Thinking back to the 2008 recession arising from the global financial crisis, and its aftermath, there were some real winners and losers in the retail world. The meteoric rise of the discount and value retail chains demonstrated a seismic consumer shift towards value that has not really gone away.
Why was discount and value so important?
Well, a few thoughts around this growth lie in the simple model of ‘stack it high, sell it low’, with a few ‘Grab it while you can’ products thrown in for good measure to keep the shopping experience exciting. At this point, shoppers were more likely to multiple-shop than do one big shop per week as the purse strings began to tighten in the search for better value.
Slowly but surely the retailers moved away from their geographic strongholds. E.g. Poundland – middle belt, Home Bargains – North West, 99p Stores – London. They migrated into each other’s areas and competition became fierce as many stores found themselves next door to each other, or within a stone’s throw at the very least.
Across the years that followed, there was a shift in their shopper base also as more A-C1 shoppers were found enjoying these formats as everyone felt the economic impact of the global recession.
2020 impact
Fast forward to 2020 and we now have an increased store estate, wider choice, broader ranges, and more categories such as chilled, frozen and even alcohol! Each of the retailers have invested heavily in the overall shopping experience with clean, well-lit stores all while still delivering amazing value and increased basket spend. This has put these businesses on a good footing to deliver strong results throughout the pandemic with a solid history and experience to fall back on.
Why are discount and value a threat to the multiples?
A major strength of this channel is its agility and reaction time compared with the traditional big retailers.
With little or no range reviews to consider, they thus cut out the category planning piece, meaning they can get the product to market and shelf quicker.
Until 2020 there had been some continued consolidation, losses and acquisitions in this arena given the finite high street space and the uncertainties of Brexit. Poundland bought 99p Stores for instance to increase its penetration in the South. But the next evolution in these formats was in category via the introduction of chilled and frozen. B&M Bargains acquired Heron Foods, giving them better distribution in these categories. Likewise Poundland with their purchase of Fulton Foods more recently.
Impact of Lockdown
During this pandemic B&M Bargains came out as one of the winners during the first lockdown. Sales for the six months to 26 September jumped 25.3% to £2.2bn. Their 2011 purchase of the beleaguered Focus DIY stores reaped rewards many years later as shoppers flocked to their large home stores with garden centres to purchase garden equipment during the summer months.
I have personally worked as a supplier to most of the retailer base in this channel, and as you know they are notoriously hard traders but are fair and competitive. As I see it, the key factor in the success of this channel is the key players focus on space optimisation to get ahead of the competition.
The biggest compliment that could be given to these retailers is that over time some of the major mults added bulk buy or pound zones to their big box stores in order to encourage shoppers to buy into their value proposition.
Online, Convenience and Discount growth
Coming out of 2013 we saw three key areas of the market forecasted to grow across the next five years: Online, Convenience and Discount. It played out this way, and as we look forward into the ‘new norm’ there will be an increased need for value + promotions as shoppers reassess what they buy and where they buy it from.
As traditional retailers investigate range rationalisation and simplification and maybe less NPD, the discount arena is well placed to alleviate warehousing and supply chain pressures that suppliers may experience through these changes in the broader market.
No doubt online has been the biggest winner during this pandemic and convenience has been a fundamental pillar of the community. But the role played by the discount channel in helping shoppers make value-based decisions while offering breadth and depth of choice to best fit their current financial situation cannot be underestimated.
Where is this all headed?
Looking to the future, there are some clear impactors on the horizon. For example, Brexit will impact the sectors supply chains as well as ongoing margin. The great point of difference within this retailer base is its choice of ranges. The shopper typically goes in to buy a few household items such as detergent, tinned goods and drinks. However, they leave with the aforementioned items, as well as other goods such as earphones, plasters, and storage units. This increases basket spend dramatically as customers are locked into the value perception psychology.
These secondary purchase items are often imported goods from the Far East, and although not directly impacted by the UK/EU fallout from Brexit, the ports are currently at capacity as container volume at Felixstowe for instance continues to boom with Far East Westbound exports. The increased demand is likely to see price increases which will be passed down the line eventually to the consumers. I would anticipate a squeeze on margin here.
Online: Traditionally a difficult area of the market for traditional traders but one which is going to bear more relevance as consumer expectations for ease of service continues. That said, people enjoy shopping in traditional stores, so the physical shop is critical to the overall shopping experience with these online pure-play retailers and many have bricks & mortar expansion plans across the next 2-3 years.
Health: Poundland launched a partnership with Whitworths three years ago which offered healthy snacking at an affordable price, products such as nuts, dried fruits etc. The health trend is continuing as more and more consumers become more informed about their eating habits and diet. With ample store space, do not be surprised to see increased space given to natural goods and plant-based options in the future.
Discount and Value Retail future
The market is forecast to grow 36% to £32bn by 2022. Therefore, as previously mentioned Discount and Value Retail is here to stay. Customers are locked into value and thriftiness is now sexy. The continuation of one-off items will remain, but new on-trend categories, alongside the traditional choices, will bolster the shopper options. Increased store size and floor space will give broader depth to the offering. I feel the value-snobbery that shoppers once had is a thing of the past as we are becoming more conscious of spend and what we see as value.
Action for NAMs
Bespoke packs offer a degree of protection from the grocery retailers and ensuring support for front of store ‘manager’s specials’ gives access to great potential volume. Critical management of the account P&L is important as pricing is mostly nett-nett. Suppliers need to ensure that relationships are developed at multilevel and multifunctionally within the account and not just with the trading team. Supply chain efficiencies and in-store execution support can add much to achieving great results in this new norm…
For further insight, contact Nicholas Pugh ([email protected])
or visit: howsales.consulting
Linkedin: www.linkedin.com/in/nicholaspugh/
