Price-Point Retailing

Big supermarkets are finding it increasingly hard to compete with such a simple message.

A shop that sells everything at the same price is actually quite an old idea, in fact, it all started in the US back in the 1870s, but Poundland, founded in 1990, claims to have brought the idea to Europe. It now has 400 stores, having opened 62 in the last 12 months and it plans another 60 in the next year in the UK alone, but it has its eye on mainland Europe too. Sales in the last 12 months have risen by nearly 22% to £780M.

Poundland and the like have done rather well since the economy started to misfire in 2008 and consumers began to look harder for bargains. Although many of us have at least tried shops like this there is a definite demographic focus on what was once called “the working class” which ironically encompass most of the 20% of the working population of the UK that is really out of work.

Poundland, along with 99p Stores and other similar stores operating across the globe, are all leveraging a simple positioning idea, that of value. Whilst they are operating at a lower price point than Marks & Spencer, I would argue that they have exactly the same positioning idea – “It’s not just a chicken it’s a so and so chicken,” or something like that, sticks in my mind. Same idea, different target audience. There is much to be said for good market positioning, ideally though it is better if it is brand specific, rather than generic, like all price-point retailers rely on.

M&S and Waitrose do arguably have their own unique take on value positioning: Waitrose has its “never knowingly undersold” strap line, inherited from parent John Lewis; M&S never sells much without adding value to it in some way or another – the antithesis of what is actually implied by price-point retailing, that it is cheap. M&S is often reassuringly expensive.

But what about the biggest of our food retailers?  Morrison seems to be working on a fresh food angle, but that isn’t very sustainable and the rest will just follow them: Sainsbury’s nearly had a good personality position thing going with Jamie Oliver, but then fell out with him; and Tesco has its Clubcard, admitted that’s not much and it is out of date, but possibly something to still crow about.

To my mind the biggest of our food retailers are not as strongly positioned as some of their competitors. They are too big and they are trying to cover too many bases to have a coherent marketing message, even though they rely on price and value propositions too. Most of them are now even beginning to emphasise the number of products they sell under £1, as a direct response to the success of price-point retailing. A quick search on shows just how many products under a pound they sell: Tesco 962; ASDA 1262; Sainsbury 832; and Waitrose just 440. In contrast, Poundland claims over1000 brands and many more products.

Of course, as so many of the things we buy each week cost less than a pound it doesn’t mean that they are necessarily cheaper in a price-point retailer than you might find elsewhere, even though that is what their positioning strongly implies. You can sometimes buy the same thing cheaper elsewhere. Nor does it mean that margins are low either; in some cases they are very respectable. The mere fact that something costs £1 doesn’t mean that is cheap even though the value positioning implies you are going to save money.

Price-point retailing is just another positioning manifestation in the complex food retail market that has always been segmented by people’s disposable income. What Poundland and others demonstrate is the power of a simple proposition. Along with other value retailers they are becoming a force to reckon with and all the bigger supermarkets now have to take notice of them and compete directly with at least some price-point messaging of their own going on. At the same time they are competing with the Waitrose and M&S’s of this world with their up-market brands too.

Methinks that larger supermarkets may look to simplify their own messages a little in the future, perhaps by taking their sub-branding to a new level, particularly at the low end, where the price-point retailers’ simpler and rather clever proposition is clearly winning the day.







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