More than six months after Poundland announced its plan to acquire rival 99p Stores, the deal has finally got approval from the authorities – albeit provisionally. The discount retailer had hoped to increase its number of stores by almost 40% in one easy fell swoop, until the Competition and Markets Authority chucked a spanner in the works.
The regulator referred the deal for a 'phase 2' investigation in May after Poundland declined to offer 'undertakings' to assuage its concerns that the tie-up could be bad for consumers because of decreased competition. Since then it has analysed the views of the two businesses and their competitors, commissioned a face-to-face survey of no fewer than 5,000 customers and scoured the two companies' internal data - all to conclude that the deal is fine to go ahead.
'The [inquiry] found that, along with Poundworld, the companies are each other’s closest competitors but after the merger they will still face competition from other value retailers such as B&M, Home Bargains, Wilko and Bargain Buys, along with Tesco and to an extent Asda,' the CMA said.
MT could have told you that six months ago. Though 99p Stores and Poundland have the same approach to pricing, that obviously doesn't prevent money-conscious consumers from looking elsewhere. That Poundland's plan has been found to be sound begs the question of why the investigation was launched in the first place.
Speaking to MT this morning, Poundland chief executive Jim McCarthy said that he understood the CMA was concerned with protecting the interests of the public, but that its actions could sometimes be 'frustrating' for retailers. 'If it had been cleared at phase 1 then we would have been many months ahead of where we are,' he said.
Nonetheless, he was upbeat that the investigation had vindicated Poundland's point-of-view. 'I'm pleased with where we are and I'm delighted that the CMA have concluded that there is no lessening of competition with these two companies coming together,' he said. He won't be sending people up ladders to pull down the 99p Store signs just yet though. The CMA still has to consult the public on its decision and could theoretically wait another two months before issuing its final verdict.
The investigation has been a substantial hiccup but Poundland is still poised to keep growing dramatically. McCarthy says a recent report by consultants Javelin found Poundland had the room to grow up to 1,000 stores.
'If you add the 250 [existing 99p Stores] on top of that, that gives you 1,250, [then including] 99p's growth, you're probably up to 1,350-1,400 stores,' he said. 'There's a lot more to do yet – we're not going to rest on our laurels.'