Beating the discounters

Competitive pricing from discounters is undercutting both wholesalers and multiples. LINDSAY SHARMAN considers what wholesalers can do to secure customer loyalty

The rise of the discounters is one of the major retail success stories of recent times. From budget supermarkets Aldi and Lidl to discount stores Poundland and 99p Stores, cheap is champion when it comes to consumer spending.

Pound stores in particular have achieved rapid and far-reaching growth. Selling products for £1 is a simple business model and the concept has been a huge success with shoppers. Poundland, for example, has grown from a single Burton-on‑Trent store in 1990 to become a chain of 400 shops attracting four million ­customers every week.

In fact, discount retailing has become so successful that big-name suppliers are now producing re-sized packs specifically for the value market. Boxes of Tetley and PG tips tea bags, usually available in packs of 80, are sold in Poundland as boxes of 76. Even price-marked packs (PMPs), traditionally designed to offer reassurance of good value and consistency to shoppers, are undercut significantly in discount stores. The 76-pack of PG tips has a price-mark of £1.79 that is clearly visible on the image used on the Poundland website.

The lure of low-cost

While for consumers the perceived increase in value for money is surely a bonus, particularly during a recession, for wholesalers and their customers the easy availability and popularity of cheap branded products poses a significant threat to the way they do business. The lure of low prices is too hard for even some independent retailers to resist and they have taken to buying in bulk from discounters, rather than visiting cash & carries.

“It’s sad to say but it is definitely something I’ve noticed happening more and more,” says Fida Hussein, general manager at Bestway in Swansea. “Some retailers even get family members to buy a trolley load each of a particular product to re-sell in their shops.”

The trend is apparent not only from observing what’s happening in the discount stores themselves, but also through direct and indirect feedback from customers. Hussein says some of his customers tell him that they can find products cheaper in Tesco than in his depot and Abdul Aziz, director of Adams Cash & Carry in Peter­borough, says he knows customers are shopping elsewhere when regular items suddenly drop off their orders.

“We know what our regular customers order so if there’s something missing, I’ll call them to find out why – and often they say it’s because they’ve found it cheaper somewhere else,” he says. Feelings among wholesalers about the situation are mixed, with some understandably critical of their customer base.

“Ultimately, I think: ‘What kind of businesses are these people running if they are buying from the competition?’” says Bestway’s Fida Hussein. “Buying from Tesco or Poundland might be a way to make a quick buck in the short-term, but in the long-term, it’s a recipe for disaster.”



  • PRICE MATCHING: offer your customers the option to get prices they find elsewhere at your depot.
  • TRIAL PRODUCTS: Offer cases of new products to customers on top of their regular orders to drive sales.
  • DEEP DISCOUNT: Drop prices of products that customers won’t find in Poundland and promote them.
  • TALK ABOUT IT: Tell your customers exactly where and how they can make savings.
  • ADAPT: Look at your business model and identify areas for growth or improvement.
  • LOOK AHEAD: Assess where the market is heading and put plans in
  • place before it happens.


The consumer also loses out if pricing is skewed in favour of the discounters and multiples over the wholesale and independent channel. Martin Race, operations director at Batleys, says shoppers get a raw deal if wholesalers don’t get the same chances as discounters to offer value, with wholesalers ending up subsidising costs.

“Consumers are not being treated that well if you can get a pack of McVitie’s biscuits for £1 in Poundland and the multiples, but the same pack is price-marked at £1.75 in wholesale,” he says.
“It’s a value market and I understand that suppliers want to re-engineer packs to reflect that, but it feels like we [wholesalers] are paying for it.”

Size is everything

Certainly, it’s hard to see how dropping the price of brands to such an extent can be good for wholesalers, retailers or manufacturers in the long-run. After all, once shoppers get wise to the fact they only need to pay £1 for their everyday essentials at a discounter, why would they want to pay any more at a c-store? And the same principle applies to retailers – if they can find what they want for a cheaper price somewhere else, surely it’s just good business to do so?

But a low price isn’t necessarily the best value. While the re-sized packs that suppliers are producing for the discount channel may appear to be the cheapest around, often the difference in price between what they offer and the wholesale equivalent is negligible. Which means the real problem facing wholesalers is not so much price as the perception of value by retailers and their customers. East End Foods’ director Jason Wouhra explains:

“There’s not a lot of difference between what we sell and the £1 price point, but there is a perception of ‘discount’ from consumers,” he says. “We sell a Walkers 22-pack for £2.36, which works out as roughly the same price per pack as the Poundland deals. Ultimately, it’s about how you perceive value and savvy retailers will understand that.”

The company also offers discounts on alternatives to products available in pound shops, which helps it to stay competitive. But it’s just one approach to a problem that looks likely to remain.
“There’s no question that discounters and deep discounting at multiples is having an impact on wholesale, especially on seasonal occasions. We don’t shift a lot Easter eggs any more, and it’s the same at Christmas on chocolates and alcohol,” says Wouhra.

“You also get odd lines where the multiples do a ridiculous deal you can’t compete with and that’s tough. It’s not an ideal situation, but you can work around it.”

Recognising the problem presented by the discounters is the first step for wholesalers in overcoming it. For the most part, it seems they are successful. As well as competing with discounters on price, there are other ways to encourage customers to stay loyal. Adams Cash & Carry offers a price-match initiative that gives customers the option of buying products in-depot at the same prices as they find elsewhere. The scheme encourages loyalty, offering customers a way to make savings on popular products.

“Most of our prices are competitive anyway and certainly no more than about 10p or 20p more expensive,” he says. “But telling our customers that we will match prices they find elsewhere reassures them that they are getting the fairest deal possible.”

Is the market big enough?

Fida Hussein’s Swansea branch of Bestway also has a creative approach to helping its retail customers access value products. He sends regular customers cases of a product that is about to be advertised on TV or a new launch, in addition to their order, with a covering letter explaining why they shouldn’t miss out. The activity, which Fida calls the ‘box out’ activity has proven a good sales driver.

“Customers have the option to return the box out if they don’t want it, but I rarely get things back and it’s turned out to be a lucrative channel for me,” he says. JJ Foodservice is equally as positive about its approach to staying competitive. Focusing their services on collection rather than delivery means they can cut distribution costs, enabling them to offer competitive prices. The strategy is one they developed some time ago, something general manager Terry Larkin says is ­essential.

“Businesses have to evolve and have the vision to see what’s coming,” he says. “We put this into place three years ago, which was very good foresight and has paid off very well.” So, what is the future likely to involve – will there be room for both discounters and wholesalers? For suppliers, discounters present an additional route to market and it doesn’t mean the end of successful supplier-wholesaler relationships. Many suppliers use retail clubs as a way of offering additional value through the wholesale channel and some even launch wholesale-specific products.

Coca-Cola Enterprises is rolling out a wholesale-specific promotion on Monster Energy, with an exclusive £1.19 PMP for independent retailers that is available only through wholesale.

Stuart Agates, head of energy at CCE, says: “The £1.19 price-mark will feature on packs of Monster Energy Original, Ripper, Khaos, Lo-Cal and Rehab Lemonade to help retailers boost consumer trial by offering extra value for money.”

Despite moves from suppliers towards wholesale support, there’s still room for improvement and plenty of ideas as to what that would look like.
“Support is sporadic and not consistently competitive,” says Batleys’ Martin Race, “It’s starting to come around through retail clubs, but it’s not permanent – it’s four weeks at a time.”

Bestway’s Fida Hussein suggests supplier involvement at depot-level: “We are seeing less and less cover from supplier representatives and so there is an opportunity for suppliers to get involved at a local level.”
There’s no getting away from the fact the discounters are having an influence on the sector but whether the impact is long-lasting remains to be seen. For some, the threat of cheaper products for their retail customers is a worry but for others, it is simply the next challenge to be overcome.

“I don’t think we should be defeatist,” says East End Foods’ Jason Wouhra. “Think about what you can do instead to take them on. “Look at HMV. They didn’t change in the face of competition and they went bust. We’ve got to adapt and change and become better wholesalers.”

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Lindsay Sharman is a former editor of Retail Newsagent, news editor of Retail Express and account manager in public relations for leading food and drink brands. Lindsay loves anything to do with the arts, including mid-century antiques, and cycles everywhere, even in winter


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