Elsevier Food international Vol. 10, Number 1, February 2007

In a recent US edition of The Economist, British retailer Waitrose was characterised as “a fast-growing supermarket chain catering for people too refined to shop at Sainsbury’s – rich people who don’t look at prices.” Is life for Waitrose’s management that easy, with such a clientele?

“Well there are many ways to characterise any retailer,” responds Waitrose’s managing director Steven Esom. “People who shop at Waitrose understand and love good food. Over 100 years we consistently built our reputation as a quality food retailer where you pay a little bit more for food of much higher quality than average. Income is not an issue. In fact, consumer spending on food as a percentage of disposable income has been declining year after year. We appeal to all social classes and we also have stores in mixed areas with higher representation of first generation new residents for instance. Key is that our customers know what good quality food is.”

Are supermarkets that offer ‘lowest prices’ and ‘highest quality’ credible?

“Certainly in the UK, where there is more quality around. Store environment and service are appreciated in the UK. Hard discounters like Aldi and Lidl have therefore failed to dominate the market. Indeed these hard discounters are also upgrading their assortments in the UK but there is still quite a gap between them and the average UK supermarket. Not only regarding assortment but also on service levels.”

Buying dominates your CV. At an IGD conference in 2004 you said: “With a customer base comprising predominantly of ABC1’s and a clear USP as a quality food retailer, Waitrose is not under the same sort of pressure as Tesco and Asda to get the best price at all costs.” Is this still true in 2007? What does this say about Waitrose’s buying practice?

“Yes it is still true. Buyer-supplier negotiations especially in non-food markets are tough. We, however, focus on quality fresh food like meat, dairy products, fruit and vegetables. And fresh organic food. We have a 17 per cent share of the organic food market in the UK. Quality and quantity of food supplies are important to us. We balance this when we offer a price to our suppliers. Squeezing them to the last penny is not in our interest. Price is our third priority, after consistent quality and suppliers’ service. We build long-term relations with our suppliers who are an essential part of our supply chain. Retailers that win in the quality market are the ones with the best supply chain. We know how difficult it is in getting consistent supplies of good quality food. Therefore, a profitable future to our suppliers is in our interest.”

Can Waitrose only live up to the promises it makes towards its shoppers if the size of the business remains within certain limitations? For example, in stores to replenish, in width and depth of assortment, in geographical spread?

“That’s very true. Still I believe we can double the size of our business over the next five to ten years. This means we are targeting some eight per cent of the UK market over that period. Quality food represents some 20 to 25 per cent of the UK market, so there is enough growth potential available to us. But this means that our suppliers should grow also. Again, we can only grow as long as our suppliers can grow.”

We discussed hard discounters moving upmarket. In addition, leading chains like Tesco and Sainsbury’s are adding premium lines to their offer. And then there is Wholefoods that intends to set up shop in the UK. How does Waitrose deal with increasing competition?

“Our customers are willing to pay a little bit more for a much better product. Other retailers also found out that this is a successful strategy and come to our territory. I have seen Wholefoods in the US and it is a distinctive operation. It is good to have such a food hall in London, together with the existing food halls of Harrods, Selfridges and the food hall we will open in a John Lewis department store. The Organic offer for Wholefoods will be, however, is difficult to procure. Also, like any retailer in the UK, Wholefoods will not be able to open new stores and increase selling space as much as it wants. That is especially difficult for newcomers, but also to us that is the biggest threat. We therefore respond to increasing competition by constantly refining our offer and focusing on growth, both like-for-like and via acquisitions.”

Does Waitrose stand a fair chance when it comes to acquiring real estate for new stores? Is the availability of sites limited due to the UK’s leading retailers creating so called ‘land banks’ (or ‘pipelines’) consisting of sites acquired at an early stage?

“Our own development department builds new stores and we also have a pipeline of locations for new stores. It is constantly being filled and currently it contains new stores to build over a period of two to three years. We have to invest in land ahead of planning.”

Does this not require large sums of money that eventually could also be invested in the core business of food retailing? How does Waitrose carry this financial burden?

“The John Lewis Partnership is a privately owned company with a low gearing. We therefore can efficiently borrow money via short-term loans and bonds. Also, we have a proven ability to generate cash. Over the last three years, we upgraded all our stores by reformatting them and equipping them with new refrigeration systems. We also acquired over 40 stores. We were able to do this at the same time. We are a private company and we can therefore take a long-term view. And no, indeed I never envy my peer group of managers working for listed companies!”

How do the cooperative roots of JLP affect the organisation?

“Co-ownership is fundamental to our business. All we do is based on trust and to benefit our partners, as we call all our staff members at all levels. We all share in the profits. We’re a partnership and both the John Lewis department stores and Waitrose supermarkets aim for superior service and treat each other and the customers they serve with respect. The board of JLP includes some directors that are elected by the Partnership councils. That’s totally different than what you can see at other listed companies, for instance, Tesco.”

Is the percentage of unionisation among employees – or partners as you call them – therefore substantially lower than that at other retailers?

“I really would not know what percentage of our partners are union members. At the partnership we are all owners of the business. We can solve any problems within the workers councils, which consist of elected partners from all levels within the organisation. I am also accountable to the workers council.”

How is Waitrose’s e-commerce branch Ocado developing? When will this be a profitable business?

“Ocado is some five years old now and it increases by some 30 per cent annually. We are rolling this out in the UK where we mainly target large cities like London, Manchester and Birmingham. On an operational level we expect Ocado to be profitable this year, but due to all the investments in starting all this up, we will need more time to break even. An important reason for investing in Ocado is that Waitrose is poorly represented in the London area. We would need 30 more stores in London and considering the fact that each store would need an investment of some £20 million, Ocado is money well spent. It increases our client base in London and other large cities. Outside these cities, where land prices are lower, we prefer to invest in stores.”

Is Waitrose essentially a British phenomenon? Or would it also be possible to set up a similar operation in the markets of continental Europe?

“Good food is universal. Look at the success and rapid growth of Wholefoods in the US. Also in the Far East, there are successful retailers with high quality assortments. We have no plans of setting up a Waitrose-like operation abroad, but a quality food retail operation could work anywhere as long as it is scaled in the right way with a sufficient and consistent supply of good food and people running the business who have the right expertise and service-oriented attitude. The UK is an exception as there is hardly any open-air fresh food market in this country anymore. But that is still happening in different markets in Europe. That’s a difference.”

The 20th century belonged to the A-brands, but the 21th century will be the breakthrough of private label. Do you agree? What do you think of the innovative capacities of branded goods suppliers?

“I agree. Especially in food, own labels will be the big innovators. In non-food, where technical requirements play a key role in product performance, I think branded goods suppliers will be the innovators. It is also true that innovation in food comes more from smaller businesses than from large companies. Take Innocent for instance. A manufacturer of smoothies and other drinks. It is innovative and fast growing in a specific area. I think small businesses are more innovative because of their scale and focus. Passion and entrepreneurial spirit are important.”

On the other hand, why do you think that large companies are not capable to innovate?

“Well, I don’t want to say that they are not able to innovate, but they just don’t demonstrate their innovative capacities well enough. And there are of course exceptions to the rule, like Danone for instance. A very innovative company with a clear focus on fresh food.”

What percentage of the Waitrose assortment is sourced locally or regionally? Has this figure risen in recent years?

“Currently we have some 1,000 product lines that are locally or regionally sourced while four to five years ago this applied to only a few products. So, it is growing rapidly as we source as much as we can locally. Our customers appreciate locally sourced foods. Here we build long-term, trust-based relations with local suppliers. We also have an excellent relation with the National Farmers Union. Our pricing of fresh produce in our stores is totally transparent, taking into account the whole value chain and taking a fair farmers’ return as point of departure.”

What is your view on the food labelling systems that are currently in place? In the UK, there is the so-called signposting system. But recently a rival scheme was introduced by opponents of that system. Doest this rivalry not hurt the true cause of food labelling which is helping customers to make healthy choices?

“Waitrose supports the signposting system as we believe a simple system is the best. The customer understands it and can compare products across categories. This efficiently creates awareness on the types of fat, salt and sugar in food products. If a new scheme is developed and it is clearly demonstrated that this is better for the customer, we will surely think about adopting the new system. We support anything that raises awareness on healthy food choices.”

Research by the British National Consumer Council (NCC) shows that retail chains in the UK still fail to do enough to care for the environment. What do you think? Waitrose is top of class in the research with only a B ranking. Not enough according to the NCC. Should this not be a more collaborative effort by all retailers?

“I am pleased with the fact that the NCC singled us out. And indeed there is a lot more we can do. Packaging reduction is for example a key initiative. We reduced 25 per cent of our packaging related to our turnover and we are keen on optimising our energy use, using renewable electricity and reducing the number of miles food items travel before they reach the store’s shelves. Local sourcing also helps in this respect. Within JLP lots of projects are happening and each director has his or her own list of environmental targets to meet. We use less steel and concrete when building new supermarkets, we explore the use of geothermal energy and – on the other hand – we try to disperse heat in the ground and not in the air. I agree that this environmental awareness should be a collaborative, shared responsibility. As an individual retailer you can do a lot, but together as an industry, you can do even more.”