Sunday, 8 November 2009

Marks and Spencer: just another supermarket?

This week the British retailer Marks and Spencer (M&S) made a seminal announcement. On Wednesday M&S Chief Executive Stuart Rose announced that the company will soon be selling 400 different branded products in its food departments. This might not sound like an unusual announcement, particularly to non-UK readers, but M&S have sold own brand food since at least 1941, and from about 1950 onwards sold only their own brand. Sixty years on the company has at last chosen to abandon this famous policy. Rose has claimed that this is what consumers want.

Marks and Spencer has always been a slightly eccentric company. It was founded in the late 19th Century by Micheal Marks, a Russian-Jewish immigrant turned Leeds market trader. In 1894 he entered a partnership with Thomas Spencer, who's background was in the Yorkshire woollen industry. The two established a network of 'Penny Bazaars', variety stores selling household products, at this time similar to Woolworths. Transactions costs were reduced by allowing consumers to browse and choose their own purchases; the standard price of one penny meant that consumers did not have to ask the price or barter, also helping to encourage repeat custom. Although it mainly concentrated on clothing after the First World War, the company began selling tinned food in the 1920s, gradually extending into other ranges. The company also gradually moved upmarket, stocking quality products at affordable prices. In 1928 M&S registered its St Micheal trademark named after Micheal Marks; this name was used by the company on everything it stocked from the 1950s onwards. The application of the brand to all ranges was so comprehensive that a running joke among the British public was that M&S's bananas had the St Micheal trademark running through the inside of them like a stick of seaside rock. There was a risk that the brand might be spread a little thinly, but the company was able to retain the loyalty of most shoppers in its middle class market segment.

Some specialist food retailers, particularly Sainsbury's, and Tesco after 1977, copied this tactic to some extent, introducing premium own range products for everything alongside branded products, while moving to out of town locations with car parks and often providing in-store services that M&S did not such as customer toilets and cafe/restaurants, as well as accepting credit cards. This has left Marks and Spencer as specialists in premium products that people buy as an occasional treat rather than somewhere that people do their weekly shopping. Under pressure as pre-tax profits fell from over £1bn in the 1997/8 financial year to only £145m in 2000/1, in 2000 the St Micheal brand was abandoned for the 'Marks and Spencer' brand on all products. This further underlined the company's retreat into occasional purchases such as party food and ready meals; last Wednesday Rose noted that the company was doing particularly badly in such low order product areas as laundry, personal care, pet foods and beer; all frequent purchases in which branding is important for the consumer. In the case of the first three, the consumer often values a brand as being effective for purpose, in the case of beer the consumer may want to buy Carlsberg or Stella Artois because he likes their taste; M&S beer may be more of an unknown quantity! This announcement is seminal because M&S have indicated that they do not want to retreat into speciality foods but to continue to compete as a supermarket; by doing so they have conceded that their brand alone is no longer effective to compete as a food retailer. It will be interesting to see if M&S will prosper with this approach, or if paradoxically the public reacts less enthusiastically, perhaps fearing that M&S's abandonment of its own brand policy may signal a reduction in product quality by the retailer. Will you now be persuaded to shop at M&S because you can buy Persil, Lynx, Whiskas or San Miguel?

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About Me

London, United Kingdom
I'm Lecturer in Management at The York Management School, at The University of York, UK. I teach strategic management to undergraduate and masters students, as well as running the masters dissertation module. My research focuses on business and management history.