Food deflation weighs on M and S

Posted by Josette Dunn on 9th April 2010

Marks and Spencer this yesterday (8 April) posted lacklustre growth in its fourth-quarter food sales, as food deflation weighed on the results despite volumes rising.The UK retailer revealed that food sales in the period ended 27 March rose by just 2.6%, trailing gains of 10.6% in general merchandise and 48% at the group’s online venture, M&S Direct.

However, speaking to the media after the trading update, chairman Sir Stuart Rose insisted that the group’s food business remained in good shape.

According to Rose, falling UK food prices have “masked” strengthening food sales in the country.

“In food there is continuing price deflation of around 1%,” he revealed. “Our food volumes are actually about 4% up, so we are actually making good volumes gains.”

Rose said that food volumes have been driven by an increased focus on value, availability and innovation.

Rose insisted that M&S has received “really strong” customer feedback on its food range and revealed that the group is on track to introduce over 1,500 new lines this year.

According to Rose, consumer feedback has indicated that perceptions of the group‘s food offering are highly positive, stressing “family values” and improved value and service.

However, despite the company’s attempts to refine and revitalise its food offering, Hargreaves Lansdown equity analyst Keith Bowman suggested that M&S’s food unit is yet to define its position in the food retail market place.

“Doubt still persists in relation to the market positioning of the group’s food business,” Bowman cautioned.

Questions over the future of Marks and Spencer’s food business will likely now be answered by incoming chief executive Marc Bolland, who takes the helm in May.

Shares in M&S had dipped 1.35% at 10.40am BST today, falling to 373 pence in morning trade.

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