A Chinese link gives B&M Retail the edge, reports Rod Addy

Hard discounter B&M Retail is in an enviable position when it comes to trying to compete with the multiples on price, in that it can - thanks to an exclusive sourcing deal with Chinese suppliers.

The Blackpool-based business, which is ranked 15th in The Grocer Top 50, has been run by joint MDs Simon and Bobby Arora since they bought it from private investors 16 months ago. Unusually for a Top 50 chain, its stores, which range from 5,000 sq ft to 15,000 sq ft, sell a whopping 50% non-food, much of which is sourced from China.

The 2,000 grocery lines, which generate the bulk of the sales, are sourced domestically, but it's in non-food that the margins lie, explains Simon. So how did the arrangement come about?

Before taking up the reins at B&M, the Cambridge University law graduate was involved in sourcing and distributing products for the major multiples through Orient Sourcing Services, a company set up by Bobby. "It was one of the largest UK importers of home textiles," says Simon.

The pair sold the business before becoming joint MDs of B&M, which is also popularly known as B&M Bargains, using the money they gained from the divestment to fund B&M's development.

Bobby now sources B&M products from factories in China that supplied their former operation. Goods ranging from rugs to clothing are shipped directly to B&M's 250,000 sq ft Blackpool depot, cutting distribution costs. Thanks to the Chinese connection, larger non-food items can be sold for less than they are at Tesco or Asda and for greater margins.

"We force customers to walk past clothing, housewares and textiles before they reach the food aisle," Simon explains. "We charge incredible prices for food and drink in the hope that a few customers might buy the higher-margin goods."

The brothers adopt an equally shrewd approach to their grocery sourcing, going mainly for bulk or excess product to secure lower prices.

They hold meetings with key grocery brands' sales departments every Tuesday.

"If a factory has made too much for a promotion, we offer to take products off their hands," he says.

At least 50% of B&M's distribution warehouse is kept empty so it can deal with sudden bulk-buys of this type. In addition, the retailer offers to sell ambient products with a shorter shelf life than the top supermarkets might accept.

Simon stresses the importance of buying branded products, arguing that they are more appealing to B&M shoppers than European brands sold by discounters such as Aldi or Lidl.

Given its novel approach to sourcing, it is no surprise that he is more relaxed than most about customer loyalty and availability. But the unusual view is also down to the type of shopper that visits B&M.

On his way to its store in Harpurhey Shopping Centre, Manchester, Simon gestures to one of the shoppers milling around as an example: "They've got an Asda bag, a Farmfoods bag and a B&M bag," he says. "They don't care where they shop so long as they get the best bargains. It's no bad thing for the customer to arrive at an empty shelf occasionally."

This makes a refreshing change from the paranoia about availability elsewhere in the industry. Although B&M is investing a six-figure sum to combat shrinkage, Simon argues that if shelves are legitimately bare, they make shoppers think that products were snapped up because they were cheap and encourages them to turn up at the shop earlier the following week.

The new sourcing regime has transformed the business. Full year sales were up 6.2% to £69m. Aside from its 22 existing stores, it has seven more in the pipeline, with a target of 40 by 2007, stretching from the Midlands to the Scottish borders. For B&M, it seems, the Orient Express is the fast way to success.