M&S hails early success of Ocado tie-up despite major group loss

M&S recorded a £201.2m loss for the last year, but with Ocado’s strong performance and a shift in marketing strategy, CEO Steve Rowe believes the retailer’s transformation strategy is at an “inflection point”.

M&S

Marks & Spencer may have recorded a £201.2m group loss during the pandemic, but the retailer is celebrating an “exceptional” period for its new partnership with online supermarket Ocado.

M&S bought half of Ocado’s retail business in 2019 for £750m, replacing Waitrose on the delivery service in September last year. The full M&S Food range of 6,000 products is available on the platform, as well as 800 M&S everyday clothing and home lines.

“[The partnership with Ocado] has extended penetration of the M&S Food brands substantially,” CEO Steve Rowe said on a call with press today (26 May). “For the first time ever, the full range of M&S Food is online and the customer reaction has been phenomenal.”

Over the year ending 28 February, Ocado Retail delivered revenue growth of 43.7%, contributing £78.4m in net income towards M&S, which claims a 50% share of profits in the venture.

Since the switchover, M&S’s share of basket has exceeded the Waitrose level, the business claims. M&S lines consistently make up over 25% of the Ocado basket.

For the first time in three and a half years, we can say there is a lot to feel confident about.

Archie Norman, M&S

Rowe added that migration of customers away from Ocado has been “minimal” since the switch, while the partnership has seen new customers shop M&S for the first time.

In particular, Ocado is driving an increase in M&S’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 is investing in increasing its peak day capacity by approximately 50% – an increase of around 200,000 orders a week – to help meet unfulfilled demand.

However, M&S noted that it expects to see demand slow and a reduction in average order value over the coming year, as Covid restrictions ease and consumer behaviours stabilise.

Not including Ocado, the supermarket’s like-for-like food revenue increased by 1.3% over the year. That figure rises to 6.9% when removing hospitality and franchise sales.

Meanwhile, revenue for the brand’s clothing and home business declined significantly as non-essential retail remained closed for the majority of the pandemic. Revenue plummeted by -31.5%, with online growth of 53.9% only partially offsetting a -56.2% decline in-store.

Prioritising value

The retailer attempted to mitigate the impact of Covid-19 on the business by reducing marketing spend over the year and cutting promotional activity “substantially”.

M&S cut spend on clothing and home by £50m, while making cuts to above-the-line advertising and shifting spend into social media and digital, typically viewed as performance marketing channels.

The business made a similar shift in strategy for its food business, claiming to have shifted focus away from “conventional activity” and towards high impact brand building and increased social media engagement. The business increased social and digital spend by approximately 35% year on year.

Nevertheless, M&S recorded a statutory loss of £201.2m over the 2020 financial year, as group revenue fell -11.9% to £9bn.

M&S cuts marketing spend by a third as it accelerates shift to digital

Despite its dismal performance over the year, M&S remains positive about its progress against its transformation strategy, ‘Never the Same Again’. The retailer launched the strategy last year to drive transformation across both its food, clothing and home businesses in response to the impact of Covid-19 on consumer behaviour.

On top of the Ocado partnership, the strategy has included a shift towards prioritising the brand’s value perception, broadening the appeal of its ranges and further investing in online and digital capability.

To broaden the appeal of its food business with families, M&S launched an affordable ‘Remarksable Value’ food range last August, including more than 340 competitively priced products. The range now represents approximately 10% of sales.

As a result, M&S claims to have recorded its highest net promoter score (NPS) in almost three years, at more than 65%.

However, according to YouGov’s brand health tracker BrandIndex, M&S still has one of the lowest scores for value among the UK’s major supermarkets, with a score of just one in February this year. While representing a year on year increase of 2.8 points, only Waitrose ranks worse with a score of -8.2.

Regardless, Rowe said M&S has “plenty of headroom” and “plenty of opportunity” to grow its food estate. At present, the food business only claims a 4% share of market in the UK.

Digital vision

The brand also relaunched its loyalty scheme, Sparks, in July last year, shifting from a points-based plan delivered through a physical card to a “more customer friendly” digital experience via the M&S app.

The digital shift allows the retailer to create a more personalised relationship with members, M&S claims, and since relaunch its total membership has grown to over 10 million customers.

Meanwhile, in clothing and home M&S is expanding its online capability, and is hoping to bring in over 40% of its revenue through online within three years. The retailer has also begun to offer third-party brands through its stores and online platform for the first time. M&S strategy to sell rival brands marks the end of an era

“It feels like we’ve got to a point of inflection,” Rowe said. “We can see the results coming through in terms of trading performance and the customer sentiment is moving forward positively. It’s time to move forward to the next stage.”

M&S chairman, Archie Norman, added that the brand is moving into a “new phase” as it emerges from the “chrysalis” of Covid-19 as a reshaped business.

“For the first time in three and a half years, we can say there is a lot to feel confident about and there are enough green shoots and points of light to believe that M&S is on the verge of becoming a growing business again,” he said.

Source:https://www.marketingweek.com/marks-spencer-ocado/ Copy link