Comment: Never discount the discounters

Value retailers are dominating the headlines with Poundland’s profits up 50% and Aldi’s more than doubled. But what constitutes a value retailer? Truisms are defined not diminished by repetition so it can’t be said too often that all retailers are value retailers; some offer good value and some bad.

Discounting is the keenest implement in the value toolbox. Aldi is the discounter über alles, selling products similarly high in quality - but markedly lower in price - than all the leading supermarket chains.

Bargain basements have moved to the ground floor - and not just in retailing. I’ve never succumbed in person to the charms of Ryanair, but its low-cost flights attract droves of high net-worth individuals travelling to their quality homes abroad. And these affluent customers are increasingly happy to buy their groceries from low-cost operators such as Aldi.

Many also buy their clothes from Primark, the discounter rampant. Primark’s intake margins are three quarters of the sector norm and its markdowns ruthlessly greater: my local Primark has some lines reduced by more than 60% (£13 to £5) - that’s how fast fashion gets even faster.

When Carrefour invented the hypermarché 50 years ago, discounting was the lifeblood of its success. In recent years, Carrefour appeared to turn its back on this heritage and move onto another planet. Meanwhile Leclerc, the French discounter par excellence, has won 19% market share through the remorseless pursuit of low prices, despite French legislative constraints on discounting. Books in France, for example, can only legally be sold at a maximum discount of 5%, and Amazon has just been banned from offering free deliveries following adjudication that they constitute a virtual added discount.

Walmart’s unassailable position as the world’s largest retailer has an umbilical link to EDLP plus EDLC informing its DNA. At the Goldman Sachs conference in New York last month, Bill Simon, boss of Walmart US, reiterated the virtues of the ‘productivity loop’ where cost-savings are reinvested into lower prices. Leverage is inherent throughout Walmart - the products, the stores and the system - and Simon remarked: “We’ve built probably 600 stores since we built the last distribution centre.”

According to Goldman Sachs, Walmart’s discount stores and supercentres in the US represent 72% of group EBIT, despite all its initiatives in smaller stores and ecommerce.

Tesco is also active in these channel developments, rightly mindful of today’s well-charted migrations from big box to proximity and from in store to online. But maybe, given recent results, it should now be reasserting the mantra of its founding father. Walmart has never stopped chanting its own; Carrefour calamitously has. Piling ‘em high and selling ‘em cheap is overdue a comeback in some of Tesco’s markets - especially those where discounting has always been, or is now becoming, embedded.

Poundland’s headlines match those of another recent value success story: B&M. Ironically, the two companies’ respective chairmen are the former chief financial officer and chief executive of Tesco. Their successors might also look to re-affirm their price-focused roots.

• Michael Poynor Managing Director, Retail Expertise