Poundland has been a phenomenally successful business, especially in recent years when it has added stores like topsy while most other retailers have been shedding outlets.
Whether you believe this is down to the skill of able chief executive Jim McCarthy or the tough economy that has driven consumers to seek out great value, there is no doubt that its success has prompted envious looks from others operators in the sector and various copy-cat entrants.
The most interesting newcomer into this fixed-price, value-led end of the market is Poundbakery, which does not quite limit itself to selling everything for a quid but does not sell anything for more than this amount. So you’ve got sausage/bacon barms at £1, meat and potato pies at 2 for £1, tea/coffee at 80p and scones at 4 for £1.
Many commentators expect some success from the chain as it takes on Greggs and plans to add 50 new stores. Retailinsider.com reckons the business model has both pros and cons that will ultimately decide whether it delivers on its early promise or not.
Unlike Poundland and the other fixed price stores, Poundbakery is not a general merchandise business and does not have any restrictions on product sizes. It could therefore sell its loaves for 20p a pop (it might need to do this the way wheat prices are going) but they won’t be very big. This ability to sell the majority of its products at any size/weight/volume is a distinct advantage.
In contrast, Poundland has a few more restrictions – particularly with its branded goods. For products like After Eights whose regular pack size could not possibly be sold profitably for £1, the only way it can price such goods at this level is to either re-engineer them with the manufacturer or to source unusual sizes. This might mean selling After Eights with pack weights at 100g or 130g less than the regular 300g box size.
Similarly, the retailer might sell eight Sony batteries in a pack when commodity prices are high rather than its regular 10-packs. Such has been Poundland’s success of late that it now has an increasing number of big brand owners keen to produce bespoke pack sizes to enable it to hit its £1 price point.
While having to work hard at re-engineering products and being very canny in buying its branded goods, the fact that it is selling well-known named products makes Poundland an attractive place to shop for many people.
Poundbakery will have no branded goods so will not have this as a draw to customers. Its attractiveness will all revolve around the quality of its baked goods (at its low price, of course). While the initial focus is on the north-west of England it will be interesting to see how the model stacks up elsewhere in the country where there is not quite as much price sensitivity and where the key focus is arguably more about the quality. Is the steak slice at 2 for £1 good enough for these customers.