A new entry-level range will make Waitrose an essential shop, says managing director Mark Price. By Adam Leyland
Waitrose has a lot in common with M&S. Not just because it's a purveyor of upmarket groceries. Nor because it is of a similar size in food sales terms.
Like its arch rival, it's been cutting prices recently. It's launched a new convenience format. Even its promotions - such as the Dine in for £10 offer last autumn - have borne an uncanny resemblance to the M&S equivalent. Indeed, last month, Waitrose wrote to suppliers asking for a 2% reduction in prices, a move that has shades of Project Genesis, the notorious, ill-fated cost-cutting exercise aimed at M&S's supply base.
Yet ask Waitrose MD Mark Price who his sights are on, and Marks & Spencer comes well down the list. Price claims Waitrose has "seen quite an influx [of shoppers] from M&S... as you might expect" but, catty comments aside, Sir Stuart Rose is now a sideshow. The main event is to position Waitrose against Sainsbury's. Even Aldi is considered fair game. "Waitrose has never been more competitive with Sainsbury's," he says. "And in terms of entry prices in categories such as coffee, beer and bread, our prices are lower than Aldi's."
As a retailer desperately trying to finesse the words 'premium' and 'recession', then, it's time for Price - charming, civilised and thoroughly decent as he is - to get a bit down and dirty. With market share falling from 4.1% to 3.9% [TNS]; with like-for-like sales up a mere 0.4% according to the results announced last week; and profits falling £7m, it's time to talk price.
Price has spent £30m lowering prices in the past year, he claims, with promotions rising from 400 items every week to 700. It's evidently not been noticed. "The great shame is shoppers think Waitrose is 25% more expensive than our rivals," says Price. "We've found that shoppers are coming to Waitrose to do top-ups and to buy special treats. Even though we had invested millions to lower our prices."
While claiming not to have lost any customers, Price observes that each shopper is buying one less item, and it's invariably a commodity. Cue Essential: a new 1,450-strong own-label range across 98 food and drink categories. The rollout began last week in fresh produce and meat & fish. Next will be frozen, with other categories coming on stream over the following six months (about 200 a month), as stocks of existing packaging permit. "It's a soft launch," he says. "We weren't prepared to waste packaging."
Price claims it's the biggest launch in the history of Waitrose and will comprise 30% of the own-label offer and 15% of the overall range. But in terms of specification, it's 'essentially' a repackaging job: 1,200 of the lines are being repositioned under a single, unified, value-focused brand, meaning curtains for the likes of the Select Farm range. The remainder will fill gaps in the entry-level line-up: six-pack family yoghurts; entry-level cake slices; a soft-scoop chocolate ice cream. Unremarkable stuff but enabling Waitrose to be more competitive.
Of the 1,200 existing SKUs in Essential , 400 will be cut in price. Teabags, for example, down 25%. "We now have a rule that an offer must be a minimum of 20% off. The number of offers and the depth of reductions have changed markedly. We could have thousands of lines on offer but they amount to pennies and we don't think that's the right thing to do." Now, with 650 lines either new or at a substantially different price, Price is confident Waitrose will be much more competitive. Already sales of mince are up 28%; pork chops up 20%; and pork stir-fry up by 30%. A further 53 lines will be launched this week.
It also enables shoppers to see more clearly how they can trade down. "We've seen shoppers trade down from organic to free range; and from free-range to outdoor-bred. But some people find it difficult to shop." Without the obvious good-better-best offer of its big four rivals, says Price, "it's been hard to see how to trade down".
Yet if there's one thing Price won't compromise on, it's quality. He acknowledges there is a premium on his own-label offer (estimated at 3% over Sainsbury's, according to Price), but he believes it's a small price to pay, literally and metaphorically.
"You get what you pay for. Ours is the highest-quality entry-level own-label range in the country," Price insists. "And we've achieved this despite maintaining the highest animal-welfare standards. Our meat is 100%-British. Our sausage rolls use outdoor-bred pork. The quiche is made with free-range eggs."
With free-range-only chickens and Fairtrade-only bananas, and price-matching against the big four on brands, it's a cracking good deal, says Price.
And, of course, there's also the classy signage. "We don't have bits of cardboard hanging from the ceiling," he adds, with a hint of the good-natured snobbery that infects the Waitrose ethos - although shelf-ready packaging has become a feature.
The only strange aspect to the Essential strategy is the relative lack of urgency. The marketing won't kick in till May/June, when the rollout has gained a bit of momentum. And it emerges that the decision to launch the range actually preceded the recession. "We started to look at cost and waste and pay and the supply chain in January 2008. We were already sure we needed to improve the value proposition. We were sailing in that direction."
So why has it taken so long? "We wanted to do it properly. This is the biggest launch in our history. But it is not a reaction to the downturn, it's a painstakingly thought through strategic response to our position in the market." The only alteration, says Price, is at tactical level, with the team beginning its work on promotions last May. "We turned up the value commitment," says Price "rather than putting out another marketing message about provenance and quality."
Project Genesis
Inevitably, in an interview so heavily focused on value, the conversation turns to suppliers, and the letter sent by commercial director Richard Hodgson last month, calling for a 2% price cut. It's been compared to Project Genesis, but it's different, says Price, and for two reasons.
The first is timing. Project Genesis coincided with significant food price inflation. This time round commodity costs are falling. If the 2% figure seems somewhat arbitrary, says Price, it's an opening gambit. "We thought it would be helpful to give a guide. We wanted to be very straightforward. We're conscious that commodity prices are coming down."
The second is about opportunity. Waitrose is promising a "very firm, concrete" path to growth. As well as the acquisition of 13 Somerfields and four Woolworths, organic growth will see Waitrose floorspace grow by 11% in 2009, taking the total estate to 220 UK stores. By 2017 the business will double in size, he says, to an £8bn-sales business at a compound growth rate of 8%. "We want a discussion around the volume improvements our suppliers are going to see."
As well as an increase in contribution from Waitrose Deliver, the online service that's growing 82% year-on-year on the back of national rollout, and Waitrose Business to Business, up 30%, Price is also grappling with new formats. The launch of a new 6,000 sq ft c-store in Nottingham in December is described by Price as "perhaps the proudest moment of my career" and is performing "ahead of expectations".
A second trial c-store in Clifton village has just opened, with two further iterations to come. Price believes there could be scope for "many hundreds of stores", though it will clearly be some time before the nascent format is rolled out in any meaningful way so as to challenge bigger rivals and independents unless Price plumps to grow by acquisition.
This seems unlikely, however, given the limited budgets he appears to be working with. And organic also appears to be the preferred route for the mid-size Market Town trials Waitrose is conducting. Performing "according to expectations", Price has identified scope for up to 100 stores in the future.
While these plans appear to add complexity to the business, Price argues Waitrose "is already pretty complex , with stores from 6,000 sq ft to the Docklands Food & Home superstore (75,000 sq ft). "This work gives us an opportunity to bring clarity." A further piece just completed has identified opportunities for greater segmentation. And an efficiency plan is in place to reduce costs at branch level, via end-to-end supply chain as well the way Waitrose organises itself at Bracknell as it grows.
The biggest play, however, surrounds the need to lower prices. While Price was able to recover £40m in cost savings last year, his business plan relies on scale to achieve efficiencies sufficient not only to offset the 37 basis points loss he's taking on the chin with price cuts but to create the profit growth he needs.
With £4.1bn sales, Price has stronger buying power than ever. And a tie-up with Booths helps address this further. "There's a very clear correlation between scale and cost. For every £1bn in sales, gross margins increase by 0.5 percentage points. "Eight years ago, we were a niche regional player. Today we are a national and an international business with exports to 25 countries. The opportunity is scale. We can offer support in price and volume in ways we couldn't think about even four years ago. We're far more competitive."
Mark Price snapshot
Age: 48
Job: Managing director, Waitrose
Born: Crewe
Education: MA in archaeology, Lancaster University
Career: Joined JLP in 1982 on the graduate trainee scheme. Youngest-ever manager of a John Lewis department store (High Wycombe). Joined Waitrose in 1998 as marketing director. Promoted to the board as director of selling and marketing in 2000. Returned to John Lewis as development director in 2005. Appointed MD of Waitrose in April 2007.
What is your motto? "No guts, no glory."
Do you have any hobbies? "I like picnics; food & fine wine; shooting; fishing; cigars."
How well did your book, The Great British Picnic Guide, do last year? "It outsold Gordon Ramsay in Waitrose. On a print run of 10,000, it's sold 9,000 copies, I believe."
What happened to the blog? "It was retired on Christmas Eve." The original plan was to write it for three months and lose some weight. It lasted a year and led to a 5cm reduction in Mark's waist, he reported.
How's the diet been going since? "Not good."
Waitrose has a lot in common with M&S. Not just because it's a purveyor of upmarket groceries. Nor because it is of a similar size in food sales terms.
Like its arch rival, it's been cutting prices recently. It's launched a new convenience format. Even its promotions - such as the Dine in for £10 offer last autumn - have borne an uncanny resemblance to the M&S equivalent. Indeed, last month, Waitrose wrote to suppliers asking for a 2% reduction in prices, a move that has shades of Project Genesis, the notorious, ill-fated cost-cutting exercise aimed at M&S's supply base.
Yet ask Waitrose MD Mark Price who his sights are on, and Marks & Spencer comes well down the list. Price claims Waitrose has "seen quite an influx [of shoppers] from M&S... as you might expect" but, catty comments aside, Sir Stuart Rose is now a sideshow. The main event is to position Waitrose against Sainsbury's. Even Aldi is considered fair game. "Waitrose has never been more competitive with Sainsbury's," he says. "And in terms of entry prices in categories such as coffee, beer and bread, our prices are lower than Aldi's."
As a retailer desperately trying to finesse the words 'premium' and 'recession', then, it's time for Price - charming, civilised and thoroughly decent as he is - to get a bit down and dirty. With market share falling from 4.1% to 3.9% [TNS]; with like-for-like sales up a mere 0.4% according to the results announced last week; and profits falling £7m, it's time to talk price.
Price has spent £30m lowering prices in the past year, he claims, with promotions rising from 400 items every week to 700. It's evidently not been noticed. "The great shame is shoppers think Waitrose is 25% more expensive than our rivals," says Price. "We've found that shoppers are coming to Waitrose to do top-ups and to buy special treats. Even though we had invested millions to lower our prices."
While claiming not to have lost any customers, Price observes that each shopper is buying one less item, and it's invariably a commodity. Cue Essential: a new 1,450-strong own-label range across 98 food and drink categories. The rollout began last week in fresh produce and meat & fish. Next will be frozen, with other categories coming on stream over the following six months (about 200 a month), as stocks of existing packaging permit. "It's a soft launch," he says. "We weren't prepared to waste packaging."
Price claims it's the biggest launch in the history of Waitrose and will comprise 30% of the own-label offer and 15% of the overall range. But in terms of specification, it's 'essentially' a repackaging job: 1,200 of the lines are being repositioned under a single, unified, value-focused brand, meaning curtains for the likes of the Select Farm range. The remainder will fill gaps in the entry-level line-up: six-pack family yoghurts; entry-level cake slices; a soft-scoop chocolate ice cream. Unremarkable stuff but enabling Waitrose to be more competitive.
Of the 1,200 existing SKUs in Essential , 400 will be cut in price. Teabags, for example, down 25%. "We now have a rule that an offer must be a minimum of 20% off. The number of offers and the depth of reductions have changed markedly. We could have thousands of lines on offer but they amount to pennies and we don't think that's the right thing to do." Now, with 650 lines either new or at a substantially different price, Price is confident Waitrose will be much more competitive. Already sales of mince are up 28%; pork chops up 20%; and pork stir-fry up by 30%. A further 53 lines will be launched this week.
It also enables shoppers to see more clearly how they can trade down. "We've seen shoppers trade down from organic to free range; and from free-range to outdoor-bred. But some people find it difficult to shop." Without the obvious good-better-best offer of its big four rivals, says Price, "it's been hard to see how to trade down".
Yet if there's one thing Price won't compromise on, it's quality. He acknowledges there is a premium on his own-label offer (estimated at 3% over Sainsbury's, according to Price), but he believes it's a small price to pay, literally and metaphorically.
"You get what you pay for. Ours is the highest-quality entry-level own-label range in the country," Price insists. "And we've achieved this despite maintaining the highest animal-welfare standards. Our meat is 100%-British. Our sausage rolls use outdoor-bred pork. The quiche is made with free-range eggs."
With free-range-only chickens and Fairtrade-only bananas, and price-matching against the big four on brands, it's a cracking good deal, says Price.
And, of course, there's also the classy signage. "We don't have bits of cardboard hanging from the ceiling," he adds, with a hint of the good-natured snobbery that infects the Waitrose ethos - although shelf-ready packaging has become a feature.
The only strange aspect to the Essential strategy is the relative lack of urgency. The marketing won't kick in till May/June, when the rollout has gained a bit of momentum. And it emerges that the decision to launch the range actually preceded the recession. "We started to look at cost and waste and pay and the supply chain in January 2008. We were already sure we needed to improve the value proposition. We were sailing in that direction."
So why has it taken so long? "We wanted to do it properly. This is the biggest launch in our history. But it is not a reaction to the downturn, it's a painstakingly thought through strategic response to our position in the market." The only alteration, says Price, is at tactical level, with the team beginning its work on promotions last May. "We turned up the value commitment," says Price "rather than putting out another marketing message about provenance and quality."
Project Genesis
Inevitably, in an interview so heavily focused on value, the conversation turns to suppliers, and the letter sent by commercial director Richard Hodgson last month, calling for a 2% price cut. It's been compared to Project Genesis, but it's different, says Price, and for two reasons.
The first is timing. Project Genesis coincided with significant food price inflation. This time round commodity costs are falling. If the 2% figure seems somewhat arbitrary, says Price, it's an opening gambit. "We thought it would be helpful to give a guide. We wanted to be very straightforward. We're conscious that commodity prices are coming down."
The second is about opportunity. Waitrose is promising a "very firm, concrete" path to growth. As well as the acquisition of 13 Somerfields and four Woolworths, organic growth will see Waitrose floorspace grow by 11% in 2009, taking the total estate to 220 UK stores. By 2017 the business will double in size, he says, to an £8bn-sales business at a compound growth rate of 8%. "We want a discussion around the volume improvements our suppliers are going to see."
As well as an increase in contribution from Waitrose Deliver, the online service that's growing 82% year-on-year on the back of national rollout, and Waitrose Business to Business, up 30%, Price is also grappling with new formats. The launch of a new 6,000 sq ft c-store in Nottingham in December is described by Price as "perhaps the proudest moment of my career" and is performing "ahead of expectations".
A second trial c-store in Clifton village has just opened, with two further iterations to come. Price believes there could be scope for "many hundreds of stores", though it will clearly be some time before the nascent format is rolled out in any meaningful way so as to challenge bigger rivals and independents unless Price plumps to grow by acquisition.
This seems unlikely, however, given the limited budgets he appears to be working with. And organic also appears to be the preferred route for the mid-size Market Town trials Waitrose is conducting. Performing "according to expectations", Price has identified scope for up to 100 stores in the future.
While these plans appear to add complexity to the business, Price argues Waitrose "is already pretty complex , with stores from 6,000 sq ft to the Docklands Food & Home superstore (75,000 sq ft). "This work gives us an opportunity to bring clarity." A further piece just completed has identified opportunities for greater segmentation. And an efficiency plan is in place to reduce costs at branch level, via end-to-end supply chain as well the way Waitrose organises itself at Bracknell as it grows.
The biggest play, however, surrounds the need to lower prices. While Price was able to recover £40m in cost savings last year, his business plan relies on scale to achieve efficiencies sufficient not only to offset the 37 basis points loss he's taking on the chin with price cuts but to create the profit growth he needs.
With £4.1bn sales, Price has stronger buying power than ever. And a tie-up with Booths helps address this further. "There's a very clear correlation between scale and cost. For every £1bn in sales, gross margins increase by 0.5 percentage points. "Eight years ago, we were a niche regional player. Today we are a national and an international business with exports to 25 countries. The opportunity is scale. We can offer support in price and volume in ways we couldn't think about even four years ago. We're far more competitive."
Mark Price snapshot
Age: 48
Job: Managing director, Waitrose
Born: Crewe
Education: MA in archaeology, Lancaster University
Career: Joined JLP in 1982 on the graduate trainee scheme. Youngest-ever manager of a John Lewis department store (High Wycombe). Joined Waitrose in 1998 as marketing director. Promoted to the board as director of selling and marketing in 2000. Returned to John Lewis as development director in 2005. Appointed MD of Waitrose in April 2007.
What is your motto? "No guts, no glory."
Do you have any hobbies? "I like picnics; food & fine wine; shooting; fishing; cigars."
How well did your book, The Great British Picnic Guide, do last year? "It outsold Gordon Ramsay in Waitrose. On a print run of 10,000, it's sold 9,000 copies, I believe."
What happened to the blog? "It was retired on Christmas Eve." The original plan was to write it for three months and lose some weight. It lasted a year and led to a 5cm reduction in Mark's waist, he reported.
How's the diet been going since? "Not good."
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