The unstoppable growth of M&S Simply Food came to a halt sometime this year. Announcing its results earlier this month, the company said it could no longer pass on its increasing input costs to shoppers. This meant that many of the sites it had earmarked for openings were no longer viable.
A day later, Sainsbury’s reported weakening sales growth across its estate of supermarkets and c-stores. City analysts noted that passing on price increases was not possible because shoppers would desert to the discounters. The retailer would have to deliver £500m of cost savings a year to hit its profit targets.
And queuing in the wings is the impact of the national living wage, which will keep ratcheting costs up and up. On the face of it, it sounds a bit like what independent retail owners have been complaining about for years.
However, discussing the M&S food offer with some leading independent retailers, we asked ourselves why Simply Food could no longer demand a premium. Is it because shoppers no longer want premium convenience fare? Or is it because the quality of the alternatives is now so high, shoppers simply don’t value the small difference provided by M&S?
It is an important strategic question for independent retailers and their supply chain. Is the market at the top simply becoming too crowded? And does this mean that if you chase higher margins on premium offerings you are ever more restricting the appeal of your offer to fewer and fewer people?
Visiting a Simply Food at a major travel point earlier this week I was struck by the high percentage of the store given over to sandwiches, packed closely together in large chillers. The contrast with a Leon or Pret A Manger was shaped by the environment this food is presented in. In Simply Food, you knew you were in a supermarket. In a Leon or Pret you know you are in an eatery.
While the ambient lighting and packaging quality set Simply Food well above the Tesco offer, so do the prices. If Tesco is good enough, as a shopper why not treat yourself at a Leon or Pret?
The lesson may be that it is not the intrinsic quality of what you sell that is important but how you serve it. At a Simply Food, the cashier is expecting you to put what you have bought in a bag and take it away. At a Leon or Pret, they are almost expecting you to put the food on a plate and eat it in. The transactions are equally as efficient but in the latter there always seems to be a little more attention to the shopper.
Today’s independent retailer can organise their business to compete with Simply Food through good suppliers. But you cannot expect to be successful on the back of product quality on its own. You have to bring some magic to the shop floor as well.
As Mark Palmer of Pret A Manger told the Local Shop Summit last month, when they see a shop is underperforming they always check to see if the staff are happy first. Those top performing independent shops I have visited tend to be operated by happy people, who set a good example for their team. Mixed in, of course, with the ability to work hard.
As the bellwethers of M&S and Sainsbury's show, we’re all going to need plenty of both to thrive in the coming years.