WAITROSE REDEFINES 'VALUE' TO COMPETE

RANCHO MIRAGE, Calif. -- Waitrose, a chain of 166 upscale stores in the United Kingdom, has boosted customer visits and spending over the past six years by re-engineering its value proposition, Mark Price, development director for the chain's parent company, told the IGA Global Summit here.

In the process, it's been able to maintain its reputation for quality while improving its price perception among consumers, Price said.

The story of Waitrose's revival was meant as an inspiration for small, service- and quality-oriented retailers in the United States that have to compete against larger, price- and promotion-driven rivals.

Waitrose is the food retailing division of John Lewis Partnership, a London-based department store operator. Yet Waitrose, in operation for 101 years and the official supplier to the royal family for 78 years, had no marketing plan. In addition, it was losing market share throughout the 1990s to larger, more promotions-oriented competitors like Tesco and Sainsbury, Price said.

Waitrose's annual sales run $6 billion, vs. $60 billion at Tesco; $33 billion at Asda/Wal-Mart; and $32 billion at Sainsbury, Price noted. Its stores operate primarily in southern England, including London, with expansion into the Midlands and northern United Kingdom over the past 10 years.

"Even today, we are like a minnow in a sea of sharks," Price said. "But in the last few years, we've had the fastest sales and profit growth of any retailer in the U.K."

Waitrose's sales have climbed steadily since the promotional program began in 1998, Price told SN. Sales in 2004 alone increased 12%.

The challenge for Waitrose, Price told the IGA audience, was "that our stores are very up-market, like Wegmans or Whole Foods, and we were regarded as the place to go if someone was giving a dinner party and wanted better-quality products, but not the place to go for everyday shopping because people perceived us as an expensive place to shop."

Complicating matters, he added, was the company's adherence to an old business philosophy that eschewed promotions.

"We spent all our money on product and service, and none on marketing," Price said.

The result was the company was attracting more secondary shoppers than other supermarkets, he said, with 56% of customers spending less than 50% of their disposable food income at Waitrose.

Another negative factor for Waitrose was that its stores averaged only 17,000 square feet, with many of them in town centers. Competitors' stores averaged 30,000 square feet, with multiple locations in the suburbs, Price said. "Yet our stores carry 22,000 stockkeeping units, which is more than Tesco carries in double the size."

Waitrose had traditionally relied on value to attract business, Price said, "but in the U.K., 'value' has been hijacked by the discounters to mean 'cheap.' Yet we check key prices every week, and we try to be as close to Sainsbury and Tesco as possible and within 4% of Wal-Mart/Asda."

By the late 1990s, with profits flat, "the challenge was to embrace our reputation for quality while improving our price perception," Price said.

"To do that, we needed to re-engineer our value proposition and let customers know that quality plus price equals value. We needed to explain that we are food experts and that we care about price."

Waitrose's solution, Price explained, was to develop a slogan -- "Quality food, honestly priced" -- and a major ad campaign to go with it. "The ads are all about provenance and our points of difference," he said. "Basically, we are telling consumers you get what you pay for."

Waitrose began running print ads in 1998. It added TV, then radio in 2001.

According to Price, print ads never show specific food products, but consist of eye-catching photographs with limited ad copy. For example, a photo of an Italian village with text indicates Waitrose imports real Italian dough to make its pizzas; a picture of a line of elephants in India promotes the chain's ready-made Indian meals; children running on a beach convey the message that Waitrose carries healthy, organic foods for kids; and a picture of heather growing in the highlands of Scotland promotes honey carried exclusively at the chain.

The TV ads emphasize the uniqueness of the chain's offerings, designed to tempt potential shoppers to give Waitrose a try and to remind secondary shoppers to buy more, Price said. "The ads indicate we care about price and that we are the only stores offering certain products. Four years after we went on TV, we're still getting sales growth because the ads are so different from those that talk mainly about the cost of goods."

Because radio in the United Kingdom is primarily local, spots carry more of a price message, Price said.

Waitrose also acquired a magazine called Food Illustrated that is dedicated to celebrating good food from around the world, without concentrating specifically on Waitrose. It also designed a Web site and began sponsoring special customer events to promote its value proposition, Price added.