M&S welcomes the rapid success of the Ocado merger despite a major loss of the group
Marks & Spencer may have recorded a group loss of £ 201.2million during the pandemic, but the retailer is celebrating an ‘exceptional’ time for its new partnership with online supermarket Ocado.
M&S bought half of Ocado’s retail business in 2019 for £ 750million, replacing Waitrose on the delivery service in September last year. The full range of 6000 M&S Food products is available on the platform, as well as 800 M&S everyday and home clothing lines.
“[The partnership with Ocado] has significantly expanded the penetration of M&S Food brands, ”CEO Steve Rowe said during a press call today (May 26). “For the first time ever, the full line of M&S Food is online and the customer response has been phenomenal.”
In the year ending February 28, Ocado Retail saw a 43.7% revenue growth, contributing £ 78.4million in net profit to M&S, which claims a share of 50% of the company’s profits.
Since the switchover, M & S’s basket share has exceeded Waitrose’s level, the company says. M&S lines systematically represent more than 25% of the Ocado basket.
For the first time in three and a half years, it can be said that there is a lot to feel confident about.
Archie Norman, M&S
Rowe added that the migration of Ocado customers has been “minimal” since the change, while the partnership has seen new customers buy M&S for the first time.
In particular, Ocado is driving an increase in M&S market share in London, where around 60% of Ocado’s sales are based. M&S itself lacks market share in London and has a stronger presence in the north of England, Rowe said.
Over the next 18 months, Ocado Retail will invest in increasing its peak capacity by approximately 50% – an increase of approximately 200,000 orders per week – to help meet unmet demand.
However, M&S has indicated that it expects demand to slow down and a reduction in average order value over the coming year, as Covid restrictions ease and consumer behaviors decline. stabilize.
Excluding Ocado, the supermarket’s food income increased 1.3% over the year. This figure rises to 6.9% when we remove hospitality and franchise sales.
Meanwhile, revenue from the brand’s clothing and home activities declined significantly, with non-essential retail remaining closed for most of the pandemic. Revenue fell -31.5%, with online growth of 53.9% only partially offsetting a -56.2% drop in stores.
Priority to value
The retailer attempted to mitigate the impact of Covid-19 on the business by reducing marketing spend during the year and “substantially” reducing promotional activity.
M&S cut clothing and home spending by £ 50million, while cutting back on high-end advertising and shifting spending to social media and digital, commonly seen as performance marketing channels.
The company made a similar shift in strategy for its food business, claiming to have moved away from “the mainstream business” to focus on building high impact brands and increased engagement on social media. The company has increased its social and digital spending by around 35% per year.
Nonetheless, M&S recorded a statutory loss of £ 201.2m in fiscal 2020, as the group’s turnover fell by -11.9% to £ 9bn.
M&S cuts marketing spend by a third by accelerating the digital switchover
Despite its poor performance during the year, M&S remains optimistic about its progress against its transformation strategy, “Never the Same Again”. The retailer launched the strategy last year to boost transformation of its food, clothing and household businesses in response to the impact of Covid-19 on consumer behavior.
In addition to the Ocado partnership, the strategy included a shift towards prioritizing the perception of brand value, expanding the appeal of its lines, and further investments in online and digital capabilities.
To broaden the appeal of its food business to families, last August M&S launched a line of affordable “Remarksable Value” foods, comprising more than 340 products at competitive prices. The range now represents around 10% of sales.
As a result, M&S says it has recorded its highest Net Promoter Score (NPS) in nearly three years, at over 65%.
However, according to BrandIndex, the YouGov brand health tracker, M&S still has one of the lowest scores for value among major UK supermarkets, scoring just one in February from this year. Although representing an annual increase of 2.8 points, only Waitrose ranks lower with a score of -8.2.
Either way, Rowe said M&S had “a lot of leeway” and “a lot of opportunity” to expand its food business. At present, the food sector claims only a 4% market share in the UK.
The brand also relaunched its loyalty program, Sparks, in July last year, moving from a points plan delivered via a physical card to a “more user-friendly” digital experience via the M&S app.
The digital shift allows the retailer to create a more personalized relationship with its members, says M&S, and since its relaunch, the total number of its members has grown to more than 10 million customers.
Meanwhile, in the apparel and home business, M&S is expanding its online capacity and hopes to generate more than 40% of its revenue online within three years. The retailer has also started offering third-party brands through its stores and online platform for the first time. M&S strategy to sell competing brands marks the end of an era
“It feels like we’ve come to an inflection point,” Rowe said. “We can see the results materialize in terms of business performance and customer sentiment is evolving positively. It’s time to take the next step. “
M&S President Archie Norman added that the brand enters a “new phase” when it emerges from the “chrysalis” of Covid-19 as a reshaped company.
“For the first time in three and a half years, we can say that there is a lot of reason to be confident and that there are enough green shoots and bright spots to believe that M&S is about to turn back. a growing business, ”he said.