Keeping up with Variety Discounters

There are basically two ways to discount in retailing:? On the buy side and on the sell side.

In my interactions with suppliers, I’ve learned that most suppliers misunderstand variety discounters (often called Value Discounters, Bargain Discounters, High Street Discounters, Dollar Stores).

I believe the main source of that misunderstanding relates to a myopic focus on the buy side nature of Variety Discounters.? Let me explain.

Examples of Buy Side and Sell Side Discounting Strategies

The easiest way to understand the differences between buy-side and sell-side discount retailing strategies is to look at some examples of how its done. The retailer’s goal, in both approaches, is to give consumers a product at a much lower price than they could get elsewhere.

Buy-Side Examples

·??????? Buy large volumes (ie, stack it high and let it fly)

·??????? Buy off-season

·??????? Guaranteed minimum returns to suppliers

·??????? Pay cash / immediate compensation to suppliers

·??????? Buy obsoletes/end-of-runs/near sell-by date

·??????? Tough negotiating with suppliers

Sell-Side Examples

·??????? Limited assortment

·??????? Efficient shipping / replenishment

·??????? Minimal property expenses

·??????? Minimal staff / labor expenses

·??????? Limited marketing and selling expenses

·??????? No frills shelfing and displays

Where’s the Confusion?

Now that we have definitions out of the way, where’s the confusion?

Simple. Many suppliers focus on the negotiation between their key account teams and the retailer’s buyer. In these interactions, variety discounters are very happy to accept obsoletes as a way to get to the price-points they want to achieve, typically an opening price point (say a $1 or a €1 or a 1?, and so on).

The result is that many suppliers look at this channel as the place where you send obsoletes or excess stocks – and they don’t worry so much about the sell-side skills they have developed to work with sell-side discounters around the world (ie, Mass/Hyper, Club, EDLP Supers, Hard Discounters). Yes, we're talking about skills such as OTIF (On-time, in-full).

The result is that many suppliers develop blind spots to some obvious, “in-your-face”, strategies developed at variety discounters. On closer inspection of variety discounters, you see them opening stores next to high traffic retailers to minimize marketing and property expenses but ‘steal footfall.’ You see them working hard on loss prevention to make sure they can survive with only three employees working any shift. You see them simplifying assortment to make sure they can run full truckload deliveries, weekly, without over or under stocks.

These points of confusion are made worse by an over-reliance on receiving market share data, monthly, as a way of directing the commercial function in most major supplier organizations. In many countries, this channel is unmeasured, and therefore rarely shows up accurately in monthly tracking reports.

What’s the Fix?

Now that we have identified a problem, we should identify a list of potential fixes.

The easiest fix is definitional. Apply Darwin’s principles of taxonomy to this channel and adjust selling strategies according to BOTH the retailer’s buy-side and sell-side strategies.? When doing so in Europe, you’ll probably discover that using the same approaches in working with Action and working with Pepco make little sense. Likewise in the US, the approach to Dollar Tree (the banner) and Dollar General (the retailer and banner), share little in common. Don’t even get me started on having Five Below, Miniso, and Flying Tiger in the same classification with others, receiving the same organizational support (packs, products, supply-chain).

The Outlook

Retail Cities believes the variety discount channel in Europe will grow an annualized 10.1% between 2023 and 2028. This growth will come in four directions: a) Big operators opening more stores in existing markets, b) Big operators opening stores in new markets, c) Smaller operators getting bigger d) Mature-market variety discounters such as High Street Discounters in the UK, branching into digital commerce and groceries.

In North America, growth will come in two directions, and will be much less exciting than the 10.1% seen in Europe – but will still be faster than general retail. The first component of growth will be comparable store growth, mainly via adding new categories/remodeling, and more marketing. The second component of growth will be a long tail of new operators, including designer discounters such as Miniso of entertainment discounters like Five Below, making a bigger impact.

Retail Cities will be tracking these storylines, and helping suppliers understand the size-of-the-prize; as well as both the buy-side and sell-side strategies of the variety discounters in the channel.

Keep an eye out for our upcoming 2nd annual Dollar Store workshop in the US/Canada and 1st Variety Discounter workshop in Europe.

If you want to get a head start on this channel prior to our workshops, visit us at www.RetailCities.com and send a message or just reach out on LinkedIn.

Retail Cities Bryan Gildenberg Ethan Sinick Matthew Nobbs