M&S plots sale of food stores

MARKS & Spencer has secretly made moves to sell up to half of its poorly performing Simply Food convenience stores - a decision that could cost the troubled retailer millions of pounds.

A list of stores is being circulated to rivals, including Waitrose. Negotiations are under way, but are said to be at an early stage.

But after signing extremely expensive leases for many of the stores, M&S may be forced to write off millions on the deal as it is believed potential bidders will be unwilling to pay such high rents.

Stuart Rose, chief executive of the beleaguered chain, called a halt to the expansion of the 87-store format soon after he joined in May to fend off an offer from retail billionaire Philip Green.

He subsequently ordered a review of the entire convenience business.

Simply Food was launched in 2001 and championed by M&S's then food director Justin King, who has since moved to head Sainsbury.

At the time, the then M&S chairman Luc Vandevelde announced plans for 100 shops and said that the only restriction to further growth for them was finding 'enough stores'.

Yet, while the format - targeted at busy locations such as High Streets, airports and train stations - is a huge hit with customers, M&S has always had a problem making Simply Food pay.

The average convenience store spend across the board is a mere £4 a person. However, M&S is payoutletsing premium yearly rents of up to £45 a square foot for many of the stores - up to twice as much as is charged for less high-profile sites.

Though the convenience market has been key to the strategy of all the main supermarket groups, there is an industry-wide acceptance that the formula has to be almost perfect to make any profit.

Supermarkets have been criticised for charging shoppers an average premium of 4% to buy goods at the format shops, but with such a small amount spent by each customer, it is the only way to make them pay.

However, rivals Tesco, with its Metro stores, and Sainsbury's Local are faring much better --mainly due to their strategy of buying a huge number of sites en bloc and the fact that they have been able to negotiate much lower rents.

Potential bidders for the Simply Food stores will not want to overpay for the sites, leaving M&S to choose whether to foot the bill for the surplus on the leases, or continue to run the stores at a loss.

Earlier this month, M& S announced a 2% drop in like-for-like food sales in the first half of the year, while unveiling plans to give its larger food halls a radical makeover to create a delicatessen-style atmosphere. The food range has also been cut by 12% to 4,000 different product lines with only 1,000 in the Simply Food outlets.

M&S admitted that some of its Simply Foods stores were for sale, but denied that so many of them would go.