Welcome to £1 land: Supermarkets to offer range of discounted goods

Britain's biggest retailers are rushing to emulate their bargain-basement cousins. David Randall and Mark Leftly report

(Jason alden)

Morrisons, Sainsbury's and Tesco are to follow Asda's example and start offering a range of sharply discounted goods with a price tag of just £1. With Wetherspoon selling pints for 99p, McDonald's putting a 99p label on a range of items, some pubs doing hot meals for £1, and the continuing success of stores such as Poundland and the 99p Stores chain, recession-hit Britain is rapidly becoming £1 land.

The first superstore to try to match Asda's pound-coin bargains is Morrisons. From Monday, it will offer selected fruit and vegetables at £1, including 2.5kg of King Edward potatoes, 225g of vine-ripened cherry tomatoes and a pack of seven oranges. Sainsbury's plans to expand the number of its low-cost "Basics" products to 630, with half of them priced at £1 or less, and Tesco is believed to be considering a similar move to eye-catching pound bargains. Last week Asda announced £1 prices for 300 items, including frozen foods and toiletries.

Apart from the need to attract the business of consumers who have less cash than before, the trend is being driven by retailers trying to imitate the performance of single-price stores. Poundland, dreamt up on the back of a fag packet 19 years ago, and started for just £50,000, has 200 shops, and expects revenues to grow from £300m in 2007-08 to £400m in 2009. Selling anything from packets of batteries and dog food to chocolate, DIY tools, rose bushes and electric toothbrushes, the chain is one of the most widely admired retailers in the trade.

And its customers are changing. Long thought to be exclusively students, pensioners and people in the C1-E income brackets, Poundland is also the haunt of better-off shoppers. The firm says that customers in the A and B upper income range increased by 22 per cent in 2007-08, and it has almost certainly grown appreciably since those figures were calculated.

Greg Hodge, research manager at the online consultant Planet Retail, says: "Fixed-price retailing has taken the UK by storm in the past six months. Many people thought that the only way Woolies could have survived is if it had turned into a fixed-price store. A year ago, people didn't like to go, but they're not so embarrassed to go to these types of places now." And Andy Garbutt, retail director at PricewaterhouseCoopers, says: "The £1 stores are the new kind of variety stores. When Woolies went bust people said that it was the end of that type of shop, but they've actually been with us and growing since the early 1990s."

Poundland's growth is expected to be vigorous this year, and the company plans 35 new outlets, creating 1,200 jobs. 99p Stores – founded in 2001 by the entrepreneur Nadir Lalani – has nearly 70 outlets, and is due to open up to 50 more in the next three years. A clutch of other heavy-discounting (but non-fixed price) rivals – such as the food shops Aldi and Lidl, clothes chains Primark and TK Maxx, and general shops like Poundstretcher – are also doing well. Lidl expects to open 50 new outlets in 2009. With supermarkets competing to outprice each other (petrol now averages 88.2p a litre, nearly 30p less than its price last July), consumers with money to spend have rarely had it so good.

Not so the retail trade. After years of waxing fat on the plastic-backed habits of a spendthrift nation, retailers are facing a reckoning. Despite good sales figures for John Lewis and Waitrose in the final week of 2008, the high street had its worst December trading for 30 years. One of the first tests of firms' health will come this week, when Debenhams and Next (on Tuesday), plus Marks & Spencer (on Wednesday), post sales figures. Some analysts are predicting bad news from M&S. Sainsbury's will release Christmas trading data on Thursday.

The sector consultancy Experian says there has been a 21 per cent increase in retail insolvencies in 2008, and predicts that up to 1,400 shop businesses could fail this year. It estimates that at least one in 10 stores will remain empty during the year, with high streets in smaller market towns suffering significantly higher vacancy levels.

Some of those gaunt gaps are likely to be former Woolworths stores. With the company in administration, 200 more of its 807 shops closed yesterday, and the remaining 200 will shut down on Tuesday. In a painful interpretation of the old slogan "Everything must go", even the shelving is being sold off. The firm's collapse leaves 27,000 workers without jobs. Some, if they're lucky, will be hired to work in Britain's booming £1 economy.

Bargains galore: Something for everyone...

The busiest single-price store in the world is Poundland, Croydon, in a discreet corner of the Whitgift Centre. Here, for £1, are: the Weight Watchers food range; 150g bars of Green & Black's chocolate; 1.5 square metres of vinyl easy-lay flooring; four white ceramic wall tiles; a wall clock; bed pillows; 100g Nescafé coffee (a third of RRP); 100 Tetley tea bags. And here, too, are shoppers such as Mary Evans, a pensioner. "I was looking for something for my grandson and I found this 'Bug's Life' 2009 Annual... I also got some Radox handwash. It's a lot cheaper than Boots!" Louise Samuels, 26, was buying party food for her daughter. "The sweets here are so cheap, so she can pick what she wants."

Sarah Simpson