The chief executive of Marks & Spencer, Stuart Machin, has described the government's proposal for voluntary price caps on essential food items as "completely preposterous," arguing instead for reduced tax and regulatory burdens on supermarkets.
M&S already losing money on basics
Machin stated that M&S already loses money on basic items such as milk, bread, and baked beans, and makes very slim profits on products like eggs and sugar. "I don't think government should be trying to run business," he 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 idea, raised by officials on Tuesday, would involve supermarkets stocking at least one version of basic items like bread, milk, and butter at a set low price in exchange for eased regulations on packaging and healthy food.
Triple whammy of headwinds
Machin highlighted that retailers face "a triple whammy of headwinds with increased taxation, a greater regulatory burden and ongoing global conflict." He noted that ministers "can do things to relieve some 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, potentially £10 million more this year, and £50 million higher costs from national insurance changes. Including suppliers' extra national insurance, the figure could reach £100 million. Machin warned that these costs "does all link to employment," dampening businesses' ability to hire more staff.
The unexpected Middle East conflict has also prompted some suppliers to ask for higher prices, adding "a few million" pounds to M&S costs, though Machin said the company could absorb or offset most of this.
Cyber-attack impacts profits
Machin spoke as M&S pledged to invest in technology and 18 new food stores after annual results revealed that last year's cyber-attack knocked almost a quarter off its profits. Underlying profits slumped by 23.8% to £671 million in the year to 28 March, with sales rising only 1.9% to £14.2 billion despite inflation. Profits were hit by £131.3 million in costs related to the cyber incident.
Food sales rose 7%, but fashion, homewares, and beauty sales fell 7.7%, and international sales dropped 7.2% as the cyber-attack fallout continued. Analysts at Jefferies noted that M&S is only guiding to an expected annual profit of more than £876 million in the year ahead, below expectations of £964 million.
Investment and future outlook
Machin described the coming year as "one of the most important … in our history" as M&S 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 it was time to "shake the dust off our heels" as the impact of the cyber incident "is now tapering" and new ranges are "resonating well with customers."
M&S also reported that it sold £1 billion of goods via Ocado for the first time, helping the online grocer return to profit with an operating profit of £15.2 million. Machin said Ocado had improved efficiency but there was "much more to do before we commit to future growth investment."
