Many moons ago on a work trip to Tokyo I interviewed the head of Ito Yokado, one of Japan’s biggest supermarket and fast food chains, now part of the Seven & I group.
In exchange for granting an audience, the then chief executive, Masatoshi Ito himself, wanted to know from me how on earth Marks & Spencer managed to make such fabulous margins on its ready-made meals.
He was moving into convenience foods – one of the first in Japan to do so – and was desperate to know how M&S got away with charging such high prices for cheddar cheese topping on a baked potato.
Trusted: While M&S has had to trim back on margins, the profits on its convenience foods are still plump while the quality is one of the best to be found on the High Street
Mr Ito wasn’t knocking M&S, but wanted clues so he could do the same. It was a good question then, when the group was the pioneer in ready-meals, and remains so today.
While M&S has had to trim back on margins, the profits on its convenience foods are still plump while the quality is one of the best to be found on the High Street.
And it’s these high standards in the food division which have powered M&S to be the fastest growing grocer over the Christmas period.
With sales up 10 per cent, it reported its highest-ever revenue for the festive period, which will help it to make a healthy £500million for the year.
As the company adverts repeatedly tell us, ‘This is not just food, it is M&S food.’ For once, the slogan may be right.
As other retailers are reporting as well, there is a big shift in how customers are shopping. It also looks as though M&S joined forces with Ocado in the nick of time as online sales – and in-store pick-ups – rose by just over 50 per cent.
Sales were down in the stores by 10.8 per cent while stores in retail parks outperformed those in city centres.
What’s also interesting is that while the rest of the grocery trade is mainlining on price cuts, M&S has kept its head and so far avoided going into battle on pricing. Quite the reverse.
At the half-year stage, chief executive Steve Rowe made the point of saying that maintaining quality is core to its food business, and that it would be ending promotions on some lines and improving ‘Dine In’ meals to ensure customers maintain their perception of ‘trusted value’.
While it’s a horrible expression, the strategy makes sense. Despite recent problems, M&S is still one of the great legacy brands which customers do trust and will continue to do so.
It also suggests quality will remain the Holy Grail, one which will feed into higher margins. Mr Ito would be pleased.
The big question now is whether the big US and UK private equity houses on the prowl for opportunities in the grocery market – especially the ones which missed out on Morrisons – will take another peek at M&S. If so, the shares, despite a strong rise in the past 12 months, are still looking rather cheap.
The Two Martins
A couple of the City’s biggest beasts are also on the prowl: The two Martins – Sorrell and Gilbert.
Former WPP boss Sir Martin Sorrell is out hunting for deals again, having just snapped up the Californian-based data consultancy, 4 Mile Analytics, to add to the Media Monks subsidiary, part of his S4 Capital group.
Over at AssetCo, Martin Gilbert, founder of Aberdeen Asset Management, now known as Abrdn, has come out tops in the bidding war for boutique asset manager River & Mercantile, after Premier Miton Group pulled out.
The pair might be brilliant deal-makers but it’s time they renamed their businesses. S4 sounds like an ageing pop group and AssetCo is ditchwater dull, though at least both are better than Abrdn.
Remember Project Fear? How there would be a bloody exodus of talent from Britain and a mass migration of bankers from the City? There were warnings that 230,000 jobs would be lost because of Brexit while JP Morgan claimed it would have to move 4,000 roles.
Yet at the latest tally, around 7,000 financial jobs have gone elsewhere while JP Morgan has lost 400. Of course there are bound to be shake-outs, but that will be because of business evolving, rather than Brexit.
The prophecies of doom were always political, never based on financial, practical or geographic facts. While no-one wants to crow, the fact is that the general jobs market – and the City – are in fine shape.
What’s more, headhunter Hays says Brexit has boosted opportunities for Brits, and that the UK is now one of the strongest recruitment markets in the world. Tant pis.