Nick Bubb’s Verdict: The message from Waitrose's Milton Keynes store

Milton Keynes is famous - or infamous - for all its roundabouts, but it is also the location of Waitrose’s latest thinking on store design.

Yesterday I went to see the new Waitrose store that opened a month ago in a quest for the secret of its success.

And Waitrose is certainly very successfully growing its top-line sales at present, despite the tough time that the supermarket industry is having.

Yesterday’s Nielsen grocery market share figures show that in the latest four-week period (to May 25) Waitrose easily outpaced the big four supermarkets yet again, with 11% gross sales growth (ex-petrol). And that is almost bang in line with the impressive run-rate for Waitrose reported for the first-half to date, the 17 weeks to May 25, of 10.9% up gross (nearly 8% up like-for-like).

The big four, particularly Tesco and Morrison’s, would die for nearly 8% like-for-like sales growth, so why is Waitrose doing so well? In an age of austerity, it is easy to see why the discount chains like Aldi are prospering, but it is not obvious why an upmarket operator like Waitrose should be finding it so easy to grow market share.

On a day when Tesco admitted that the horsemeat scandal had lost it business, it is tempting to think that it is the new focus on food provenance is driving Waitrose’s market share gains. It is certainly helping, but Waitrose has been outperforming for a long time.

A more powerful underlying driver of the business is probably the improved perception by consumers of Waitrose’s price position, thanks to the cumulative effect of its Tesco Brand Price Match. If you pay the same for brands as in Tesco and also get the quality of Waitrose’s own-label fresh foods, why shop anywhere else?  

And, of course, it is no coincidence that Waitrose’s sister business, the John Lewis department store chain is also doing very well at present. This, literally, brings a halo effect, when the shops are co-located, as they are in a handful of locations, but the important synergy is also in the fact that Waitrose is providing a highly popular click-and-collect” service for parcels ordered on John Lewis.com.

Waitrose plays down how much this operation is providing incremental business from customers visiting the store to pick up parcels and doing some top-up shopping at the same time (as they may well be Waitrose customers already) but anything that increases customer dwell time and share of wallet must be good.

So if Waitrose is doing well through a whole combination of factors, how does it plan to stay ahead of the competition?

The answer to that question found in the recently relocated Milton Keynes store is that Waitrose is focusing on improving its front of store operation, with more spacious customer helpdesks by the entrance to help organise party food orders, flower sales and wrapping, John Lewis Online order pick-up and other services.

At present the average customer helpdesk is too small to offer all these services successfully, so Waitrose may have hit on something that could help further differentiate it from the other supermarkets, even if not all their stores are as big as the 31,500 sq ft in Milton Keynes. And not all Waitrose stores have the exterior canopies to accommodate the highly successful garden shop ‘pod’, which is another attractive feature in Milton Keynes.

While Tesco yesterday admitted that electricals retailing is not as easy as it thought, it perhaps goes without saying that the Milton Keynes consumer will not find any cheap TVs in the non-food section of the Waitrose store. They will find though small electrical appliances and a small display of Kindles etc, as well as a tastefully edited range of homewares, sourced from John Lewis.

Waitrose is clearly thinking hard about what grocery shoppers expect of a modern supermarket, but its other big focus is clearly on growing its online business, both with and without its friends at Ocado. The Milton Keynes store is currently doing 260 online orders a week, but Waitrose expects that to build towards 1,000 orders a week, as it increases both operational capacity and consumer awareness.  

But sales are vanity and profits are sanity, as the saying goes, and despite all the halo effects that Waitrose is enjoying, to boost its like-for-like sales growth, the big message that emerged from the roundabouts of Milton Keynes is that management expects first half profits to be only broadly flat, because of the higher operating costs associated with increasing Waitrose’s Online capacity.