The chief executive of Marks & Spencer has labelled a government proposal for voluntary price caps on essential food items as 'completely preposterous', arguing that ministers should instead reduce tax and regulatory burdens on supermarkets.
M&S Boss Rejects Price Cap Idea
Stuart Machin, who leads the clothing, homewares, food and beauty retailer, stated that M&S already loses money on some basic items such as milk, bread and baked beans, while making very slim profits on products like eggs and sugar. He emphasised that the government should not try to run businesses but rather understand them better.
'I don't think government should be trying to run business,' Machin said. 'They should try to understand business better. There is so much in the government's control. My advice is to try to reduce tax and regulatory burden and free us up in a very competitive market.'
The proposal, which emerged on Tuesday, involved government officials suggesting that supermarkets stock at least one version of basic items such as bread, milk and butter at a set low price in exchange for easing regulations on packaging and healthy food.
Triple Whammy of Headwinds
Machin highlighted that retailers are facing 'a triple whammy of headwinds with increased taxation, a greater regulatory burden and ongoing global conflict.' He urged ministers to take action to relieve pressure and help retailers grow and invest.
He pointed to higher taxes as a major headwind, citing £40 million in additional costs from April's new packaging levy and potentially a further £10 million this year. Additionally, national insurance changes could add £50 million in costs, or up to £100 million if suppliers' higher national insurance costs are passed on.
Machin noted that the additional costs from regulations and taxes 'does all link to employment,' dampening businesses' ability to hire more people. While most taxes were anticipated, M&S had planned cost-cutting measures to offset the impact. However, the unexpected Middle East conflict has prompted some suppliers to ask for higher prices, adding 'a few million' pounds to M&S costs, though the retailer can absorb or offset most of this.
Investment Plans and Cyber-Attack Fallout
The chief executive spoke as M&S pledged to invest in technology and 18 new food stores, following annual results that revealed last year's cyber-attack had knocked almost a quarter off its profits. Machin described the year ahead as 'one of the most important ... in our history,' as the company adds automated distribution centres, refurbishes clothing departments, and uses AI to sharpen marketing and product sourcing.
'The next three years are critical for M&S as we invest for growth,' he said.
Archie Norman, the retailer's chair, said now was the time to 'shake the dust off our heels' as the effect on product availability from the cyber incident that began last Easter was 'now tapering' and new ranges were 'resonating well with customers.'
Financial Performance
M&S revealed that underlying profits slumped by 23.8% to £671 million in the year to 28 March, despite sales rising by 1.9% to £14.2 billion amid widespread inflation of over 3%. Profits were hit by £131.3 million in costs related to the cyber incident. Food sales rose by 7%, but fashion, homewares, and beauty sales fell by 7.7%, and international sales dropped by 7.2% as the cyber-attack fallout continued throughout the year.
Analysts noted that the profit outlook was worse than expected, with M&S warning that the year ahead would be affected by 'higher fuel, freight and input costs and continued government tax levies and regulatory headwinds.' Jefferies analysts said M&S was only guiding to an expected annual profit of more than £876 million, against expectations of £964 million.
Alison Dolan, chief financial officer, said the cyber incident had 'materially disrupted' stock flow, pressuring the supply chain and hitting availability throughout the year, leaving the retailer with excess stock that required deeper discounting in the second half.
Machin said food sales had grown strongly, helping M&S reach a 4.1% market share – its highest ever – and 4.6% if sales via its Ocado online grocery joint venture are included. M&S sold £1 billion of goods via Ocado for the first time this year, helping the online grocer reach an operating profit of £15.2 million, returning to profitability after several years of losses. Machin said Ocado had improved efficiency but there was 'much more to do before we commit to future growth investment.'
