By Kathy Sandler
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Food and fashion retailer Marks & Spencer PLC (MKS.LN) broke with a half-century of tradition by announcing Wednesday it would sell branded products like Coca Cola and British yeast spread Marmite in its all stores next year, alongside M&S's own-brand fare.
The decision marks another stage in the transformation of the U.K. high street's most iconic store, which has had to respond to penny-pinched consumers by offering cheaper products, and to the growing tide of internet shoppers by revamping its website and improving its retail channels.
In a stark sign of the times, M&S this week launched a price comparison advertising campaign which directly pits its value range of foods against similar own-brand cheap products at upmarket rival Waitrose, part of the John Lewis Partnership. M&S has typically stayed out of the fray when supermarkets have run tit-for-tat ad campaigns.
And now the company will sell branded products in all its stores again, about fifty years after it cleared its shelves of popular household names, following extended trials in some parts of the U.K. where consumers could buy PG Tips teabags, Wrigleys chewing gum and Jack Daniels whiskey.
Executive chairman Stuart Rose, speaking to reporters following the group's better-than-expected first-half results, insisted the rollout of well-known brands would not fundamentally change the M&S model which focuses on high quality own-branded produce. He noted the retailer would only be selling a selection of 400 products compared to other supermarkets which typically sell over 10,000 branded items.
Still, it marks a further change in M&S's product offering. In the eye of the recessionary storm, M&S, which has an enviable reputation for quality but is also perceived as an expensive luxury, quickly lost market share to lower-priced rivals.
From a nadir in the third quarter of 2008/2009, when U.K. like-for-like sales fell 7.1%, M&S has introduced new, cheaper products, run competitive promotions and pushed value alongside quality, culminating Wednesday in better-than-expected first-half profit and a share price rise of over 6%. At 1511 GMT, M&S shares were up 6.07% or 21p at 362p.
The company's profit before tax, property disposals and exceptional items from continuing operations--the key figure tracked by U.K. analysts--rose to GBP298.3 million in the first half of its fiscal year, from GBP297.8 million a year earlier, ahead of consensus estimates of GBP285 million.
Total sales in the 26 weeks to Sept. 26 rose 2.8% to GBP4.3 billion. Stripping out new store openings, like-for-like sales in the U.K. fell 0.9%, a marked improvement on previous quarters.
Marks & Spencer's evolution, which under Rose's stewardship has also included adding contemporary clothing lines, revamping stores and expanding its international footprint, hasn't quite fully embraced the tech-savvy consumer because the company doesn't yet sell its food range online, although it has a thriving clothing, furniture and homeware website.
Rose said Wednesday it was a question of 'when, not if', food sales go online, but only when it becomes profitable.
He noted that Ocado, which distributes Waitrose products, is loss-making, and insisted that M&S will only start to sell and deliver its food online when it can make money out of it, although he admitted consumers increasingly want the service.
M&S still has some way to go before it fully embraces both the modern consumer and the modern retail model. Last month, it updated investors on a plan to improve its IT and distribution systems, a process which will take several years but is destined to save the group GBP250 million by 2013/2014.
Outlooks for Christmas and 2010 remain murky, though, and Rose repeatedly preached caution amid the volatile and fragile return of consumer confidence.
Company Web site: www.marksandspencer.com
-By Kathy Sandler, Dow Jones Newswires; 44-207-842-9293; kathy.sandler@dowjones.com