Beginning the turnaround in Food
It has been a tough year in Food with under performance against the market. The origins of this poor performance however are not recent. Our food remains unique and customers still rate us as their favourite supermarket. But over some years, the range has gradually drifted towards becoming more premium and we have lost some of our appeal to broader family-age shoppers.
This problem has been compounded by the rising intensity of competition from the discounters at one end and supermarkets at the other, both seeking to emulate our success by copying our fresh product ranges and innovation. This problem is further compounded by high operating costs, high waste and markdowns, and below industry average availability. This, together with rising rent and wage costs, has eroded profit so that urgent action is now needed.
We have already taken initial steps to arrest the decline and restore like-for-like growth. The rapid roll out of new owned space has now been substantially slowed. We have made selected investment in prices to restore value for money. For instance, we reduced prices on eggs by 18% and saw sales rise by 43%. We have started to rationalise our promotions so as to avoid losing money and obliging customers to spend more to obtain good value. With the arrival of a new marketing team, we are starting to communicate better our unique product credentials in freshness and traceability. Our food innovation pipeline has been re-orientated towards more mainstream, popular family products.
A project team, with outside help, has been set up to address the problems in our supply chain. We believe that significant improvement in availability and waste can be achieved without restructuring the outdated network of distribution centres and initial results are encouraging.
UK Food Marketplace
The UK food market is undergoing an extraordinary period of change. Although there have been some signs of growth, most of this has been driven by inflation. The discount sector will inevitably continue to grow, probably to 15% or more of the market. Home delivery and online, where we have little presence, are also growing at about 1% of the market a year by 2022. And in an effort to support margin, the mainstream players are seeking to match M&S in the quality end of the market. Therefore, the competitive pressures on our business remain intense and we do not expect this to change in the year ahead. Consumer budgets remain tight and the business, with our fresh emphasis, could also face complications from Brexit and any border friction for food products.
A SLICE OF DETROIT FOR BRITISH FAMILIES
INSIGHT Customers told us they want a deeper, more nourishing pizza without skimping on the fillings, in larger pack sizes that can feed a family.
RESPONSE In September, we launched six new Deep & Loaded Pizzas inspired by the famous pizzas of Detroit. From the Whole Hog, with smoky sausage, spicy pulled pork and barbecued burnt ends, to the Meatball Marinara, topped with mini meatballs and sautéed onions, these deep pizzas priced at £6 are perfect for families to share – we sold 1.2m Detroit inspired pizzas in the year.