Marks & Spencer raises the axe to cut £40M in costs this year

Marks & Spencer (M&S) has enlisted a team of external consultants to help it slash at least £40M in costs from its food business this year as the trading environment becomes more challenging.

However, the retail chain's PR chiefs claimed that recent press coverage of changes to its trading terms with suppliers were inaccurate. In particular, they rubbished the claim that its top 10 suppliers had suddenly been told to reduce invoice prices by a blanket 2% and then faced 3.5% increases in retrospective 'growth rate charges'.

A spokeswoman said: "The 2% discount was something we introduced in 2005. There is no new flat charge." Meanwhile, the growth rate charge had just been changed so that retrospective discounts were paid on the basis of year-on-year growth rather than on a benchmark set in 2005/6, she said.

"With these schemes, which all supermarkets run, the more volume suppliers do with us, the more they pay. But the most suppliers would pay under our new rates would be 2.5% - and you'd have to be doing 20% growth to pay that."

She added: "Many suppliers will pay less than 1% under this scheme. Unlike other food retailers, we also have some of the best payment terms in the business. How many [rivals] offer payment within 10-25 days?"

However, she confirmed that suppliers' marketing contributions to M&S were being raised in two stages from 0.5% to 1.5% to reflect M&S's investment in advertising and brand building in the past two years. Despite lacklustre trading figures in recent months, M&S remained confident of boosting its share of the UK food market from just over 4% to 5%, she said, adding: "We are aggressively laying down new space."

However, suppliers said M&S was under intense pressure to cut costs having lost a fifth of its value earlier this year after unveiling its poorest sales figures for two-and-a-half years. The competitive landscape was also getting more fierce as larger rivals like Tesco refused to countenance price increases at a time of rising commodity costs.

One manufacturer said: "This is not the first time that retailers have done this kind of thing, but the fact is that on this occasion, a delay rather than a total stop [on price increases] is the best they will achieve. The availability of raw materials is a new element that, however powerful any one party may be at point of purchase, commodity markets flex the price to restrict demand."

His comments came as Asda warned suppliers that it would be "sharpening its pencils" on price in the coming weeks and Tesco imposed a freeze on price rises from suppliers.