Stuart Rose is visibly tired after a week in which he has been scrutinised on everything from whether he can prove Philip Green wrong and save the struggling retailer he runs to the £1 M&S socks he was wearing at the results presentation. But despite group annual pre-tax profit diving by nearly a fifth to £618.5m and sales down from £8.3bn to £7.9bn, the M&S chief executive is determined to get the message over that M&S is back where it belongs in food - at the leading edge.
“We are the pre-eminent mass-quality food retailer in the UK. But we are not playing to our strengths,” he tells The Grocer at the retailer’s new head office by the Grand Union Canal in London. “Unlike in textiles, where we can leverage our strengths in pricing, value and styling, we are under-punching our weight in food. Food is a different animal and we are a bit schizophrenic.”
As for the competition, he adds dismissively: “Tesco may want to eat our lunch but we are the benchmark for food.”
It is fighting talk from the man who has charged himself with curing M&S’s schizophrenia. He is at pains to point out that M&S cannot be classed as a general supermarket. “It is a speciality food business.”
But with like-for-like sales in food down 2.6%, it is not going to be easy to arrest the decline even with last week’s appointment of acting director of food Guy Farrant to the permanent role.
The decision has gone down well internally, but with the passing of a year since Farrant stood in to fill the post and six months since M&S began an executive search outside the company, it begs the question as to whether he was the first choice.
Rose vehemently denies the suggestion. “This is one of the most prestigious jobs in food and our biggest single unit at £3.5bn. Guy understood that we had to benchmark in the industry and we would not have appointed him if he had not been the right candidate. And he has benefited from the time taken,” he insists.
Farrant certainly has his work cut out, with a plethora of new initiatives coming on board in this financial year. Space in food will increase 3.3% this year, driven by the Simply Food format.
A trial of eight Simply Food stores on BP forecourt sites begins in the autumn following a deal between the two corporate giants. The stores will sell up to 800 lines including basics and on-the-go products as well as some ready meals for home consumption.
A further 20 Simply Food stores are planned for 2005/2006 including 10 in partnership with Compass. Last year 13 such stores opened while another 18 operated by M&S itself came on stream. This is a far cry from reports early in Rose’s tenure that he may axe the convenience concept. “We planned to close five that were too small or cannibalised other outlets in the area, but we were always sure we wanted Simply Food,” Rose says, claiming that all the Simply Food business models are equally successful for the retailer.
On top of this, M&S is piloting new food areas within larger city centre stores that have “a tad too much space because of retail park migration”, such as Newcastle and Bromley. These include a new café concept with hot and cold food and tasting bars.
“We are taking ideas from the Whole Foods concept,” says Rose, referring to the world’s largest natural and organic food retailer that has been creating a buzz across the globe for its combination of niche retailing with a superstore concept.
M&S will also be rolling out to another 21 stores the new foodhall concept it tested in Basingstoke, which forms part of a general updated design for stores. “The environment for the food offer is particularly important.”
While Rose expects these initiatives to deliver increased sales, the continuation of work begun in the last 12 months is key to restoring the positive contribution of food to M&S’s profits. A focus on range and availability has seen 300 of the 4,000 or so food lines cut over the last year, while a programme to concentrate availability efforts on the top 300 volume lines has delivered significant improvement, although Rose refuses to be drawn on the exact numbers.
As far as forcing through new terms with suppliers, a fundamental component of M&S’s recovery strategy across the board, Rose says it is “well on the way” to reducing the costs of goods by £140m by the end of the 2005/2006 financial year. He defends this strategy by arguing that suppliers will see improved volumes and “be in partnership with a fine food business”.
Despite all this, the road ahead is still a bumpy one. Switching data from TNS shows that M&S is one of the retailers suffering at the hands of Tesco [The Grocer, March 12, p4) while in its core clothing area the supermarkets are continuing to power ahead. Last week Verdict reported that Tesco had overtaken the retailer in sales of non-food products.
Rose is sanguine about the rise of the supermarkets at the expense of high-street retailers. “The world has changed and it is compelling to customers to be able to buy food, t-shirts, DVDs and sunglasses all in one place,” he concedes. But he is not ready to surrender the battle. “We will fight back and will do so by getting customers to prefer our way.”
You joined as chief executive of Marks and Spencer in May 2004. A year later, has the role been a harder one than you expected?
I have always considered Marks and Spencer a great business and every day I get up and have a good feeling about it.
But it has been a tougher job than I thought in the sense of the size of the business and the undertaking and how much needs to change - and, sadly, how much of the corporate memory has been lost. It’s easier to build a business back up when people remember the original strengths.
As you have said yourself, M&S has been “out of the habit” of true innovation. What are you doing to address this in food?
We pioneered the sandwich and then the wrap, others followed and then everyone thought that was it.
But we can go further - and that shows true innovation.
We have done technology firsts, such as the reduction of additives, removal of trans-fatty acids and introduction of Omega-3 milk.
We have launched new sandwich trays in convenience.
We are 100% GM free and have introduced a new breed of pigs. All these are innovative.
And our greatest strength is we are 100% own-brand so know everything about everything that goes into our food.
With the appointment of Lord Burns as chairman, analysts have said you now have 14 months to turn around the business. Do you agree?
I said I would be here for five years and would be delighted to serve that time.
But I don’t think about it. I don’t feel I have a Sword of Damocles above my head.
It doesn’t make me take short-term decisions - that could be done fairly easily, but I want to leave the company in some sort of suitable shape so my successor has an engine that is capable of further growth.
We are the pre-eminent mass-quality food retailer in the UK. We are the benchmark for food. But we are not playing to our strengths.