Whether it’s a king-size mattress, letterbox-friendly wine or a funeral, there’s not much you can’t buy online these days. Except, that is, for Marks & Spencer groceries.
If the speculation is to be believed, M&S is in advanced talks with Ocado about a £1billion deal that would rectify that and see the retailer launch a national food delivery service.
But should the High Street stalwart bite?
M&S is reportedly mulling a deal with Ocado to launch an online food delivery service
You’d be forgiven for thinking it’s a no-brainer. Of course M&S should have an online delivery service (through Ocado or otherwise), particularly given its older customer base, and its pledge to become a truly ‘digital first’ retailer.
It seems like the premise would go down well with M&S shoppers. With some wondering why it hasn’t done so already.
One shopper took to twitter, bemoaning the fact that she could not order M&S groceries for her mother, unless it was party food
Its grocery rivals are miles out ahead.
Tesco started selling food online nearly two decades ago, and became the first to offer same-day deliveries in 2017.
M&S’s upmarket rival Waitrose has been selling groceries online via the Ocado platform for the best part of 20 years, and is now testing a system that lets delivery drivers enter your home and unpack the shopping for you while you’re out.
In the background, the threat of Amazon and its mooted ambition to seize a grasp on the UK grocery market looms.
M&S chief executive Steve Rowe (above) oversaw a very small trial of online food last year
Meanwhile, M&S’s food sales are slipping. At the half-year mark, food sales were down 2.9 per cent year-on-year. Could some shoppers be abandoning M&S in favour of a supermarket with an online offer?
M&S has been looking into it. It dipped a toe, albeit tentatively, into the world of online food in 2017, with a small trial at three of its stores. It has also appointed Samantha Hornsby, former head of online services at Tesco, to be its new head of food online – responsible for any future developments.
But even though the internet is poised to gobble up more of the food market, some retail experts think this is a race M&S should not be entering.
‘The economics do not stand up’
‘It doesn’t make economic sense for M&S to sell food online,’ argues Patrick O’Brien, UK research director at Global Data, who explains that making money from a food delivery service is ‘a major problem’.
Each order can cost a supermarket anything between £10 and £15 to fulfil, so even with orders of over £100, a decent margin is hard to come by.
‘We think most of the supermarkets are losing money doing online food deliveries,’ O’Brien says.
Even efficient operator Ocado finds making money from online food orders tough going
‘They say their online divisions are making a trading profit but don’t factor in all the costs, such as the time staff spend picking the orders from stores. We don’t see how, when you include factors such as this, they can profitable.’
He adds that even Ocado, which is generally considered to be one of the most efficient, is struggling to make money from its grocery delivery division.
‘Ocado’s losses continue to spiral. They would say that’s down to international investment, but there’s still no clear sign of the profitability of its own grocery proposition,’ he says.
But what exacerbates the issue in M&S’s case is that it has an average basket size of just £20 pounds. It is better known for its sandwiches and Percy pigs than it is for the mundane weekly food shop.
If its customers were to do these small shops online, M&S would almost certainly be running the service at a loss, and to the detriment of its already fragile bottom line.
The average basket size at M&S food is £20, which would make it difficult for it to sell online
‘M&S is not where a family does one big shop, so it would be much more difficult to make the service profitable,’ O’Brien says.
He explains that M&S could set a minimum order size, but with a niche range of just about 7000 items available it would struggle to get shoppers to significantly bump up their online baskets.
Asking customers to pay a hefty fee for each delivery would be unpopular too.
‘Chairman Archie Norman has been expected to make some major deals during his tenure – to do something that’s strategically important, but it’s hard to see how this would work well for M&S,’ O’Brien says.
‘You should not give customers what they want if you can’t do it in a sustainable way, and from what I can see, the economics do not stand up.’
Not just any food, M&S food
Independent retail analyst Richard Hyman agrees that, while the ‘sirens of online and technology are tremendously seductive, the economics are repellent’.
M&S is known for its innovative, high quality food, but carries a smaller range than most of its supermarket rivals
‘M&S was right to give online food a go with its small trial last year,’ he says, ‘but the test seems to have confirmed its fears.
‘Its food profits are so low, they don’t ever reveal what they are, so why would they want to dilute them further?’
In Hyman’s view, M&S would be better off behaving like its High Street counterpart Primark and concentrating on its own strengths, rather than following the crowd.
‘One of the hallmarks of Primark is that it has always set its own agenda and gone at its own pace – not someone else’s. It might sell online one day, but only when it’s convinced it won’t be margin dilutive,’ he says.
He adds that, if M&S (or any retailer) is concerned about the impending threat of Amazon, ‘the best thing it can do to defend itself is to be better at what it’s already good at’.
M&S is well known for its sandwich ranges, as well as its confectionery like Percy Pigs
‘One day Amazon will be a big player in food, so I think M&S needs to have confidence in its own strengths,’ he says.
‘They’ve got the most innovative, highest quality food. I’ve been very critical of M&S over the years, but their food is fantastic. They are leading edge.
‘But it needs to be careful,’ Hyman warns.
‘Progressively increasing food prices over the years has led M&S down a cul de sac, but it needs to avoid going too far the other way too, because chasing prices in clothing has been a huge strategic mistake.’
The City has been speculating about M&S selling its food online for the last decade, along with talk of the group being split up.
As Hyman says, ‘it’s a bit of a Hardy perennial, but never really gets off the ground’.