Speaking to FoodManufacture.co.uk after posting an 81% leap in full-year operating profits*, chief executive Jim McCarthy said big brands had historically been wary about dealing with the discounters for fear of scuppering relationships with the major multiples.
However, most now recognised the benefits of working with the discount sector, while customising products and pack sizes to avoid direct price comparisons with products on sale through the major supermarkets had also helped allay concerns, he claimed.
“The percentage we buy direct has increased as manufacturers recognise the professionalism of Poundland but also our strong volume growth – we opened 56 stores last year and hope to open a similar number or more this year.
“All manufacturers are cognisant of the major food retailers’ views on their dealing with the discount sector. But the major multiples in turn need to be careful that they don’t do anything anti-competitive. Over the last few years, the transparency of price lists has also helped major manufacturers deal with us.”
Different channels to market
He added: “My view is that there will be further consolidation in food retail, which will mean more power in fewer hands, and it will become increasingly important for manufacturers to look at different channels to market, from the discount sector to selling direct to customers. It’s important that you don’t put all of your eggs in one basket.”
The multiples had also put some brand owners’ noses out of joint over the last 18 months by highlighting the discrepancy between the price of own-label items versus brands, he observed.
“If I were a big brand owner, I’d also be a little peeved if I’d spent all that time and money building my brands only to see my customers use their online shopping sites to highlight how much cheaper their own-label products are. At Poundland, we are very centred on brands.
“We also don’t think as a business that we are doing manufacturers a favour by doing business with them. It’s a genuine partnership.”
Low cost to serve
As for buying terms, Poundland was not getting better terms than the major multiples, he said.
“People often ask me, are we buying at better terms than Asda or Tesco, and the answer is no. But we’ll accept lower margins than their model allows because we have an incredibly low cost base.”
Poundland was also attractive to manufacturers because of its low cost to serve, he claimed: “We make quick decisions and we pay our suppliers in full on time. You can ring us on Monday with an offer, and it’s highly likely that we will make a decision there and then. You can deliver on Wednesday and by Friday or Saturday, it can be in our stores.
“You don’t have expensive trips to the head office and you don’t have to wait for category reviews and endless committee meetings to get anything done. Dealing with us is very very simple.”
£200m food and drink range
Poundland was working increasingly closely with manufacturers to develop bespoke pack sizes and products to meet the inflation-busting £1 price point, he added.
“Several products are specific to us or our sector, such as Kraft’s Maxwell House classic roast coffee at 100g or 1.5kg bags of sugar and Tetley teabags. But there is also an element of re-engineering in order to meet the price point and give our customers value – so one year we might have 40 units in a pack, another year 45, for example.”
The chilled offer – milk, sandwiches, bacon, ham and butter – would remain limited to high-volume items, he said.
“It’s easy to be seduced by higher-margin slower-moving products, but that’s not our business model. We’re looking at bread but we’re waiting to see if things settle down a bit with wheat prices before making a decision.”
* Poundland posted an 81% rise in operating profit to £21.5m on sales up 28.7% to £509.8m in the year to March 28, 2010.