Posted onOctober 26, 2013
Online food sales are a “very big opportunity” for Marks & Spencer (M&S) but realising that potential may be several years off, warns financial specialists Shore Capital.
City analysts Clive Black told FoodManufacture.co.uk: “At present, M&S hardly does anything in online food and ceo Marc Bolland has bigger fish to fry.
“But online food could be perfect for MS because very few of its stores carry the full range of food, which is excellent. Also limited city parking [which restricts footfall] could mean [online] food sales were a very big opportunity”.
But realising that opportunity could take several years, he added.
Realising the commercial potential of online grocery sales depended on discovering cost-effective solutions to the problems of finding people at home to receive deliveries and coping with returns, said Black.
Shore Capital highlighted the challenges of online grocery sales in its latest assessment of M&S’s financial performance, released ahead the retailer’s preliminary results for the 12 months to March 31, due to be published on May 22,
Black and fellow analyst Darren Shirley said: “On-line shopping is asking as many commercial questions for retailers as it supplies commercial answers.”
On M&S’s online jobs board, which invited applications for graduates to work on e-commerce projects, the retailer said: “E-commerce plays a fundamental role in our vision of becoming a leading international, multi-channel retailer. It’s about using technology to offer all of our customers a seamless, high-quality shopping experience they won’t find anywhere else.”
Earlier this week, the country’s third largest supermarket, Sainsbury claimed to be the nation’s fastest growing online food retailer.
“Our online grocery orders now exceed 165,000 a week, with an annual turnover of around £800M placing us second in the market, and making us the fastest-growing major online grocery business in the UK,” said Sainsbury, which is the UK’s third largest retailer.
Sainbury’s online success is partly attributed to the fact that customers can order products online and then collect them from their nearest Sainsbury’s store. More than 900 of the firm’s stores offer this service.
Meanwhile, Black and Shirley highlighted the challenges facing M&S with “UK consumers’ confidence bumping along historic lows”.
Also poor weather had restricted sales of food and seasonal clothing.
Nevertheless, they concluded: “Against this somewhat gloomy back drop and current situation, we believe that M&S has ‘toughed it out’ reasonably well.”
It’s food business did well to “… outperform a tough sector where Morrison’s said in its Q1 [first quarter] update last week (May 3) that extensive and aggressive vouchering made the kitchen a little too hot to handle”.
Based on the retailer’s performance in tough market conditions, new sales channels, the prospect of a significant step up in net cash flow within two years and an attractive dividend yield, Shore Capital’s stock recommendation was: buy.