M&S Chairman: Online Grocery Is A ‘Desert Of Profit’

Marks & Spencer Chairman Archie Norman has declared that grocery e-commerce is a “desert of profit.”

Speaking at the Retail Technology Show earlier today, Norman explained that although retailers around the world feel compelled to move into e-commerce, “nobody is really making true profit from food online.”

“There’s been more wealth destroyed in people trying to develop food online businesses than any other industry I can think of.”

He highlighted the quick commerce bubble, with players like Getir, Gorillas, and GoPuff emerging during the pandemic and quickly disappearing when funding dried up.

Norman described M&S’ joint venture with Ocado, which launched in 2019, as a “rollercoaster” but acknowledged the business is growing at 13% annually and around one-third of products sold on Ocado’s platform today are M&S brands.

“What do my shareholders think? They don’t think there’s a lot of value in it. Like probably zip. What do I think? I think it’s going to be worth a lot of money.”

This month, M&S is due to make the final instalment as part of the payment for the £750 million joint venture. The relationship appears to have soured with performance targets not being met and Ocado stating last year that it could take legal action against M&S over the payment.

Most turnarounds don’t turn around

Prior to Norman’s arrival as Chairman, the UK retailer had literally spent decades plagued by the same problems – they lost touch with shoppers, their stores were wildly outdated, and they were late to invest in digital. Everywhere you looked, there were problems.

But M&S is a national institution, and I think, in many ways, it was their brand affinity, the strong emotional connection that British shoppers have with M&S, that helped them survive – even when they weren’t evolving. Not many retailers are afforded such leeway.

Today, M&S isn’t just surviving; they’re thriving. They made bold bets, accepting that they can’t be all things to all people, and it’s paying off.

So how did Archie Norman and CEO Stuart Machin even begin to turn around such a supertanker?

“When you’ve been drifting that long, you get a cultural drift. It’s deeply entrenched. The way people think about their job and their company has become defensive. Failing companies create their own narrative for failure so, to change that, you’ve got to fracture the culture.

I believe behind every business failure, there’s an organizational leadership failure. So you’ve got to start with that. People changing means changing people.”

Norman shared how in all the companies that he has led, they have ended up changing abut 80% of the top 200 people and half of the top 1,000.

“You’ve got to do the hard things first. When people step in to turn around the situation, all too often they want to declare victory within two or three years. They want to do the happy things, announce how they’ve got a new set of values and we’re all going to perform differently. It doesn’t happen like that.”

He said that there was a “sense of vanity” and a “right to exist” within M&S. These days, CEO Stuart Machin describes a very different culture, one of being “positively dissatisfied”.

“The nature of a turnaround is that most turnarounds don’t turn around,” Norman said. “So the day you step in that door, unless you change things, your business and your people are going to sink into oblivion.”

Disloyalty cards

A self-confessed loyalty card skeptic, Norman believes that shoppers tend to be rewarded for their disloyalty, rather than loyalty. In other words, shoppers will often be incentivized when they stop shopping with a particular brand, rather than being rewarded for being a regular customer.

“A lot of these loyalty cards are used to support pseudo promotions. And you can see that with [Tesco] Clubcard pricing. I don’t believe in differential pricing. I want everybody to come to M&S with trusted value. It doesn’t matter who you are, card or no card, you get the same price. That’s hard trust.”

The purpose of M&S’ Sparks loyalty scheme, according to Norman, is to enable the retailer to collect more data on customers to deliver more relevant messaging, as part of M&S’ mission to be the “most personalized retailer in Britain”.

Cafes and tariffs

Will M&S follow in Morrisons’ and Sainsbury’s footsteps by closing in-store cafes? Norman hinted at potential rationalization here.

“I can’t promise that we’re going to be running restaurants with your fish and chips and all that in the future.” However, he said that M&S is committed to a “modern café” .

As I discussed recently in this BBC article, retailers are desperately trying to navigate significant cost headwinds, while simultaneously competing with more value-driven rivals. Grocery is an especially low-margin industry, so supermarkets need to be utterly ruthless when it comes to cost-cutting.

However, M&S is not a pure grocer. Given the premium positioning of its food offering, combined with its unique customer demographic and non-food focus, I’d imagine that cafes are strategically more important to M&S than most of their grocery rivals.

Finally, Norman touched on Percy Pig’s US launch, having debuted in Target stores nationwide just last week. “It’s our gift to America, but we might have to change our minds after today when the tariffs come on,” he joked. “America will have to pay for their pigs!”