Food, Glorious Food
Once again, food has come to the rescue of Marks & Spencer Group (LSE: MKS). While general merchandise sales (mostly clothing) fell 1.5%, like-for-like food sales rose 1.7%. Talk about healthy eating. With total group sales up 2.3%, markets were pleasantly surprised by the Q1 trading update. Today at least, St Michael has a saintly glow about it.
In one respect, the results weren’t a surprise. Womenswear continues to struggle, food continues to deliver. Marks has repeatedly got the first wrong, season after season, while consistently getting the second right. M&S clothing isn’t aspirational, but its food certainly is. Wisely, it is building on the latter by rolling out its Simply Food stores. It plans to open 150 convenience stores over three years, on top of its existing rollcall of more than 400.
Dining With The Quality
If Marks & Spencer can make food pay, why are its supermarket rivals struggling? Partly, it is down to that word ‘aspiration’. Marks isn’t the only food retailer to make food retailing hay, the sun is also shining on Waitrose. Both are targeting consumers who are willing (and crucially, able) to pay a little extra for quality and kudos. This has also safeguarded sales against the income squeeze being felt by shoppers lower down the socio-economic ladder.
These are the shoppers who complain that Tesco (LSE: TSCO) is expensive, which it is, if you’re struggling to earn a living wage. Loyal customers at M&S and Waitrose don’t complain about the prices. They are more than happy to be seen paying a little extra for quality.
Food, Motley Food
Tesco, like downmarket rival Morrisons, has been caught in the low income squeeze. Both have responded by driving their prices (and margins) lower, bringing their offerings dangerously close to budget rivals Aldi and Lidl. Neither have been thanked by grateful consumers. Instead, they only complain that if the big supermarkets can afford to cut prices, they must have been overcharging before. With earnings rising by just 1.7% a year, only marginally ahead of CPI inflation at 1.5%, gratitude is likely to remain in short supply.
This leaves J Sainsbury (LSE: SBRY) on a knife edge. Its food offerings are more aspirational than Tesco, less so than M&S and Waitrose. So far, it has yet to decide whether to aim down or leap upwards. Its apparent reluctance to join Tesco and Morrisons in their supermarket price war suggests that it has made up its mind. If I’m right, I think investors should applaud its decision. It has little to gain from slugging it out at the lower end of the market, a war where the German discounters are the most likely winners.
If M&S and Waitrose can make foodies pay, Sainsbury’s has a fighting chance. Tesco, however, has a real bunfight on its hands.
