Lower prices in M&S
23 October 2017
After Waitrose with their Essential price campaign and a raft of price cuts around the store, permanent cuts too (despite the unclear signage, and the confusion over a price campaign at the precise time they are pushing luxury)..
M&S made their move last week with a limited number of products featuring price cuts at the shelf edge. The totem at the front door certainly highlight a number of price cuts, fuelled presumably by all the customer feedback pointing towards higher prices, fixed incomes and the pressure on the household budget.
The Brexit effect, and even if customers are affluent, they all feel prices going up. The problem for M&S is that they are exposed twice over, perhaps even three times to the currency weakness.
Primarily as a non food and clothing retailer, the dollar weakness impacts significantly. Although given buying agreements and hedging is now reflecting the lower sterling value, this is perhaps not as big a factor as it once was. Ultimately, we are all paying more.
Secondly, Fresh Foods are impacted hugely. The GBP weakness versus the EUR means, alongside shorter buying cycles and the seasonal changes (out of British and in to European / Worldwide now) means that prices in Produce particularly are vulnerable to rises once again.
M&S over index on fresh, their offer is mostly evident in fresh and the ability to turn on seasonal and capitalise with a great range for Summer, Christmas etc is hugely aided by their fresh space. Plus the convenience missions etc etc.
So it's one of those things, M&S are where they are. But price is important to everyone and sometimes you have to be seen to be doing something on price, especially where rivals have moved to take up the advantage.
A backdrop to price is perhaps best looked at when bearing in mind the last quarterly result for M&S. A major concern for M&S heading to Christmas (now) was their food performance back in Q1 (up to July) wasn't great.
Their -0.1% like for like was a poor figure. With a late Easter increasing revenue growth by 0.7% (not like for like necessarily) and inflation (run rate of c. 2.5% depending on impact / efforts on price) and their tilt towards Fresh Foods in the range too....
Not good and unclear why really, sure their offer is relatively fixed but you know what you're getting at M&S. Good quality lines and their Summer range was raved about by all and sundry... So you look at price and the offer as a reason for their challenges in this arena.
I also think there has to be a consideration for the lower 'sale' rate in Non Food and Clothing. Full price sales being up 7% means less trips to stores for customers as there wasn't a 'sale' on all the time, so a change in tactics in non food could have impacted food sales in the larger stores perhaps.
Equally online too, less 'sale' items can also mean less click/collect parcels to the stores which again harms footfall and the 'pick up' shop / secondary footfall etc.
But price could have played a part too, M&S with their fresh ranges and wider offer around Summer were exposed to the closer customer attention to price anyway. Plus Summer lines are weather dependent and not always a 'destination'. If there's great weather, it's happy days for sales.
But discretionary purchases like 3 for £7 on Summer themed Tapas (flagged as a deal) can look expensive to customers seeking inspiration. Their multibuys generally can look expensive, 3 for £10 flagged for ready meals isn't a terrible deal given the quality and pack sizes in some cases, but £10 is still a fair amount of money when everyone is considering budgets.
Feasibly you can walk down an aisle and spend upwards of £30 on the various multibuy deals without actually 'getting' anything you were in store for... It's a fine balance.
There has been some work on the wider value deals though, as the images above show. Sides on 2 for £4 / 3 for £6 reflet that not everyone has £6 to spend necessarily.
Their work around meal deal has evolved significantly with numerous different options on Pizza, Premium, Italian and also an Indian deal all offered great value.
Whilst these are appreciated by customers, they do run the risk of cannibalising the core category sales, with customers all trading in to the core deal. Plus you have to over- stock the ranges potentially as the bigger the deal, the harder it is to predict what customers will/won't buy.
So, the wider price campaign for M&S encompasses a number of lines around the store. Not entirely clear which ones, or where the focus is. There isn't any real indication in the doorway about depth of cuts or number of prices lowered....
Savings in the image above are c.10p on the Curry Sauces with a similar level of discount on the Granola and laundry liquid too. Nothing to set the world alight but a gradual reducing of the overall price position nonetheless.
Their 'Price Checked' message has been re-emphasised and often features Sainsbury's prices as the yardstick. Unclear when they say 'competitors' as any price match I've seen only related to Sainsbury's. It could be an old sign feasibly.
The price check is simply a match versus Sainsbury's on a number of lines around the store, from Produce to Peanut Butter. Recently they changed the labels to feature a white out of black border, highlighting the price check element on the label.
The main challenge I've seen with the prices lowered campaign is that it's unclear.
There is no differentiation between the red label of a promotion and the same red label reading new lower price. So at a first glance, the customer either doesn't see the price cut, and then is presumably confused about whether it's permanent, or temporary, given the usage of the red promo label....
As we can see above, 3 for £10 on Poultry but the Lower price label would look identical at first glance too.
Green is used for New which highlights the seasonal ranges well, Christmas crisps here were nicely highlighted for customers. The one Red label highlights a deal, not a lower price.
Therefore the price campaign as a whole doesn't get cut through. Equally there could be more to come on this, shelf flags and additional signage but it wasn't evident in store.
Some of the lines selected are curious, 10p discount on Hide dog chews isn't really setting the world alight. Not when you consider the wider range of cuts in Waitrose and indeed, Sainsbury's steady work on stable prices throughout the year.
M&S key strength remains on innovation and seasonal periods, their poor food results in Q1 were brought in to sharp focus by the inflation number and their exposure to fresh foods. If anything, they should have had a better run of things.
Especially when you consider their excellent Summer package with numerous lines across the store, real inspiration for customers and some great products too. However their Q2 figures will see more of Summer come through, so this may aid their figures there.
Looking ahead to Christmas, already M&S have done a great job with Halloween, but Christmas sees a number of gifting lines available. Some great trend based gifts around Spirits and 'Tasting experiences'.
Gin is a major trend and M&S capitalise on this with a great product at £15, similarly some of their premium Christmas cakes are free from wheat, again, further innovation (we have seen this elsewhere with premium own label sitting in Free From).
So with that as a backdrop, lots of premium landing in store, especially on Confectionery (Gold, premium ranges noted everywhere) but also around the rest of the store. They look in good form and a destination for real quality.
With that in mind, why now for price? Any sign at the front brings that subject to the front of the customers mind. Price in this case, or indeed, any Produce quality guarantee automatically makes me think that their Fruit&Veg is probably no good.....
A customer who has no real thought on price when arriving > sees a price message at the front > they look for price cuts = disappointment when not many are noticed.
There may be more price cuts to come, but the execution, and timing of this campaign leave a lot to be desired. Why not run something in January when customers are cutting back both financially and in terms of their eating?
Turning the conversation towards price ahead of a big 3 weeks in the sector (Halloween, Bonfire night and starting Christmas buying) is risky.....
Especially when M&S have so much more to talk about.
From the Grocery Insight newsletter archive, first sent to subscribers on 23 October 2017. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.