Waitrose is to trial selling food in Boots stores, while Boots will rebrand 17 of Waitrose's in-store pharmacies. What do the two stand to gain? Chloe Ryan reports
The volume of announcements from Waitrose HQ in the past few months has left few in doubt about just how ambitious managing director Mark Price's plans are. Forget the recession, Waitrose is growing fast and introducing new ranges, formats and ideas at a heady pace.
The latest revelation came tagged on to last week's announcement of plans to open 300 convenience stores within the next 10 years: Waitrose and Boots were "in discussions to trial the sale of very selective product ranges in each others' stores", Price said.
The trial would start "early next year", with Boots supplying Waitrose with healthcare ranges and expertise, and Waitrose putting food into Boots stores.
But as the former already has a successful food-to-go business and the latter a fiercely-guarded premium offering, is the deal actually in either party's interests?
The key appeal for Waitrose is the increased reach its products would get if they were sold by a high street stalwart with 2,600 stores. If the trial, rumoured to involve about 50 of the 700 or so Boots stores that sell food, leads to a roll-out across the entire Boots estate, the potential for reaching new shoppers is vast.
But as well as increasing its exposure, Waitrose also wants to learn from Boots. The deal includes a plan for 17 Waitrose in-store pharmacies to be rebranded as Boots, giving the supermarket a chance to improve sales performance. It's an area Price admits Waitrose could do better in. "We underperform in health & wellbeing and Boots is clearly the market leader," he says.
The idea will work in both retailers' favours, says Jamie Trust, senior business analyst at IGD . "The partnership will bring Boots one of the most widely recognised retail brands not just in the UK but around the world into Waitrose's health and beauty offer."
In return, Boots will not only benefit from wider distribution, through the in-store pharmacies, but gain from Waitrose's strength in fresh food retailing. This will give Boots' grocery range a new dimension and access to Waitrose's "increasingly impressive food-to-go offer", he says.
But it's not the usual snacks that Boots is likely to have its eye on. "Boots is already strong on sandwiches," says chief executive of the National Sandwich Association, Jim Winship.
Boots will use Waitrose to help it expand into areas where M&S currently dominates, says a former Waitrose executive. "Boots is looking at beefing up its fresh food offer, so prepared fruits are the products likely to be sold."
For now, Price is in no mood to give anything away on the lines Boots will be selling. But whatever they are, finding room for them won't be a problem. In fact, the deal will give Boots a chance to make better use of 'dead areas' in its larger high street stores, says one major supplier to Boots. "Many Boots stores have more selling space than their existing product portfolio needs, so there is the opportunity to increase the space available for food."
The former executive agrees, saying a bigger food department would be a good use of some of the space Boots is currently not making the most of.
Do they fit?
But while the proposed deal makes sense at a merchandising level, observers have questioned how well the two brands fit together.
"The demographic profile of Boots and Waitrose customers are very different," says the Boots supplier. "Waitrose shoppers tend to be much older than Boots'."
And others express concern about how Waitrose could be affected if its products become as ubiquitous as Tesco's. A cheapened image is a definite danger, says another ex-employee.
Price brushes this aside. "M&S has over 1,000 outlets and yet it still maintains a reputation for high quality. Waitrose today has 215 shops, so there is ample opportunity for us to grow our physical presence and still retain our quality credentials."
Boots also claims its customer research suggests shoppers will not think the partnership jarring. "Customers have told us they recognise similar brand culture and values between the two businesses," says a Boots spokeswoman.
Boots is certainly not averse to trialling new partnerships. Eight years ago, it struck a deal with Sainsbury's to put Boots-branded health & beauty departments in out-of-town stores. Boots claims the scheme was a success, but it was scrapped after a couple of years when a long-term agreement couldn't be reached on the commercial terms. It is prepared to experiment with its own stores too. Between 1998 and 2003 its larger stores hosted Boots Wellbeing Services, providing complementary therapy and beauty treatments. Although that partnership is now over, the in-store opticians programme, introduced as far back as 1984, is still going strong.
So what's in store?
Because of Boots' willingness to try such ideas, some familiar with the business think there is potential for creating Waitrose-branded areas within stores.
"It might be a store within a store," says the Boots supplier. "That would give Boots the chance to, in effect, operate food stores under a name with a strong food heritage."
But while Boots might have the physical space for this, getting enough Waitrose products to fill it may present more of a challenge. Although the trial scheme is likely to involve Waitrose stock being delivered into the Boots distribution chain, Price is well aware that Waitrose's current supply chain is going to come under pressure from the expansion into convenience stores and franchises at Welcome Break service stations. If the Boots scheme proves successful and rolls out further, it is likely to create a further logistical challenge.
"Clearly we are going to have to think very carefully about how we build up the supply chain over the next five to 10 years," says Price, adding that the company is currently reviewing all head office procedures to accommodate the new and expanding formats.
Waitrose already has some experience of supplying smaller stores. "About 15% of our estate is under 10,000 sq ft and we've spent many years learning to operate different-sized formats," he says. "Now we're going to build on that."
Price's expansion plans all boil down to one thing: giving more consumers access to Waitrose. "Roughly seven million customers will be able to access us through our convenience expansion," he says. "What we are proposing with Boots will help even more customers access our goods."
With Boots as keen to make better use of its stores as Waitrose is to expand its reach, the pieces may fall into place for both chains.