M&S and Asda have both embarked on major new ranging and sourcing strategies. But will they work?
This month I thought I'd look at a couple of The Grocer headlines from the past few weeks that appear, at face value, to have the ability to galvanise two of the major food retailers' offers and P&Ls. But neither plan is guaranteed to succeed.
Arguably the most visible change will come at M&S, with its switch to selling branded products. M&S has only ever sold private label. From 7 July it is trialling 350 branded lines in 19 stores in the Tyneside area.
M&S's current pricing architecture is wrong. Yes, the quality is second to none but the premium prices charged are inappropriate and stocking branded product will show this. If M&S prices brands at the same price as, say, Sainsbury's, then that will show its own label up as expensive.
If, however, M&S prices branded goods alongside its own label, the brands will look dear and focus attention on to just how expensive M&S is in comparison to the other supermarkets.
We think a major overhaul of pricing is required: customers may be asking to see brands at M&S, but deeper surgery is needed.
If Asda genuinely believes it can begin to source products globally, then warning sirens should be sounding in every head office across the UK food retail sector.
Historically, Asda has only used the might of Wal-Mart to help it source non-food and own-label products. The plan now is to knock on the doors of major branded food suppliers, such as P&G, Unilever and Kellogg's and ask to begin to negotiate globally. We don't think it's going to be quite as easy as that.
There are longstanding obstacles in the way of such a move (and the suppliers themselves have not historically shown any signs of helping dismantle them). Local regulation, regional taste, language barriers and branding issues have all bugged the globalisation process for years.
Are the major food manufacturers about to bow down to Wal-Mart's demands, having resisted them for so long? No. Negotiations may well be under way, but it will be a long time before any noticeable gains will be made from this source.
Both M&S and Asda are to be applauded for seeking ways to better serve their customers. However, more will be written about both these topics than they actually deserve and the more structural and fundamental issues that both companies face will ultimately decide who wins and loses the battle for customers' cash.n
Jonathan Pritchard is a partner at Oriel Securities