Waitrose’s investments aim to position it well for the future but will hit first-half profits – Retail Week asks where the grocer is spending.

Waitrose customers can eat and drink at in-store ‘grazing areas’

Waitrose boss Mark Price has revealed that the grocer’s first-half profits will be impacted by “unprecedented investment” as the grocer seeks to make continued market share gains and improve its customer offer.

The retailer is focusing investment in stores, online, pricing and services in particular, driving a 5.2% sales lift in the first half.

Price said: “In a more turbulent time for food retailing than any of us can remember we have outperformed the industry, won more customers, increased our market share.

“We are investing to enable us to compete effectively in this very tough market and to build a strong business for the future. That’s why we’re putting substantial investment into offering great value to our customers.”

Online

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Waitrose has made a “substantial investment” in its online infrastructure to support the fastest growing part of its business.

It has increased the online capacity of branches to ensure more delivery slots are available.

It will also open its second dark store in Coulsdon, south London in the autumn as it vies to boost its capacity in the capital. The fulfilment centre will have 80,000 sq ft of picking space, twice the size of its existing centre in Acton.

Retail Remedy director Phil Dorrell says the investment is necessary, especially if Waitrose chooses to end its delivery agreement with Ocado – there is a break clause in 2017.

“Seven years ago Waitrose online [operated] completely through Ocado. It’s starting from ground zero without a DC designed for home shopping,” says Dorrell. “In two and a half years it’s got to try to grab Waitrose shoppers back from Ocado.”

It is also increasing the capacity of its delivery vans. It will have 300 high-capacity vans, which carry 50% more crates and 25% more weight than its existing vans, by October.

It has invested in click-and-collect, rolling out the service in-store and in third-party locations. It now offers click-and-collect for grocery in 179 branches, 11 of which were added in the first half. Collection of John Lewis products is available in 218 branches.

Waitrose has also invested in upping the convenience of its collection locations, installing pick-up points at Tube stations and piloting what it claims is “an industry first”: automated, temperature-controlled lockers in 10 locations on transport networks, including car parks at Gatwick.

Orders are stored in ambient, chilled and frozen temperature-controlled lockers that can be refilled several times a day. Customers can place orders on its website or its smartphone app. Orders placed before 11.45am can be collected the next day.

The grocer has also improved its website with a host of features including ratings and reviews.

It has been vying to build new revenue streams. During the half it launched a specialist online wine offering, Waitrose Cellar, intended to bring the expertise and advice that Waitrose offers in-store to online customers.

The investment is paying off. Online sales surged more than 40% over the half, making Waitrose one of the fastest-growing grocers online.

Services

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Mark Price outlined the core of the grocer’s strategy in May when, as the grocery price war was revving up, he said: “We succeed by being everything the discounters aren’t.”

Waitrose has relentlessly focused on creating a customer proposition that shoppers cannot find elsewhere, and in the half concentrated on services and hospitality.

Since last year Waitrose has invested in concierge-style welcome desks which it has now rolled out to 100 stores. They offer flower wrapping, gift bagging and dry cleaning services. It plans to roll the desks out to the whole estate and increase the number of coffee shops and restaurants.

Waitrose has also piloted bakeries and new-style wine departments in some stores in the first half of this year.

Its Swindon store, opened in May, brings these new initiatives together. The 28,000 sq ft shop has a large food offer, ranging from a fresh juice bar to a ‘grazing area’, where customers can order platters and eat at tables in the wine department. Customers can even select wine from the shelves to accompany their meal and pay corkage.

The model seems to be working; the store delivered sales 50% ahead of budget in its first month.

Conlumino lead food and grocery analyst George Scott says: “Waitrose is trying to be more than just a grocer. The grocery market is low-value and it’s not going anywhere. It’s about added value for Waitrose.

“The concierge service is unique and successful. It is refreshing to see and provides a local feel to the store. But it’s not just one thing that makes it work, it’s the way all the services come together.”

Verdict analyst Andrew Stevens says: “Waitrose is using services to increase the amount of time [people spend] in-store, which means more money in the tills. The investment will pay off. It’s bringing in a new customer base and it breeds loyalty too.”

And loyalty has been another focus for Waitrose. It launched the myWaitrose loyalty card in 2011. The grocer offers its four million members free tea or coffee every day in-store. Waitrose is now the second largest coffee provider in the UK, serving more than one million cups each week.

Prices

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Like all grocers, Waitrose has focused on pushing its value credentials. The grocer invests £500m in more than 1,000 promotions each week and continues to push its Brand Price Match initiative, first launched in September 2010, to ensure the prices of the branded products it sells are the same as at Tesco.

It has also invested in its Essential Waitrose range, which made its debut in 2009 and offers “everyday products at entry-level prices with the same high standards of quality, provenance and sourcing”, according to the grocer.

Price says: “We are committed to ensuring our prices are competitive and our buyers have worked hard to get us to a really good position on that.”

The grocer offers further promotions to its myWaitrose members, including 10% off hundreds of branded products every week. Members of the scheme pay just £1 for essential Waitrose butter (250g) and for essential Waitrose milk (4 pints).

Conlumino’s George Scott says Waitrose has “a bit of room to move” when it comes to promotions because its retail margin is healthy. “It’s quite a significant difference from the big four and their margins,” he says.

Verdict’s Andrew Stevens says Waitrose’s price investment is “subtle and sensible” in a market where value is so important. “Retailers are having to buy market share, price investment is getting shoppers through the door. Waitrose cannot afford not to,” he says. “Brand match is not the core of its strategy but it is communicating the value that Waitrose shoppers recognise and appreciate.”

 

Stores

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click and collect

Waitrose is undergoing the biggest period of expansion in its history as it extends its estate through supermarkets, convenience stores and motorway service stations.

With 319 branches, Waitrose has far fewer branches than its big four rivals, so there is a lot to go for.

In its first half the grocer stepped up a gear in terms of store expansion and it is eyeing further market share growth. It invested in 15 new stores in its first half, including the acquisition of nine shops from the Cooperative Group. In its first half last year it opened just four.

The grocer plans 10 new Little Waitrose convenience shops in 2014 and aims to capitalise on the trend towards mid-week top-up shopping in urban areas. It has 46 such stores at present.

Waitrose has been refurbishing. It revamped three stores over the half in Towcester, Harrogate and Stroud. The shops have reopened with new cafes, ‘grazing areas’ and services (see box, right).

Elsewhere, Waitrose Alderley Edge has been significantly extended. By contrast, there were no refurbishments or extensions in the first half of last year.

Waitrose has also revamped the front of 45 shops to include elements such as horticulture pods and areas to showcase seasonal products. It operates 29 shops at Welcome Break service stations, five of which opened in the first half.

Future plans include its first railway station shops, the first of which will open in London’s Kings Cross on August 19 followed by one in Manchester Piccadilly in September.