When even £1 is too much in a pound-shop...

An article in today’s Daily Mail gives 15 examples where well-known brands priced at £1 in a pound-shop retail at approximately 85p elsewhere (worth a look to see if you are included).

Obviously we may all be moving to a position where shelf prices are the responsibility of the retailer, and any damage to brand credibility will be at the expense of the name above the shop-door…

However, even the savvy consumer may not be expert in such subtleties of pricing/branding dynamics and will simply feel conned by the brand-owner, thereby triggering the tell-10-friends reflex…

Better perhaps to reduce the retail margin on the £1 SKU in regular – i.e. non pound-shop distribution – to a level that discourages reductions in price below a pound.

Risking a de-listing?
Question is whether you really want/need mainstream listings of your £1 SKUs?

When £1 morphs into £2 – the Poundland acquisition of 99p Stores

This morning’s announcement was an inevitable consequence of post-financial crisis pressures driving shoppers to the bottom layer of the squeezed middle.

But the real issue is trade consolidation.

What started as a raggle-taggle novelty retailing initiative based on suppliers and retailers finding a way of making money on a £1 version of brands, might have struggled had inflation been maintained at ‘normal’ levels.

However, pro-longed flatline demand, combined with low inflation, allowed the pound shop to flourish, but as usual, some more than others.

Suppliers' enthusiastic development of a strategic approach to the £1 channel has now made it possible for pound shops to enter the mainstream...  Mergers/takeovers will be inevitable, causing the usual issues of prices and terms dis-harmonies, just because these smaller 1-off customers were interesting, but too small to matter when it came to ensuring the national integrity of our pricing and terms model..

Impact of the Tesco-cull
Given what could be a SKU-shakeout of 30% of the range arising from the Tesco-cull, suppliers now need to reassess and optimise alternative routes to consumer, and make appropriate changes to their marketing strategies, especially as the increasingly fragmented world of TV and press advertising causes advertisers and the savvy target audience/s to embrace online/social media.

Taking the mainstream pound shops even more seriously, might help… 

Poundshops joining the mainstream?

Given Poundland’s successful flotation in March 2014, it is perhaps time for NAMs to seriously consider Poundshops as part of UK mainstream retail.

As a start, compare the Poundland ratios vs. the Big Four latest results.

As can be seen above, they are already ahead with ROCE 15.6%, equal on Net Margin 3.7%, underperforming on Stockturn 11.1/annum, with modest Gearing 16.1%

All they - and other poundshops - need to keep in mind are the retail standards being maintained by Walmart (ROCE 18.2%, Net Margin 5.2%, Stockturn 10.6 and Gearing 51.4%)

All a NAM needs to keep in mind is the need to help them…!

When choice rather than need drives discounter growth...

Demand for value retail began as novelty and morphed into need, in the aftermath of the global financial crisis.

However, as savvy consumerism spread, shoppers began to seek out discounted products, first the brands and then private label. Because of the high level of surrogate labels in hard discount offerings, branded goods suppliers have found it necessary to actively support the pound shops, thereby helping them become permanent - and growing - features of the landscape...

The evidence is all around us, especially in the latest results from Poundland.

However, whilst need-driven demand will last beyond flatline, shopping at value stores has become a matter of choice, thus ensuring their long term growth.

For this reason, it is important that suppliers evolve cost-based strategies to ensure that their brands that sell for a pound are self-financing, in order to avoid the risk of subsidising via larger SKUs.

In other words, suppliers have to find a way of launching a £1 brand into the value market at a sustainable cost-price, especially if the 'pound size' finds its way into mainstream channels in response to choice-based demand... 

Poundland getting serious, a new challenge in NAMland?

pic: City AM

News that the Pound shop leader plans to float in March, on the back of a new line-up of retail talent in the boardroom, and probably raising £700m in the process, means new resourcing issues for suppliers...  In other words, it is time to take the single-price discounters seriously.

Traditionally, whilst our marketing colleagues have little trouble assigning their best and most energetic talent to launching new brands, the allocation of our best NAMs tended to be on the basis of sales turnover, or in a few instances, net profit... Even more seriously, this allocation to the Big Four is often determined by career-minded NAMs that are unwilling to besmirch their CVs with anything less...

After all, 'looking after the poundshops' does not carry quite the same cachet as 'Technically I managed Sainsbury's in the afternoons, but my real job was opening up our top-secret UK multi-channel strategy' in job interviews...

The 17% CAGR of Poundland, and the 26% CAGR of Amazon are equivalent to Walmart's 40-years 25% Compound Annual Growth Rate that produced today's global No.1 player, and are not only setting new standards in new retail, but are also presenting a new basis for allocating account responsibilities of our best NAMs.

All things being equal, why not consider early growth rate as a way of identifying embryo major accounts, acknowledging if the formula is right, that profitability and scale will follow...

Whilst we are not quite suggesting that "suppliers should ditch 'no growth' supermarkets, in favour of high growth areas of the food market like online and discounters" (Booker's Charles Wilson, City Food Lecture), perhaps a fundamental shift in NAM responsibilities would help to keep several balls in the air?

If Poundland is good enough for Jane Asher?

Then perhaps its time to add discounters to your mainstream trade strategies...

News that Jane Asher will launch a Poundland bakeware collection should be a final indicator that suppliers need to factor budget retailing into their long-term trade strategies... The range will be rolled out across Poundland's 490-plus UK and Irish shops in spring 2014. Each item will sell for £1, including multipacks such as three wooden spoons and six silicone cases.

Asher said: "In my new Poundland range this will no longer be a problem as all the baking essentials are covered and offer amazing value for money. The range is very pretty, and comes in four pastel colours which can be mixed and matched. I've also included six quick, easy and delicious cake mixes."

In other words, a serious 'first' in celebrity endorsement for Poundland, while Aldi's Glen Orrin whisky makes an offer your cannot refuse at £55 for a 30 year old treat worth £150...

But added to share gains for Aldi and Lidl, and a prospect of flatline demand (real volume rather than political spin) for the next decade means that discounters deserve a permanent place in your long term mainstream trade strategies...

Meanwhile, if caviar is good enough for Lidl....

How Poundland makes its millions - the brand-issue for suppliers and retailers

Monday's Poundland item in NamNews resulted in over 250 downloads, indicating a high degree of NAM-interest and perhaps curiosity re possible 'trick-missing' in some cases.

Given that the Telegraph article was also the subject of a 30-min prime TV programme (see 'Dispatches: Secrets of Poundland’ on September 17, Channel 4, 8pm) poundshop optimisation raises important issues for suppliers wanting to maintain their brand equity.

Coping with inflation
In order to maintain the £1 price-point, suppliers and pound-shops have reduced pack-contents over the years. This is about consumer expectation, not the letter of promotions' legislation. As you know the original idea of branding was to persuade the consumer that the contents were safe, consistent and matched or even exceeded the expectation created by the advertising.... Think of the impact on a loyal user of having the contents of a £1 Family pack reduced by 50% in five years.
We all know why it happens, but we need to focus more on the impact

Extra-value packs 
Pound shops sell a number of well-known brands with “50% Extra Free”, or even “100% Extra Free”, on the packaging. i.e. a pack of eight bars for £1,while the mults offer the same eight bars for £1 also, without the flash.   Again a potential bad taste...

Consumer perception as driver
The issue is not about morality or even the letter of the law, but is more about the negative impact on consumer perception, a serious dilution of hard-won brand equity.
In the process we risk converting a savvy consumer into a cynical shopper that nowadays has the incentive and means to express their opinions via the internet...

The way forward
Brand-owners need to meet trade needs, but not at a cost to brand equity. Brand equity has to remain sacrosanct, its all you've got... Also, the retailers face the same challenge in preserving shop brand equity whilst responding to shopper demands, a possible basis for joint consultation?

It all goes back to trust in business, the basis for everything, and worth a lot more than a pound...

Discount stores boom as upmarket shoppers brag...

The economic quagmire has provided the perfect breeding ground for general merchandise discounters, who have expanded aggressively – more than filling the void created by the collapse of Woolworths in 2008. Analysts at the IGD predict the value retail sector will be worth £8bn by 2015.

Classless appeal
But the key to discounter success is their classless appeal. Mature NAMs will remember their first visits to Aldi Berlin in the early 1990s, and their bemusement at the shopper transport parked outside – ranging from students bikes to state-of-art Mercedes. As we all knew at the time, this could never happen in the UK….

City paying heed
The growing might of chains such as Poundland, Wilkinsons and Home Bargains means the City is starting to take notice. Stockbrokers Shore Capital believes discount retail is the fastest growing area of the whole market, with the strongest performers potential candidates for stock exchange listings or takeovers by quoted chains further down the line.

The forward working environment 
Given their arrival at critical mass in a flat-line economy, we reckon that discounters are merely at the start of a five year opportunity to gain share in the UK. NAMs need to second-guess the politicians: they have been telling us about imminent recovery for the past five years.
Having thus established politicians' credibility, with little change to EU/global economic conditions, is it likely that we can expect any real uplift in the next 5 years…?

Competition hots up...
The competitive landscape ranges from single-price chains such as Poundland and 99p Stores to general discounters such as Home Bargains and B&M Stores. But the rapid expansion of what were once regional, often family-run, companies means the retailers are now treading on each other's toes.

A zero-sum future?
This means that market will operate on a zero-sum basis with any share gains at the expense of not only other retailers but also of other discounters.
In other words suppliers have to prepare discounter strategies that are in harmony with  overall trade strategies, taking care to avoid inadvertent compromise or conflict.

This means that suppliers need to factor discounters more aggressively into their organisational structures and trade strategies, ‘permanently’…

Permanently? Bear in mind that the other characteristic is that discounters thrive in a downturn, but rarely surrender any gains in market share in a rebound… 

Pound shop revolution hits the big supermarkets!

More than one-in-six products being sold in supermarkets are now priced at exactly £1 or £2, highlighting how the pound shop revolution has started to affect long established rivals.

Supermarkets, and also chemist chains, have started to rely on distinctive red stickers, and very clear £1 or £2 prices in a bid to attract shoppers on a budget, as well as those consumers fed up trying to work out complex deals.

The combined demand by pound shops and the Big Four has to be a driver of both scale and relative permanence of the £1 offer, until a prolonged bout of inflation morphs it into £2, the new £1…

Welcome back to the post-Jubilee realities, from the NamNews Team! 

Pound Shop Innovation - Moves to the Mainstream?

Given that Marks & Spencer started as a ‘pound shop’ (Penny Bazaar, 1894) and Woolworths followed as a ‘sixpenny store’, it is perhaps valuable to seek signs of innovative pound shop retailing as a pointer for the future, and perhaps move this emerging sector closer to our core trade strategies?   

Key pound shop moves include:

-       Pound shop launches door-to-door home deliveries for a pound a trip

-       Mobile Pound shop sets up stall at local events, offering to recycle ‘your old £10 + £20 notes for something you can use’! Also have a flourishing online pound site 

-       Pound shop van travelling to outlying villages (see pic above)

-       Around A Pound (Newry, N.I.) have a pound shop on eBay and sponsor motorcycle racing

-       East Hull Community transport offering transport at £1 a trip   

-       Amazon offering Super Saver Delivery Filler Items (around a pound)   

Time for someone to ignore the numbers, try a BOGOF and really stop the whole process in its tracks?

For a detailed treatment of the rise of pound shops see Kamcity Library   

Incidentally, we found a number of independent pound shops branding themselves as ‘Around A Pound’. Branding experts will foresee some issues here in that the label will either become generic, or may lead to possible passing-off charges being levelled at rivals.

In which case, this may cause some enterprising legal firms to combat ‘Tesco law’ by offering cut-price legal advice at a pound-a-pop?

Have a legal pig-flying weekend, from the NamNews Team!

Tesco 1p mark-downs of discontinued goods

In a simple stroke, Tesco have captured several customer-delighters that resonate with consumer interests.

Their surprise checkout charges of 1p for products that would have been junked, have capitalised on a global concern with avoiding waste, besides adding a feel-good bonus to an impulse purchase on a routine shopping trip. Keeping the discount secret until payment means that the initiative and shopper expectation can be easily managed. Another application that might stimulate their banking offer might be the issuing of random 'double-your-money' payouts at their ATMs…

However, the real breakthrough will be in finding a way to apply the surprise deep-discount idea to food near its sell-by date, thereby touching an anti-waste live nerve that would transform impact their social image, with no appreciable downside….

One we missed: 99p store drives out Poundland

It gets worse…
In January, not only did a penny make enough difference to close a Poundland branch when a 99p store opened opposite and caused Poundland sales to fall 70%, it all happened in the Poole, Dorset. (For those not normally immersed in the property pages, Poole/Sandbanks boasts some of the most expensive real estate in the country…) More

And in case you think this is a one off, a shopping centre that opened in Poole four years ago, still has 75% unlet spaces…

Times are now so unusual that there have to be business opportunities available for those that face up to the new realities, before their bank manager does it for them…

Something for the weekend?

For those KAMs planning to marry 'later in the year', our congratulations…For those who cannot afford to wait any longer, why not meet both needs by fixing it for 9/9/09?

99¢ Only Stores® invites* all brides and grooms-to-be, to get married for 99 cents on 9/9/09 ‘The Luckiest Day of the Century, at the Luckiest Store for Bargain Lovers’ for only 99 cents. If you suddenly get cold feet, don’t worry! they sell a pair of socks for only 99.99 cents! (…apologies…)

Have a hyper-romantic weekend, trying to explain the joke, from the Namnews Team!
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