The price is right: The 99p Stores chain has emerged as a recession winner

How did one man conquer the bargain-basement market? Mat Snow reports on a shopping sensation

Christmas came early in 2008 for Nadir Lalani and his sons, Hussein and Faisal. Which was strange, because it was the UK's first austerity Christmas in years. Retailers all around them were wringing their hands and the British high street was beginning to feel the sting of the dreaded credit-crunch. But for Nadir Lalani, the founder of the family-owned 99p Stores chain, this was a windfall opportunity to serve their booming target market. What was the market? Suddenly, just about everyone.

When the administrators went into Woolworths that December, the Lalanis were not far behind. For a bargain price in a buyer's market, they could acquire prime retail acreage all over the country, starting in their London heartland. Brothers Hussein and Faisal – now 36 and 33 – toured the south- and east-London Woolworths branches that caught their eye, assessing their locations, neighbouring businesses and passing footfall. And Christmas Eve found the brothers and their father in the administrators' City of London offices hammering out a deal for nine London branches of Woolies, with 58 more to follow nationwide. That night, as the rest of the City closed early, the Lalanis put out an urgent request over the building's PA: was there a solicitor in earshot who could hasten up to notarise the contract? Just three weeks later, 99p Stores opened its branch in Balham, where Woolworths had stood for eons. My eight-year-old daughter and I paid a visit, and what we found was not just an unbeatable pocket-money magnet but a journey into enlightenment. Colgate, Nurofen, Radox, Lyons, Disney, Pringles – just a handful of the brands whose products I'd buy down the street in Sainsbury's or Boots at what I thought was a decent price. But here they were at a fraction. Namely, 99p. How do they do it?

Wrong question. The right question is: how do the giant multiples get away with it? The Lalanis do very nicely, thank you; with their massive distribution hub in Daventry geared to bulk buying, they can afford to sell cheap with a minimum 20 per cent profit margin on every line (with one exception). For many shoppers, the discovery that a bottle of shampoo can be bought in 99p Stores for a third of the supermarket price is, literally, the point of no return. The exception is Maltesers, for which the Lalanis charge only 10 per cent mark-up. We all have our little indulgences.

Back in 2001, Nadir Lalani opened the first 99p Stores in north London's Seven Sisters Road. It offered the shopper a simple proposition: no single item would cost you more than 99p. And it was stuff you might actually want – household cleaning and personal care products, sweets and soft drinks, toys and plants, pet food and DIY – and all with a penny change from a pound. Ten years on, the Lalanis are opening their 139th 99p Stores, in St Albans, Hertfordshire – before the bubble burst, as prosperous a Home Counties town as you could hope to find. But now, if there is such a thing as penny-change-mania, I've just seen it. The queues start well before Nadir cuts the ribbon; among them, the chap in the cap 20 yards back waiting his turn to fill his basket is pointed out as the local property millionaire. The Lalanis are very pleased. Part of their mission is to destigmatise "deep-discount" shopping. In fact, they stock such items as sun-dried tomatoes precisely to entice the middle-classes over the threshold. Most acceptable they are, too.

The opening is as jolly as a kids' party, with a red-coated MC, bouncy pop music and a 99-second trolley dash in aid of local charities. Meeting and greeting his new customers, Nadir is avuncular and attentive; his sons, fellow directors and bank managers, stand by and let him do his stuff. "This is the part people don't forget. I like it too!" he beams, his East Africa-Asian accent still strong. It has been 40 years since he arrived penniless in north London from Tanzania; his family's wholesale business and general store in Mwanza on Lake Victoria had been seized by the government without compensation. What Nadir Lalani found in 1971 was a Britain that had forgotten it was supposed to be a nation of shop-keepers – Open All Hours was a sitcom, not a documentary. Since retail was the only thing he knew – one of nine children, he'd left school at 15 upon his father's sudden death – Nadir was determined to meet the need presented to a generation of Asian refugees from East Africa who thought nothing of living above the shop, opening at seven and only closing when the pubs shut.

First, he needed capital. With his wife Noorie working as a nurse while Nadir assembled telephones for Standard Telephone and Cable in Southgate, in 18 months the Lalanis saved £1,500 towards buying a shop in nearby Muswell Hill, for sale at £5,000 plus £1,100 for stock. "I took the local NatWest bank manager, Mr Barrett, to the Golden Egg with my wife," Nadir remembers. "'How old are you?' he asked me. I thought he might not like it if I told him 22, so I said 26.

"But my wife corrected me, 'No, no, no, no! You're mistaken!'

"I thought, 'Shit!'."

Shit, indeed, when Mr Barrett demurred on the £5,000 requested. Instead, he urged the Lalanis to accept a loan of £10,000, because, Nadir recalls his reasoning, "'From what I hear of you and your background, I'm sure you'll open a second store'".

They did, a sub-post office run by Noorie, while baby Hussein was born above the Muswell Hill shop. They then sold up and began buying empty sites, refurbishing them and selling at a profit. In 1976, £40,000 to the good, the Lalanis moved to a new hotspot of opportunity, Calgary in Canada, where Noorie's family had emigrated. The Lalanis nearly tripled their capital in two years as property developers, returned to London in 1978, and started again in retail. This time Nadir had a real brainwave: late-night supermarkets. He had spotted that many Londoners worked late, went to the cinema or the pub – but had nowhere to buy groceries after regular shop hours. His high-priced but late-closing Europa Foods chain changed all that, and he sold it at a resounding profit to Tesco in the Nineties when he saw them opening up their first Metros in competition.

Nadir has made fortunes – but also lost them. In the late Eighties, he borrowed £250 million to buy hotels; when the interest rate shot up, the venture failed. "It wiped out my capital and I had to start all over again. I'm very good at retail, so I went back to Tanzania, made good money and came back to Britain and started Whistlestop convenience stores at stations and airports." Then, in August 1998, he lost £7 million overnight when the rouble collapsed, taking with it the agency he'd bought in dollars to distribute Purina cat food in Russia.

It was a defining moment for Nadir's sons, Hussein and Faisal. That morning, the family had gathered to celebrate Faisal's graduation from London South Bank University with a degree in politics and economics. "Dad and I were sitting in the car and you and Mum were getting all the photos done in your mortarboard," remembers Hussein, who had graduated a few years earlier in law. "We were about to go to lunch at the Savoy, and Dad was on the phone getting the bad news."

Faisal cuts in: "I said, 'Let's cancel the Savoy and Mum can make us curry and chapattis at home.' Dad says, 'No. It's not the first time I've taken a beating. Don't let it get you down. It makes you stronger. We have other businesses. We'll bounce back'." The bounce came two years later after Nadir and his brother Karim, since retired from the business, found themselves in Birmingham's New Street station looking at a site for Whistlestop. "We missed our train home, so we were walking around the Pallasades Shopping Centre and went into Poundland because it was so busy. I looked around, and I thought, 'Goods from China? This is what I know!'." He knew something else: that on any price tag, 99 is the magic number. It's only a penny off, but it's consumer catnip. "This year, that penny change will cost me £3 million!" laughs Nadir. Work it out yourself: a decade after the first store opened, revenues are now pushing £300 million.

That penny change may well be the best investment he's ever made, minutely but conspicuously undercutting Poundland and all the other pound stores. "Twice the range and a penny change" is one of 99p Stores' slogans, and throughout the chain you'll find a sunny disposition and a hint of cheek – their soy sauce bottle boasts a recipe for Chicken Lalani; their toys include pooing cows and polar bears – that garnish the impression that this is a shop which is on our side, that says that even in hard times shopping for Toilet Duck can be fun. Like Tesco – for whose efficiency Nadir expresses great admiration – 99p Stores does not try to make the shopper feel special; instead, it takes the anxiety out of being ordinary. "My mother, Sherbanu, taught me a lot in the shop. She was a very clever woman." Nadir is pleased that she lived long enough to see the family tradition thriving into the next generation. Hussein remembers his grandmother walking round the second 99p Stores, in Ealing, correcting the lay-out: "'Why are you having the digestives there? It will be your bestselling biscuit; you need it on your eye-line shelf to get people's attention.' Yes, we are a family of retailers."

Whether St Albans or Balham, Streatham or Swansea – the 99p Stores I know – the story is the same: shoals of smiling shoppers packing an emporium notably free of austerity gloom even though feeling the pinch is the essence of its appeal. Go to the consumer reviews website Dooyoo, and 99p Stores is garlanded with five-star raves: "An Aladdin's cave of everything from notebooks to nail varnish and brooms to balloons"; "My eyes were opened up to a whole new shopping experience"; "I wandered in 'just to see' and ended up buying two armfuls of stuff..."; "Many a time I have spent a fortune in there, as hard as that sounds to do"; "The only downside is that it can get overcrowded...". But, of course, it's not all sunshine, lollipops and rainbows. My green friends deplore the seven-league carbon footprint of so many cheap Chinese goods, the fizzy drinks and salty snacks, the lack of recycling bins in a shop which sells bandoliers of batteries for a pittance. Hussein denies the last charge, extolling their Daventry recycling plant which within a year turned £200,000 clear profit on the packaging waste returned to headquarters from each store. As for the NIMBYs, like those in Stroud who mounted a Facebook campaign to oppose 99p Stores' plans to open in their showcase Cotswold town, both the fear of empty shops blighting the high street, and the promise of the extra trade that a 99p Stores attracts to surrounding businesses, have nixed the nay-sayers. "We often get a bit of snootiness from councillors who are out of touch with their boroughs," says Hussein. "With their allowances and packages, they may not need to shop in 99p Stores, but what about local residents?"

Hussein is the family's silk-and-steel diplomat. His younger brother Faisal is a leaner, hungrier proposition. It was he who slapped down his father's initial plan to partner up with the USA's giant 99¢ Only Store, insisting that his experience fully equipped him to handle a global network of suppliers from Beijing to Birmingham. He was 24 – and he was right. Negotiation, the Lalanis agree, is the key to their success.

"I'll tell you how it is," Faisal gives me a commercial negotiation primer. "When a salesman comes in, he tries to build a rapport to become your friend. Then he comes out with his PowerPoint presentation and flip charts and hope you'll buy off him. But the reality is: put it away and cut the crap – I don't need to listen to your spiel, just give me the prices. Product, price and quantity are the only things I'm interested in. I sound like a bastard, but our suppliers appreciate it. If he's got 20,000 coffee mugs and wants to shift them today, he'll get a straight yes or no, not a maybe, not a 'Oh, I need to check with my line boss', as happens with retailers in our sector who faff around."

We're winding up now. Hussein is off to a quarterly meeting at the Bank of England to discuss interest rates as the discount retail sector's representative in the corridors of power. Meanwhile, the self-effacing but ever-alert Nadir has 20 texts from suppliers offering deals which have stacked up on his BlackBerry as we've been talking. Even when on the beach in Zanzibar – cooking aside, African travel is his only recreation – he's "firing off orders". For Nadir, now 61, minding the shop is too much of a buzz to turn off. "When a supplier wants to sell for 50p, I offer 30p," he chuckles. "'I'm losing money,' he says, and we say, 'Lose more! You're losing anyway!'."

By next Christmas, the Lalanis plan to open their 175th branch in England, with over 300 more projected. Where 99p Stores is the undercutting rival to Tesco Metro, its bigger-ticket subsidiary, Family Bargains, competes with Argos in out-of-town retail parks where cheap space has opened up with the credit-crunch eclipse of MFI and Land of Leather. And, with its plummeting commercial rents and debt-burdened shoppers, Ireland sits squarely in their sights. Then the Continent beckons. Back here, as we leave the café, St Albans' high street is thronged with mums and pensioners merrily clutching 99p Stores balloons, and the shop is packed. Next door, Poundworld wears the forlorn air of a suddenly abandoned husband. In St Albans, like everywhere else, the penny's dropping.

99p STORE' S BEST- SELLERS

Aquafresh mouthwash

3 packets of ibuprofen tablets (or 39p each)

10-pack of Mini Cheddars Original

3 cans of Coca Cola (or 39p each)

6-pack of Satin Touch Luxury toilet paper

5-pack of Capri Sun Orange drinks

15-pack of Storck Toffifee chocolates

88-pack of Tetley 1-cup teabags

4 Red Devil energy drinks (or 29p each)

15-pack Soft Silk pocket tissues