M&S FY19: food outperformance

Laura Jacobson
Head of Insight - RA UK
@RetailAnalysis

Date : 20 May 2020

Like-for-like sales up 1.9%, adjusted operating profit up 11.2% to £237m and revenue up 2.1% to £6bn marks a positive year for M&S's food division for the 52 weeks ending 28 March 2020. 

Volume-driven growth

Volume grew ahead of value for M&S, up 3.3% in the period, a trend which accelerated across the year. This reflects the ongoing work to improve price perceptions, part of the retailer's strategy to establish "trusted value". Mechanics such as Fresh Market Specials and the Remarksable Value campaign were highlighted as successes.

Momentum on food transformation

M&S has now opened five "test and learn" new format food stores, the latest opening in Manchester in the spring. There are plans to extend this format in the coming year. Alongside improving its price perception "maintaining the magic" has been crucial to M&S's strategy, with ongoing range innovation in its popular Plant Kitchen, healthy and made-without ranges highlighted in the past year. Marketing has also helped increase M&S's appeal to families, including its sponsorship of Britain's Got Talent.

Plans to reduce waste, improve availability and run stores more efficiently have been trialed and are now being rolled out across the wider estate.

Changing the international model

Following a shift away from owned operations in international markets, M&S is now focusing on localising ranges, reducing prices, and developing online sales. COVID-19 trading conditions impacted the division's performance, with operating profit before adjusting items declining -15.2%, and revenue down -3%.

COVID-19 impact: volatile food trading ahead

The end of M&S's reporting period captures the start of lockdown, and contributed an estimated 0.3% benefit to food performance. M&S's CEO Mark Rowe commented that the time before COVID-19 feels like "ancient history" and that the aftershocks will impact the year ahead and beyond. This includes the acceleration of digital trends, and the shape of the high street, action towards which M&S was already undertaking through its transformation strategy.

The business has launched a "Never the same again" programme to draw on learnings from the crisis and capitalise on the opportunities to drive the transformation plan in a changed consumer environment.

M&S is forecasting the scenario that food sales will decline 20% in the four months to July at a cost of -£400m, with revenue leveling out after this point. Tracking this to date, the retailer reported that sales are so far ahead of this scenario. However, there has been a mixed picture across store estate, with stores on retail parks performing strongly, and franchise travel stores reporting decline in revenue. In-store cafe and hospitality closures also impacted sales (and account for c.4% of revenue). In addition, the initial shift towards ambient grocery purchasing was reflected in adverse margin mix, a trend which is now reversing. 

The primary challenges ahead lie with M&S's Clothing & Home division, which from July will be headed up by former Tesco F&F CEO Richard Price.

Structural and leadership changes

M&S's lean leadership structure under Steve Rowe includes new CFO Eoin Tonge, new chief strategy and transformation officer Katie Bickerstaffe, and both divisional MDs.

Steps to maintain the greater flexibility and agility demonstrated in the previous months are underway, in-store, in its digital teams, and through further implementation of front-line tech.

Central support costs and headcount also continue to be reviewed at all levels, part of large scale cost management across the business to offset the increased costs due to current trading conditions. 

On track for Ocado switchover in September

M&S anticipates the online grocery market to be "even more vibrant as a result of the crisis". The partners are on track with their plans, including adding over 6,000 M&S lines to Ocado, preparing data sets and supply chain processes and negotiating supplier terms (both for M&S suppliers on Ocado, and branded suppliers new to M&S).

In addition, M&S shared new plans to sell 1,600 core clothing & home lines on Ocado, beginning with a range of c.850 lines in September. 

Want to know more?

See M&S's first "bigger, better, fresher" trial store here

Compare M&S's performance to UK competitors here