Marks & Spencer is set to trial an online grocery home delivery service this autumn. According to The Guardian, the retailer believes it can no longer ignore opportunities within this fast-growing channel, and has a management team drawing up plans for a soft trial later this year. This will take advantage of the strength of its food business, which continues to outperform clothing and home.
CEO Steve Rowe reportedly told senior executives that although he believed its online absence had not cost the company over the last five years, now customer expectations were changing – and M&S “needed to be ready with the right response.” At the same time Rowe cautioned that the economics of food online were “not straightforward”, saying company would not rush into the channel until it had “substantial customer insight and a better understanding of what is right” for M&S and its customers.
Online is the fastest growing channel in the UK and by being present only with clothing and home, M&S has to date failed to capitalise on the strongest part of its business, its quality food offering. Customers will be delighted that M&S is bringing its crown jewels online and it can expect to see an enthusiastic uptake if it gets its offer right. However, the retailer will need to carefully assess the best way to do so, to manage costs in an ever-more crowded and competitive market.
One problem is that M&S is largely used by customers for top-up shopping, food for tonight and Food to Go, which means that basket sizes are smaller than at other retailers. This may be owing to the location and size of many of its stores, and the company could counter this by offering a broader selection, perhaps serviced from a dark store. However, the investment overheads for this would be high and increase risks.
Another challenge for the retailer will be that, although online remains the fastest-growing channel in the UK, it is also becoming an ever-more crowded market. M&S will naturally compete against Ocado and Waitrose, both of which already offer quality food online with established customer bases. In addition, new players are entering the market all the time – Morrisons in 2014, Amazon Fresh last year, even the discounters are flirting with the UK online channel. The retailer with the first-mover advantage, Tesco, still leads though with more than 40% online market share, according to LZ Retailytics data.
We are surprised that M&S has opted to go straight to a home delivery trial when click & collect would offer a lower cost alternative, particularly if it included the option to pick up from its around 630 owned and franchised M&S Simply Food stores. Another option for the retailer may have been to team up with a partner in a wholesale supply model, such as Waitrose’s agreement with Ocado or Morrisons’ with Amazon. However, the move will please customers and if the retailer can get the economics right, and potentially bundle food and non-food deliveries, it could drive significant revenue growth and increased market share.