City: Bolland won't turn screw on M&S suppliers

By Elaine Watson

- Last updated on GMT

City: Bolland won't turn screw on M&S suppliers

Related tags: Morrisons, Better, Food

New Marks & Spencer boss Marc Bolland may seek to extract fresh savings from his food supply base this year, but is unlikely to embark on another ‘project Genesis’-style crusade in the immediate future, analysts have predicted.

Speaking to FoodManufacture.co.uk as Bolland entered his second week at the helm of M&S, Oriel Securities analyst Jonathan Pritchard said:“Of course, change breeds nerves for suppliers, but I don’t think another project Genesis ​[large scale re-tendering exercise designed to extract better terms from suppliers] will be high on Bolland's agenda right now.

“We believe that the bulk of the investment necessary to drive a change in customer perception​ [that M&S is too expensive] has already been made.”

He added: "Besides, there are more customer-facing things he can do that will deliver better results​ [than squeezing suppliers]."

For example, there was considerable scope to drives sales densities and improve profits in M&S' larger food halls by improving its bakery, meat and fish offer, he said.

“It is the performance of the larger food halls that is dragging the profitability of the food business down. But there is real scope for M&S to do a better job with its freshly prepared offer across bakery, meat and fish.

“This is where we see the immediate opportunity. Looking at how well Morrisons​ [Bolland's former employer] does in terms of sales densities for a relatively low allocation of space to 'Market Street' is instructive. I expect to see more in-store theatre to drive sales densities in these areas.”

Branded products

The recent introduction of third-party brands into M&S along with a more competitive pricing architecture on own-label products could also help M&S convert ‘top-up shoppers’ into more regular visitors, which would be critical if Bolland wanted to sweat space more effectively, he added.

“With prices now set at a more sensible level, we believe that the introduction of third-party brands can serve as a useful way to increase basket sizes as well as reinforcing just how competitive the prices of M&S own-brand products actually are.”

Meanwhile, real progress had been made on driving down operating costs, he claimed: “At an investor day last October, M&S made its determination to address the systems and logistics deficiencies abundantly clear.”

Structural problems

Other analysts were far less optimistic, however, with Tony Shiret at Credit Suisse still unconvinced that introducing big brands or revamping its fresh offer would tackle the structural challenges faced by M&S, which had lost its leadership on quality in many areas and lacked the scale to compete on price.

Meanwhile, development chefs contacted by FoodManufacture.co.uk said that while M&S was still the brand to beat on quality grounds, rivals had closed the gap in recent years: “M&S always used to be the gold standard when it came to recipe dishes; not anymore. M&S has lost a lot of ground.”

Other commentators also argued that Bolland's options remained "pretty limited".​ Unike the mass-market grocers, for example, M&S did not have the option of luring punters into its stores with 5p off deals on petrol or bulk purchases of beer, observed Ed Garner at Kantar Worldpanel.

It also lacked the range to enable shoppers to trade down in many categories within the store (although some lower priced lines had been introduced over the last 12 months) or complete a full shop, he claimed. “Trading down in M&S effectively means going shopping somewhere else. Similarly, if you go to M&S, you still have to go to another store to finish your shop. Go to Waitrose or Tesco and the job’s done.”

Margin squeeze

Operations managers contacted by FoodManufacture.co.uk also doubted Bolland would have much room for manoeuvre if he did try to extract significant cost savings from suppliers such as Uniq and Northern Foods.

One said:“Margins in some parts of the chilled food manufacturing sector have been squeezed so much that there is nothing left to screw out of us.”

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