Poundland hitting the headlines
31 October 2016
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The press managed to pick up a twitter exchange between me and fellow analyst Bryan Roberts on Twitter about Brexit and what it meant for Poundland.
The innocent tweet from Bryan was a picture of the sign outside Poundland that noted some items sold in store would be more expensive than £1 price point that we know and love. Indeed I got a pic of the sign the week before, but didn't think much of it.
We have seen this tactic for a while from both Poundland and Poundworld, just as the nation moved out of recession and into an element of stabilty and growth. The single price retailers were performing well, but deflation and all of the 'big four' getting their act together on price certainly helped nullify the single price retailers.
The emergence of variety stores like B&M and Home Bargains also doesn't help; their range and adoption of low prices (but multi prices) means that customers are able to spread their spending and ensure they get the best value across the retailing landscape.
But once sales dipped a little from that heady peak, the sector became in dire need of consolidation. 99p stores became part of the wider Poundland family who then floated on the stock exchange. With Poundworld recently taken over by private equity who must see some mileage in the channel despite the margin being wafer thin.
So the poster isn't Brexit woe, but part of a wider strategy for the chain to enhance appeal. The single price point is great for consumers to easily budget, however it's very easily nullified by the larger retailers.
Deflation is also bad for single price point retailers, as prices drop, Poundland are locked at a quid so end up hoping for manufacturers to pass the lower cost prices through by the way of bigger pack sizes. Not easy.
Inflation on the other hand is not a bad thing for Poundland, as their price point remains the same, however pack size changes are likely to impact and irregular pack sizes (4 pack Walkers + 25% extra free etc) will impact.
Whilst the price point remains the same, they're still open to a loss in value for consumers if pack sizes reduce. It's akin to saying that you're not impacted by price rises on fuel as you always put £10 into your car. As pump prices rises, you get less fuel for your £10 - obviously!
The manufacturers will be keen to work with Poundland given the group's size, especially as they're now part of a larger group. Having taken over the 99p store network and then recently purchased by Steinhoff who have stake in Iceland, a fledgling chain in GHM! (guess how much) and the Pepkor clothing brand too.
They also have half the ex Asda team in there from the Andy Bond era (including the man himself) alongside new trading director Barry Williams who starts next month. The ex Asda chief merchandising officer (then chief customer officer) was due to head to Morrisons in what was a real coup for the 4th largest supermarket chain.
However Williams lives near the Poundland central office in the Midlands and took the role there. Given the commuting distance and also the enlarged role - trading director for the wider chain, was only due to be ambient director at Morrisons, it makes sense.
Whilst it was a coup for Morrisons to get him in, it's arguably a bigger one for Poundland given his experience and also the Asda know-how he will bring with him, alongside some of the traders from Leeds no doubt.
The news isn't great for Asda who are battling to reassert themselves as it is, battling with Morrisons and Tesco recovering, discounters running amok and also the potential emergence of a stronger Poundland alongside B&M and Home Bargains too.
So the multi price Brexit furore to one side, they have been trading higher priced lines for a while now, trying to spread basket spend and not land lock themselves from offering greater bargains due to their price point limitation.
Initially, these deals were triggered by a spend, so if a customer spent over £10, they were eligible for to get 40 Finish dishwasher tablets for £3. However they have since expanded their offering and now have a bay or two in store with bigger packs and those outside the '£1' framework.
It makes sense as these products are good value; outside the Pound price point which could upset some customers perhaps. But restrictions to a single price point just leaves them a little land locked for me, real restrictions in the range where they could grow nicely.
Dealz in Ireland seem to peg most of their range at €1.50 but then have flexibility to overlay spot buys / whatever else they can get hold of. It's a key reason why B&M perform so well, real flexibility in buying...
That said; the amount they do get away in the range for £1 is nothing short of remarkable. The range for Halloween is very compelling, great in store theatre, decorations and range across food and non food is really strong.
Ideal for the hard pressed customer, and indeed those hosting parties. Given that Halloween is very much an event to be 'in and out of' given the movement to bonfire night straight after. Parties increasingly occur but no one wants to spend a fortune.
Notably though, Morrisons are cheaper in disposable party this year for Halloween, with their range on a 3 for 2 promotion at £1 each. So buying 3 (which you would with cups, plates, straws) would bring the overall price to 66p per unit.
That's the challenge for Poundland, the lines where big four are significantly cheaper - Cotton buds as an example fixed at £1 whereas can be below 50p in big retailers. Skews price perception, so multibuys can play a part too to drive value.
Seasonal events are key for the discount retailers, it's clear that Halloween is becoming bigger each year and everyone has a good range of products and associated signage.
Poundland are no different, vast ranges of products at £1, the lack of a higher unit price means they can't get after the larger novelty figures that B&M may sell at good margin.
Their non food ranges are excellent too, the Jane Asher usage is smart - a recognised celeb but from the older days perhaps. Similarly using Tommy Walsh / Charlie Dimmock for DIY / Gardening is also smart.
The range within Jane Asher is smart, but again they can drive value by pushing more of the higher price (still great value) lines into these specific ranges.
I don't think it'll ever drive customers away by offering some higher priced lines into these assortments. Particularly home baking where there is a lot of scale to enhance this range.
But the volumes remain, key suppliers still view single price point retailers as important for their growth, despite volume coming back to the 'big four'. It's still a long way (in real terms) from where things once were.
The larger retailers have also tightened relationships with suppliers, commercial income being restricted and pushed into shelf pricing, not as much willingness to try things outside the corporate plan and a focus on 'clearing' stores of branded signage means it's harder for the big FMCG companies.
Discount retailers offer a bit of a safe haven, and will take the irregular pack sizes and also offer an outpost for stock produced for a promotion that maybe wouldn't go ahead elsewhere.....
All eyes on Poundland (and indeed Poundworld). Both have suffered a bit with the recovery in the main market, deflation and recovering consumer confidence.
Consolidation in the market, alongside the Steinhoff ownership means that Poundland look ready for a bit of an assault on the market. With pending inflation and the risks with Brexit, customer behaviour changed dramatically in 2011 with the global slowdown.
Old habits die hard, with a bit of tweaking, an enlarged Poundland (with some old fashioned Asda know how) could become somewhat of a force within the UK market.
However it won't be that easy, weakening sterling means importing will prove to be more expensive which puts margins under pressure.
It will be interesting to see how Steinhoff approach things, some of their larger stores could be worth a look as some feel a bit over spaced if anything, opportunity for a hybrid Poundland with an Iceland food offering overlaid perhaps, can also stick some Pep&Co clothing in as well.
Marvellous.
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From the Grocery Insight newsletter archive, first sent to subscribers on 31 October 2016. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.