With the standard rate of VAT rising from 17.5% to 20% on 4 January, 99p Stores claimed it would maintain its profit margin after 90% of suppliers agreed to drop their prices.
"In fmcg and food virtually every supplier is offering us better pricing to compensate for the increase in VAT," said buying director Faisal Lalani.
"Generally the rule we've taken is, if they can't reduce the price on one product then they've reduced the price of another to compensate. Suppliers were given a choice of better prices or alternative products. More than 90% have agreed to better pricing."
Rival Poundland said seeking the lowest-cost supplier was the focal point of measures to mitigate the effect. "Where they're unable to give us the value to pass on to customers, we'll seek alternative supply," said CEO Jim McCarthy. "A small number changed but most are very mindful of our needs."
Poundland has also found savings through reduced packaging and freight costs for the third of its products shipped from overseas.
Some suppliers had already moved to reduce pack sizes because of the tax rise, McCarthy added. Mars has taken the weight of the Maltesers box down from 146g to 120g, Kraft has shrunk its 200g Toblerone by 30g, and a box of Tetley teabags will contain 88 instead of 100.
But McCarthy insisted Poundland was also offering great value to shoppers by improving the quality of some lines, such as increasing the number of tea leaves in each tea bag. "The upside is you can put a bit more quality into the line. People who shop for value are very aware of what value looks like."
Poundland's growth rate, having opened 56 new stores in the last nine months, had also given it additional buying power, McCarthy added.
But while discounters are sticking to their guns, the multiples appear to have reined back their set-price promotions. The number of £1 promotions across the big four and Waitrose in November fell 35% month-on-month [Assosia]. In total there were 987 £1 deals in featured-space promotions, over a third less than in November 2009.
But with 14,531 round-pound deals (up 3.4%), Asda can still claim to be Britain's biggest pound shop, and with Morrisons up 36% and Sainsbury's up 29.4%, the overall level of round-pound prices has grown 13.8% y-o-y to 45,073 [Assosia 52w/e 30 November].