M&S and Waitrose are fighting for shopping baskets in central England

At the top end of the UK grocery market, a battle is brewing between two strongholds in central England and against the backdrop of a cost-of-living crisis affecting consumers across the country.

Over the past two years, according to NielsenIQ data, Marks and Spencer has gained about 0.7 percentage points of market share while Waitrose has lost a full percentage point.

Changes to ranges, prices and stores to encourage customers to use them for more than just desserts and ready meals are paying off, said Stewart Machen, M&S co-CEO and former head of food.

What he calls “renovation stores”—often in retail parks with plenty of free parking—”definitely make for a complete shopping experience.”

But James Bailey, executive director of Waitrose at the John Lewis Partnership, said the pandemic had made the past two years so exceptional that he wondered “whether this is really the time to form difficult conclusions”.

Many feel that “switching to Ocado” in September 2020 was an important moment for the competition between the two. Waitrose has supplied the online supermarket with branded groceries since its early days. But in the midst of the pandemic, Marks & Spencer has taken on that role, taking its food online for the first time in the process.

M&S at Battersea Power Station in London. Analysts praised the retailer’s new food halls, product ranges and pricing strategy © Terry Leebray / Alamy

“Ocado has made online easier [Waitrose] “The end of this arrangement meant they had to invest in their own capabilities,” said Steve Dresser, founder of the consulting firm Grocery Insight.

Bailey acknowledged that this was stress, even though Ocado accounts for less than 10 percent of Waitrose’s sales. “We had to multiply our number five times [ecommerce] Very quickly with the store’s pick-up model, but a lot of our branches aren’t really designed for pick-up.”

But Dresser and others in the industry also praised the M&S food courts’ new look, product ranges, and pricing strategy. “They totally nail seasonality and their innovation is really good,” said Brian Roberts of grocery research group IGD. “The value investment has been great . . . things like ground beef and whole chicken are where perceptions of value are formed.”

The new stores in the retail parks bring M&S into more direct competition with Waitrose, which according to Dresser “feels like it’s running backwards.” He pointed to her tired shops at times. “It’s very frustrating because [Waitrose] Brand, customers and locations.”

Waitrose remains ahead of Marks & Spencer in market share. Bailey said demand has normalized now from the pandemic and that Waitrose has added online order picking capacity, and can focus on other things.

“We want to be in good shape when the cycle turns and people start to feel more positive.”

Line chart of percentage showing market share

But the company faces an important limitation. As part of the employee-owned John Lewis Partnership, it has less access to outside capital and its cash flow has been used to help support the department store side of the business in recent years. Last year it sold and leased back some of its freehold stores to raise money for the investment.

Even in good years, bonuses paid to partners can eat up a large chunk of profits.

Previous rounds of cost-cutting have taken their toll. “What’s happening now has less to do with the cost of living and more to do with what’s happened at Waitrose over the last eight or 10 years,” said one former senior staff member.

This person added that the company once content to “let ideas emerge” from its purchasing teams has gradually moved towards a more bottom-up approach that has reduced innovation and has “lost some really good people” mostly to Marks & Spencer.

Bailey, who joined from J Sainsbury a few months into the pandemic, admitted he had to work with what he had. “We have to create room for appropriate investment while still being careful,” he said.

But, he added, “there is no doubt that we need to continue to invest in branch real estate . . . you have to deliver an excellent experience to charge an excellent price.”

Graph showing Waitrose's sales and profits

Such strategic questions come at a uniquely difficult time for the industry. Costs, including employee wages and energy as well as groceries on the shelves, are rising faster than the prices charged to consumers, putting profit margins under pressure.

Nigel Murray, managing director of luxury grocery chain Booth, described it as “everything and from all angles” and noted that some of the obvious remedies carry reputational risks for a supermarket.

“It would be the easiest thing in the world” to cut product specifications or reduce store staff, he said. “But we’re actually taking self-service checkouts, and others are putting in more.”

He’d rather take a short-term hit to profitability and his big-box grocery counterparts broadly agree. “It’s hard to recover when you’ve diluted what the brand stands for,” Bailey said.

Inflation makes everything more difficult, Machin said, but Marks & Spencer will focus on cutting costs and looking for efficiencies in sourcing. “I really don’t think we should compromise on quality.”

All three acknowledge that while their customers aren’t generally, Bailey says, “in the ‘heat or eat’ part of the market,” they are nonetheless looking to keep costs down.

People walking past an Ocado delivery truck
Waitrose has provided Ocado with branded groceries since its early days, but in the midst of the pandemic, M&S has taken over the role, moving its food online for the first time in the process. © Mike Kemp/InPictures via Getty Images

One bright spot is that supermarkets are benefiting from people eating less, with Murray noting an increase in sales of fresh fish and steak.

And despite M&S’ current momentum, it has its own limitations. It is still very much a self-branded retailer, which gives it a high degree of control over its products but a much narrower scope than that of Waitrose and other supermarket chains.

Machine has no plans to change that, saying “there will never come a time when we will run a large 60,000 square foot supermarket with all the brands”.

He adds that customers who want to combine M&S products with other brand-name merchandise can do so at Ocado.

The M&S store also has hundreds of smaller Simply Food outlets, which don’t carry their full range, while many of their larger stores remain in downtown areas that are hard to reach by car.

Waitrose now works closely with John Lewis stores in areas such as customer loyalty and joint product ranges, while the broader partnership is diversifying its revenue streams in order to strengthen its finances.

It all suggests that the battle for Britain’s wealthiest shopper still has a long way to go.

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