Analysis: How can M&S make food online work?

Twitter user Sandra Wood said, “Well that’s my food bill about to go sky high”, while Chris P Bacon wrote “If this happens I’ll be bankrupt by December”.

As is clear from the Twitterati, there is a consumer appetite for M&S food online and Shore Capital analyst Clive Black says it is right to explore ecommerce options for its much-loved food offer.

“6% of grocery sales are online, so M&S is only able to target 94% of the market at the moment. It does make sense to look at this option,” he says.

“If I were a gambling man, I would go for the Ocado route. It is very expensive to go it alone on a grocery offer”

Bryan Roberts, TCC Global

However, multichannel consultancy The Enova Partnership managing consultant Philippa Morgan, who used to work at M&S for seven years, says the big issue for M&S is making sure food ecommerce makes money.

”Profitability is the clincher but it makes total sense to look into it now that they’re focusing food as the mainstay of the business. The real question here is one of models, as many food retailers struggle to make online profitable,” she says.

Partnering with Ocado

One of the big challenges to profitably in food ecommerce is the cost of fulfilment. TCC Global insights director Bryan Roberts says partnering with Ocado could help M&S minimise costs.

“If their aspiration is a full national rollout where people do full trolley shops, I’d suggest an Ocado partnership as Morrisons has,” he says.

He adds: “M&S will be looking for a capital light way to do this. Bespoke delivery fleets and speciality dark store are very expensive.

“If I were a gambling man, I would go for the Ocado route. It is very expensive to go it alone on a grocery offer. My feeling is they wouldn’t want to invest in the infrastructure and headcount. This way is capital light.”

While M&S might want a similar capability as one of the big four, Black points out that its differentiated offer means that it will need to think in different terms.

M&S’ lack of branded product means that it could run into difficulty in areas such as household cleaning or health and beauty so Ocado’s ability to plug those gaps with branded product would come in handy here too.

Ocado’s existing deal with Morrisons precludes it from tying up with another big four supermarket but, crucially, allows it to join forces with other supermarkets.

“In the long-run it will hit your margins and won’t give you control over your customer proposition and your brand”

Daniel Upward, Q5, on M&S partnering with Ocado

Roberts believes Ocado would be keen to come on board because of its hunt for an international partner.

“A partnership like this would do their share price no end of good,” he says. “And it would enhance their appeal for that elusive international partner if two national grocers were on board.”

Short-term win vs long-term strategy

However, Rowe must differentiate between a short-term win and a long-term strategy, says management consultancy Q5 head of retail and consumer goods, Daniel Upward, who also used to work at M&S.

“I think partnering with someone like Ocado can give you the tech and the coverage really quickly,” he says. “But in the long-run it will hit your margins and won’t give you control over your customer proposition and your brand. It would be a sensible move for now but it’s not a long-term strategy.”

He adds that there are significant benefits for M&S in getting its food offer right online.

“Overall, online shopping is around 17% of the market,” he says. “And grocery is only 6%. But that means there is a big prize for the future.”

Crucially, if M&S is able to get customers buying food regularly on its website, it is a great opportunity to cross-sell its general merchandise products.

If Steve Rowe can do that he will be a hero of the high street. But in the short term, perhaps Ocado beckons.