Middle England beware: Britain is now a discount nation
Chris Dawson, the founder of discount chain The Range, was once asked what the key to his success was.
“There are three things,” he told the Plymouth Herald, his local newspaper. “Number one is you have to want it. Two is the same as number one. And three is the same as number two.”
Dawson, powered by that determination, is now in talks to buy the Homebase brand and shops after it emerged the DIY chain was heading for administration.
The entrepreneur was a market trader in Plymouth before founding The Range as CDS (Superstores International) Ltd in 1989. The business is now one of the biggest retail chains in the UK.
It has more than 200 shops, generates annual revenues of more than £1bn and is valued at around £2bn. It has been described as a “working man’s John Lewis”, with its shops spanning 16 different departments and stocking more than 140,000 products.
Dawson is one a collection of entrepreneurs in the UK who have built discount retailers worth more than a billion pounds. There is also Tom Morris, the founder of Home Bargains, Mike Ashley, the founder of Sports Direct, and the Arora brothers Simon, Bobby and Robin, who bought B&M for £525,000 as 21 scruffy shops in north-west England and built it into a FTSE 100 company valued at more than £5bn.
Don’t be fooled by Dawson’s straight-talking and his market-trader background: these are sophisticated businesses. They are experts in where and how to source products at disruptive prices and make their operations as simple as possible so they can keep prices down for consumers.
For example, instead of spending money on expensive TV advertising, the retailers will put that budget into lowering prices and then rely on happy customers to spread the word about them to friends and family.
This approach has won over Middle England, which loves a bargain. A decade ago, as the retail editor of this paper, I spent a lot of time covering the rise in popularity of Aldi and Lidl, the German discounters, following the financial crisis.
Ronny Gottschlich, then the boss of Lidl in the UK, described how the discount chains were winning over “the Maidstone mum”. As he explained: “The Maidstone mum is someone who probably previously would have thought: ‘I can’t be seen in a Lidl store’. They would have put the Lidl bag into a Marks & Spencer or Waitrose bag.
“But those Maidstone mums are no longer afraid of being seen in a Lidl store.”
At that point Aldi and Lidl accounted for roughly 7pc of spending on groceries in the UK. Now they account for more than 18pc, according to Kantar, the data provider. That is remarkable growth in an industry where the leading names have been around for more than 100 years.
To put it into context, Aldi and Lidl combined are now bigger than all other food retailers apart from Tesco. Aldi alone is bigger than Morrisons and is chasing down Asda for third place in market share behind Tesco and Sainsbury’s.
The Range, Home Bargains and B&M have made similar inroads in non-food and general merchandise. They have opened shops across the country, including in affluent areas. The Range opened a vast new distribution centre in Suffolk this summer to drive expansion into London and the South East.
But while the German grocery chains are still a relatively new concept for the UK, shoppers have long been comfortable with bargain-hunting in non-food. Woolworths was founded in 1909 with its shop in Liverpool. It became the ultimate assortment retailer, with more than 800 shops across the country.
The collapse of Woolworths in 2008 was a seismic event for the retail industry. Not only did it leave empty shops across the country, but it did so during the financial crisis, meaning established retailers such as Marks & Spencer had little interest in opening new shops and instead were battening down the hatches.
This opened the door for new names to take the shops from landlords who were desperate to fill them. It was a key moment for The Range, Home Bargains and B&M.
“It is a perfect example of how a dislocation, a financial crisis, created an opportunity for an upstart like B&M,” Simon Arora, the former chief executive of B&M told me in a podcast interview earlier this year. “Some of the landlords we were approaching to take the Woolworths store from them had never heard of us.
“They wouldn’t have dreamt of letting the anchor store in a shopping mall or on a high street to a scruffy discount bargain chain. They were thinking it would be a Costa Coffee or a nice M&S or something. We took advantage of the luck and the circumstances we found ourselves in.”
Arora’s background is very different to Dawson. He is a Cambridge graduate who worked for McKinsey, 3i and Barclays, before teaming up with his brothers to buy B&M. That gives you an insight into the strategic thinking behind these discount retailers.
Arora and Dawson were both interested in buying Wilko last year. Wilko, like Woolworths, was a discount retailer that started in Liverpool in the early 1900s. Its collapse has opened up more room for The Range, B&M and others.
It was Dawson who bought the Wilko brand and now he is looking to do a similar deal with Homebase. Given his determination and the success of Britain’s bargain billionaires, you wouldn’t bet against him making it work.
Graham Ruddick is the editor-in-chief of Business Leader and the author of ‘Risk Roulette: The surprising reasons why some businesses work and others fail’