Global Convenience Store Focus

“We Are Inflation Busters,” Says Poundland CEO

Jim McCarthy, chief executive of U.K. value chain, Poundland, and former Sainsbury’s convenience boss, tells Fiona Briggs why his stores are some of the busiest on the high street.

There are two experiences shoppers will never face in a Poundland store, according to its chief executive Jim McCarthy.

The first is checkout shock. “Versus the supermarkets, customers can have certainty in their budgeting that everything they pick up is £1,” he says. The second is a crying child. “You’ll never hear a child cry in Poundland because you can just say “yes” since every product is only ever going to cost a pound,” he explains.

The value messaging is part of Poundland’s DNA and has been since the chain was founded in 1990.

Inflation busters

“We’ve been inflation busters for the last 18 years,” says McCarthy. “We’ve kept products at £1 all the way through – that’s a strong statement.”

As the U.K. economic downturn deepens and retailers feel the full force of credit crunch, it is increasingly the right place to be.

“The customer is making choices and shopping more frequently at value and discount retailers and they are being more careful with their discretionary spend,” says McCarthy. Retailers such as Aldi, Lidl, Primark, Wilkinson and Poundland are all benefiting as a result.

McCarthy, who joined Poundland in May 2006 after heading up Sainsbury’s convenience arm, reports that business at an already busy chain is booming with sales at the 187-store chain around the £460 million mark. “Average spend is up year-on-year and volume and value sales are up on a like-for-like basis. There’s been a flight to value,” he says.

Customer Base

For the initiated, Poundland is a destination and its customers visit a couple of times per week on average. That provides a favorable parallel with convenience stores, says McCarthy and, like convenience store shoppers, Poundland’s customers are very loyal.

McCarthy adds that Poundland enjoys an intense density of shoppers with an average of 11,000 a week shopping in any one store. With trading hours between 8:30 am and 5:30 pm, that makes Poundland the busiest store on the high street, he says.

Poundland, however, has a different trading profile than convenience stores, which have peak early morning sales. “For us the power hours are between 11 am and 2 pm,” says McCarthy, “but we are busy most of the day apart from the early hours.”

Impulse sales account for 40 percent of the total, higher than in convenience stores by a “huge factor,” McCarthy adds.

Like its counterparts in discount grocery retailing, Poundland is also attracting a more upmarket shopper. “We are seeing changes in demographic, for example 11 percent ABs – people with good levels of disposable income who are seeking value. That’s up from 8-9 percent 12 months ago. We are enjoying significant growth in C1s as well.”

General merchandise

Poundland is a general merchandise retailer but, like the discounters, it is competing with supermarkets and convenience stores alike.

It stocks 3,000 SKUs across some 16 categories, including food and drink; health, beauty and baby; household; homewares; clothing and accessories; pet care; toys and DIY and, according to McCarthy, enjoys a “very healthy stock turn.”

In the food and drink categories, Poundland competes in the key impulse areas of confectionery, snacks and soft drinks. In this department, it also features pick and mix multi-buys for £1 across key brands such as Mars and Pepsi.

“Poundland is providing meal solutions at lunchtime with things like that,” says McCarthy. “You can pick up two 1-litre bottles of Buxton water or four bags of Walkers crisps for a pound – it’s amazing value. “We also get a lot of school children in, and in some stores we are trialing sandwiches at £1. We offer just five to six different fillings but sales have been tremendous.”

Food and drink, however, is just part of Poundland’s makeup. “We are very much a general merchandise retailer and don’t want to lose that flavor,” says McCarthy. “We have to be careful we don’t turn into a quasi-supermarket. We blend a unique price point with a mix of categories — of which food and drink is important — but it only occupies 14 percent of floor space.”

Brand strength

Brands, however, are integral to the offer. According to McCarthy, brands give consumers confidence in the range and have a halo effect over the store.

Poundland has become famous for batteries, he reveals, selling four AA Kodak batteries at the £1 price point. Its business in lighters is also substantial, McCarthy adds, while new departments such as greeting cards have been recently introduced.

Poundland’s relationship with suppliers is also on a firmer footing. McCarthy says, “Increasingly, suppliers are seeing us as a valuable channel to do a job for them and we have direct relationships with primary manufacturers.”

McCarthy reveals Poundland has learned lessons from the U.S. dollar store market in this respect. “We went across to have a good look at the American market, where dollar stores number 18,000 in total and have been established for 50 years, showing there’s longevity in the offer. … There, primary suppliers recognized their reach was less than they thought it was and that by not servicing the dollar store channel, vast swathes of U.S. consumers were unable to purchase their brands.”

Back in the U.K., McCarthy reports the impact of the U.S. modeling has been tremendous. Suppliers of toothpaste, for instance, now produce specific packs for the retailer.

In addition to tailored pack sizes, Poundland has introduced around 50 sub-brands to provide a better perceived value than its proprietary name could hope to muster.

It has also developed its events business. Halloween, for instance, is “worth a few million” and at Christmas the whole store is active. “We normally get queues but at Christmas we get longer queues,” smiles McCarthy. These help drive the store’s cachet with customers.

Word of mouth

While Poundland promotes via its Web site, a blog and radio, McCarthy states conventional advertising is secondary to the power of word of mouth. “You know when you’ve got the offer right when word of mouth is better than advertising,” he says.

And, with further expansion in the pipeline, share of voice can only increase. Poundland has opened 15 stores since the beginning of April and has targeted a further 15 before year end and a further 30 in 2009.

McCarthy reports there is the potential for 600 in total in the U.K. “So by the end of March 2009 we will only be a third of the way through and that’s probably an understatement,” he says.

And, with the impact of the credit crunch expected to linger to 2010 at least, value retailers will only get stronger, McCarthy believes. “Joe Public has been influenced by environmental issues, but what if that attitude is permeating through to cash and wasting cash is seen as less acceptable? People will begin to shop around and start making different choices.”

Future opportunities

But it won’t be an easy ride, even in the sweet spot of value retailing. “Nobody can rest on their laurels — retailers have to continue to innovate,” says McCarthy.

That includes convenience stores. “The emergence of convenience in the U.K. has been tremendous. From the roots of Asian corner shops through to symbol groups and multiple retailers – all serving people that are busy and have less time. …This business is a combination of convenience in some categories and value in all categories,” says McCarthy. “If convenience retailers can also give exceptional value in terms of price and service, they will have a terrific future.”

And it would be farewell to checkout shock and shopping tantrums for good.