Not just any online operation.....
2 May 2017
M&S moving in to online food captured all the headlines this weekend, with the plans and trials kicking off later in the year by all accounts.
At a high level, it makes sense for M&S to offer the service, in the same way that Morrisons had to enter the market too. The growth is obvious and continues regardless, despite the model still not being entirely clear in terms of the specific workings from an economic viewpoint.
Whether the pick is done in store, or from a centre, nothing seems to stick and the specific numbers are a closely guarded secret from the listed players, citing 'commercial sensitivity'.
The closest we've got was the chart from Dave Lewis, noting that the margin contribution from online on his chart was red, everywhere. Meaning it was below the threshold in terms of a contribution towards margins.
No surprise really, as covered earlier in April, the numbers around online are hard to stack up.
Tesco have been hard at work tweaking their delivery charges and collection charges (implementing a click/collect charge) for the first time to presumably generate more income for the peak periods. Seemingly, given the demand and sell outs, customers are still happy to pay £6+ for a delivery on a Saturday.
The cut throat nature of the market is never as obvious as it is in online food, retailers for many years would seemingly throw money after customers, as any spending online would turn into store spending when the customer invariably needed to top up mid week.
The delivery subscriptions have been developed by all the major retailers to entice customers in to sticking with their preferred retailer. These schemes see the customer pay a set amount per month which brings them delivery slots (for free). It's the Gym theory, either the customer uses it incessantly, or makes use of it sparingly (but the retailer still gets their payment).
The other angle is that it becomes a driver for the customer, shopping there because they have a loyalty pass, almost irrespective of the value elements.
In addition, spending is higher and there are various stats showing that customers shopping online spend more and therefore, are more valuable customers.
Without wanting to go over old ground, online loyal customers are also incredibly demanding. Expecting no gaps / off sales, nothing short life in terms of fresh products and no late deliveries. An incredibly high standard is expected. With more cost incurred by the retailer, how does this stack up?
Part of any online operation is logistics and an expanding cost base. Will the M&S trial make use of differing options available? Store pick, central pick, end to end delivery, click/collect?
Or is the trial just to ascertain demand for the service in general?
How do M&S square the circle around online? Do they operate store pick? If so, which stores should they run this from? The larger out of town ones would make perfect sense, given their larger ranges. But high street locations are popular for the collection angle you would think.
Out of town would make logistics easier, assuming they decided to offer delivery. There's plenty of space for the Vans, and those stores are typically on decent routes nearer bigger, more metropolitan areas.
They surely won't miss the opportunity to tighten up around click / collect in these out of town locations also. Looking around the market at Asda particularly, who have done a great job with click / collect. Utilising car park collection, in store technology used to input your order and have a colleague appear with the order.
The last mover advantage here would work for M&S, technology has come a fair way since the inception of online; so routing technology would make it easier to offer delivery too.
How deliveries tie in to Plan A is interesting though.
M&S have had their eco focussed plan for many years now. Newer vans are of course far better with their emissions, but will M&S utilise an electric van?
If they decide to operate within a picking centre, that doesn't seem feasible (at least, to me) for a trial, given the set up costs. A partnership with Ocado would be intriguing and also be permitted given the changes with the Morrisons deal last year.
In terms of the offer; M&S have an interesting conundrum as their product mix in food is boutique esque, there isn't a huge range of ambient and what they have is own label dominated with very few brands.
There has been some advancement in range, but even still. Will they offer further branded lines and a deeper range of other categories online perhaps? If they did, it would require the central picking model as stores won't range the expanded ranges.
There is a large assortment of Fresh when compared with other retailers (c. 60% of space is Fresh Foods in M&S) which generally doesn't then lend itself to a higher basket spend, their store estate and product mix drives customers towards little and often and away from a 'big shop'.
You wouldn't be able to go and physically shop 'huge' at M&S in the same way you would at Asda. For a start the trolleys are too small!
But with a smaller basket and an older customer base (although in food, their innovation means they do attract a younger customer too) means online seems at odds with target markets.
Parties and hosting as 'missions' could be a lucrative option for them, but the online numbers wouldn't then necessarily stack up, as there is a need for volume to make the economics work.
Part of the M&S food success is seasonality; M&S are brilliantly good at innovation and products of the season. Their latest package for Summer has landed in stores and features numerous lines that are themed and represent real innovation.
But how does that work with online? It can be difficult to predict availability, especially with Summer, warm weather can see stores 'blow out' of BBQ lines when the weather is good. Some products can only have a short window to be sold and the availability / arrival of fresh lines can be erratic at best.
Whichever way the trial goes, it seems plausible to consider that this will be a way to work out the best way to offer food online, not whether they offer food online in the future.
M&S have a good degree of success with their food ordering service at Christmas, always incredibly impressive to see the service swing in to action at Christmas. Their improvement in both availability and space and range management means that they're in a place to consider online deliveries and picking from store.
Rewind 2/3 years back, there is no way they'd have been able to even consider this development. Stores win again!
From the Grocery Insight newsletter archive, first sent to subscribers on 2 May 2017. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.