M&S and Waitrose tussle over prices as sales improve

Marks & Spencer released better-than-expected sales figures for the second quarter yesterday, and sparked a row with its rival Waitrose by claiming that much M&S food was cheaper.

Sir Stuart Rose, the executive chairman of M&S, said: "In food, we have realigned our pricing over the year. We are now cheaper on a basket of about 1,200 or 1,400 items than Waitrose by about 1 per cent. We are much closer to Sainsbury's. In some areas we are very, very close."

M&S's like-for-like food sales for the 13 weeks to 26 September were flat, although they were higher than the dire results it delivered a year ago.

Waitrose, the UK's fastest-growing grocer, which has benefited from the launch of its "Essentials" value range in March, strongly disputed the M&S data, saying its own analysis of 600 product lines showed that Waitrose's food was 4.5 per cent cheaper.

The price war is important for M&S because its food halls, which account for about half of its sales, have been struggling. Yesterday's spat also follows last week's announcement by Waitrose that it was begun to start opening up to 300 smaller convenience stores which will compete with M&S's Simply Food shops.

Sir Stuart praised M&S's food promotions, such as Wise Buys, saying that when food price deflation was taken into account, its food volumes were in positive territory. But Waitrose said its like-for-like food sales jumped by 4.1 per cent in the 13 weeks to 26 September.

M&S's wider UK like-for-like sales fell by 0.5 per cent, which was less than the consensus forecasts of a 1.4 per cent drop. As expected, the high street bellwether also delivered improved full-year guidance on gross margins, saying these would be down by 50 basis points to 100 bps, compared with previous guidance of a fall of 125 to 175bps.

M&S attributed the improvement in its gross margins to "better stock, control, sourcing and supply chain management" . The fall in sales of general merchandise, dominated by clothing, also slowed to just 0.8 per cent.

Matthew McEachran, an analyst at Singer Capital Markets, said: "In terms of forecasts, the gross margin guidance is worth around £50m to the bottom line, while better-than-expected sales trends are worth around £25m." Sir Stuart predicted that 2010 would be a "tough year" for M&S, saying the increase in VAT back to 17.5 per cent on 1 January would adversely affect the company's sales. He remain tight-lipped about the retailer's quest to find a new chief executive before the end of July 2010. But Mr Shiret suggested: "They've probably encountered some resistance from better quality, external candidates to have any involvement while Sir Stuart is still in the building."

Once the new chief executive is chosen, Sir Stuart will remain as chairman for a while but will will leave before the end of July 2011.