Low prices, high potential: the UK value-for-money sector
It’s one of the fastest-growing sectors in UK retail. In fact, there can hardly be a High Street in Britain that doesn’t have its Poundland or its 99p Store, or one of several other chains, all focused on the value-for-money end of the market.
The sector has been out there for a long time, and in the downturn it has grown at around 15% per year, and is now worth some £5bn. The business model varies from everyday low pricing to the now familiar ‘price point’ approach, in which everything sells at or below a specific price. An increasing number of the branded FMCG companies are taking the sector seriously, and are happy to see their products sold there.
And that’s not the only change the ‘value general merchandise’ sector is now seeing. Its operators have moved quickly to capitalise on the disappearance of well-known names like Woolworths, and are establishing themselves not only as local convenience outlets, but also in bigger premises out-of-town. The shopping experience has also improved, and more affluent consumers are increasingly using these stores, and feeling no embarrassment in being seen in them.
The value sector has further to go in the UK. There are a number of reasons for this, the first and most important being that there appears to have been a permanent change in the behaviour of UK consumers. Our research suggests that the recession has made shoppers a lot savvier, and habits like comparing prices between retailers and opting for lesser-known brands are likely to outlast the current downturn. And, far from being a problem for the sector, the recovery is increasingly being seen as an opportunity: as consumers begin to feel better off they have more money to spend on the sector’s more discretionary ranges, like toys and homewares.
The business model is proving to be resilient, and relatively well protected from competition from the online operators (though there is, of course, no room for complacency). Good market fundamentals and greater support from key suppliers is adding up to significant potential for future growth, and our research suggests the sector could grow by as much as 9% per annum, which would take it to over £8bn by 2017.
Read more about our research here: The UK value general merchandising market