S is feeling competitive pressure, especially from the store for "foodies," Waitrose.

Publicly-traded Marks & Spencers' stock price also has been falling precipitously of late. The food group's move to beef up its premium food ingredient and grocery offerings--and attempt to lure Britain's "foodies" away from Waitrose--could pay big dividends.

Shoppers who make quality food a centerpiece of their lifestyles tend to be wealthier and more formally educated than those consumers who don't. As such, these shoppers also tend to spend more money per shopping trip than the average consumer. As a result, luring more of these "premium food oriented" shoppers could increase the average ring at M&S stores, thus having a positive effect on same store sales.

Although we believe this is a smart--and logical--move for M&S, it isn't going to be easy to lure Waitrose shoppers to its stores just because the retailer is expanding its premium food ingredient and grocery selection.

Waitrose offers a high-quality range of not only store branded and international brand premium groceries and food ingredients, the grocer also is strong in natural and organic products.

There is currently a convergence happening in the consumer food market between premium quality foods and ingredients and natural and organic ones. The most successful premium goods introduced in the last couple years have generally been those which also have all-natural or organic attributes--and Waitrose is an international leader in creating and merchandising such products.

The move by Marks & Spencer however is a very logical one for the retailer. It needs to more fully differentiate itself as a premium grocer. By expanding its stores' offerings of premium food ingredients and groceries it will be able to achieve that goal if executed well.

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