UK core business

M&S has always been synonymous with the highest quality food. It is our core point of difference in the marketplace. Customers continue to recognise this. For example in a recent Watchdog survey of more than 36,000 people, M&S came out top for quality food, beating all other supermarkets.

During the year we launched ‘Top Marks’ as a way of highlighting to customers those products that have been independently judged as being the best in the market. ‘Top Marks’ draw attention to products that have won awards, received positive press reviews, or have been independently quality tested.

Our customers know that all the food they buy from us is quality assured. But we are constantly finding new ways to improve our offer. All of our fresh beef, pork, chicken, turkey and salmon are already sourced in the UK and this year we extended our sourcing so that it is local to individual M&S stores. For example we have just begun regional sourcing of chicken for Scottish stores. This strategy runs through the very heart of a Food business that is founded on ethical sourcing, the highest standards of products and raw materials, provenance of its ingredients and supports British farmers.

Our wine range is widely recognised as having improved significantly over the last few years; work recognised in 2008 at the most important and coveted industry awards. M&S won both ‘Supermarket of the Year’ and ‘Wine Merchant of the Year’ at the International Wine Challenge, and was voted ‘Supermarket of the Year’ by Decanter Wine Magazine.

In a challenging market, outstanding value is a fundamental requirement for our customers. We are listening and responding.

During the course of the year we undertook a number of major pricing initiatives as the first and most obvious response to the economic climate. ‘Wise Buys’, ‘Family Favourites for £4’ and the ‘Dine in for two for £10’ promotions work in combination to offer our customers the chance to buy great food on a regular basis, and at outstanding value.

The ‘Wise Buys’ label is now on 500 everyday products – some 10% of our food range – from staples such as milk and eggs, to ready-meals such as lasagne. The competitive prices reassure our customers that they can economise at M&S, without compromising on quality. As the credit crunch worsened, we recognised that people were likely to dine out less and instead eat more from home. In anticipation of this trend we introduced our ‘Dine in for two for £10’ promotion, where customers can enjoy a restaurant-quality three-course meal with wine. The success of ‘Dine in’ is demonstrated by significant increases in footfall from both regular and occasional M&S customers. As a result we continue to look at new variations on the same theme to deliver something special such as ‘Dine in for two for Valentine’s Day at £20’, which included a red rose or the ‘Dine in for four for Mother’s Day at £15'.

Our business philosophy is that our products should always be made with the very best ingredients. So while we may reduce the prices of products or deliver unbeatable promotions, we will never compromise on the quality of the product.

Over the last few months we have improved on-shelf availability by restructuring and increasing the number of people in our trading teams, so that there is a greater focus on getting the right products to the right stores, to meet customer demand. We appreciate that every store is different in terms of local customer preferences and we need to make sure we accommodate as many of these local tastes as possible.

However we still have significant work to do, with much of our future capital investment focused on system developments to further improve on-shelf availability and reduce food waste.

Delivering great service is about ensuring customers have the right information to make informed choices about the food they buy. This was highlighted by the National Consumer Council that recognised our efforts to help customers make an informed choice about their diet, using the front of pack traffic light labelling on over 800 of our products, or choosing to eat our healthier options, identified by the Eat Well sunflower.

Great service is also about reformulating product recipes to improve health and quality, while reducing the levels of potentially harmful or unhealthy ingredients. For example, by working with the Hyperactive Children’s Society we have already removed artificial colours and flavours from all our children’s product ranges. This was so well received that we have extended this policy to cover all of our food ranges, as well as removing hydrogenated vegetable oils and continuing to make significant reductions in salt levels. We use only free range eggs whether they are in their shells or as an ingredient in all our other foods such as cakes and pasta.

In a significant step for the business, we initiated a trial of 350 branded food products in North East England in July 2008. The decision comes in direct response to customer feedback that they wanted the convenience of picking up a jar of Marmite or tube of toothpaste with their regular M&S shop. The trial has been well received by our customers and colleagues alike, and was extended to 23 stores in the South East to further gauge customer reaction. Selling these products increases customer convenience, and we plan to update further on this trial later in 2009/10.

Innovation is fundamental to our Food strategy. We want to excite our customers with new products and ranges, and encourage them to come back time and time again.

In October 2008 we relaunched our Italian range, a clear example of M&S innovation at its best. Our team travelled to Italy to create the new range, which draws on local expertise, uses more authentic ingredients, and goes back to traditional cooking methods and recipes. The relaunch has been a great success with average growth of 15% on the year.

In March 2009 we launched two major innovations: Cook Asian 1234 and Bakery Cup Cakes. Both of these ranges are first to the market and are showing impressive early sales. Such is our confidence in these ranges that they have featured heavily in our recent television and poster advertising campaigns as great examples of all that is good in our Food business.

We have long held a reputation for innovation, by improving on classic recipes as well as developing new ingredients. Our Chopin potatoes are a great example of this. We developed this new variety of potato to be naturally creamy in flavour, reducing the need to add butter, and securing it 'Product of the Year' at the Annual Produce Grower of the Year Awards.

The awards we have won in 2008/09 are a testament to the quality of our product, the consistency with which we approach our Food business, and therefore the trust our customers place in us.

For example we won the ‘2008 RSPCA Good Business Award’ for food and the ‘2008 Compassion in World Farming Compassionate Supermarket of the Year Award’, for our commitment to animal welfare.

It is important that our customers trust M&S which is why we are as transparent as possible in our business dealings and our interaction with customers. This goes to the heart of what we do; from clearly labelling our healthy eating products and nutritional content of our products, to our supplier relationships. We have established an in-house ethical supplier exchange where we have trained over 1,000 suppliers on our ethical standards.

We continue to support farmers with the M&S Milk Pledge, which in addition to paying farmers a fixed and industry leading price for their milk, rewards them for good performance on animal welfare. We have extended this pledge to our lamb farmers and are working to extend to farmers in other markets as quickly as possible.

Listening to our customers and responding to their needs is central to our Food strategy. Our renewed focus on our five principles of Quality, Value, Service, Innovation and Trust will enable us to build on the progress made in the second half of 2008/09. We are confident that we can strengthen our position as the most trusted food retailer offering the highest quality food, representing excellent value for money for our customers.