Discounter Action sees sales surge thanks to budget shoppers

Action net sales up 21% in Q1, like-for-like sales up 9.8%

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Narrow range, high volume helps Action get low prices

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Action aims to be as big as Aldi, Lidl, IKEA - 3i CEO

LONDON, May 9 (Reuters) - European discount retailer Action delivered sales growth of 21% in the first quarter, the chain's private equity owner 3i said on Thursday, as the company expands its store network and attracts more people shopping on a budget.

Action has been a beneficiary as inflation in Europe reduced consumers' spending power, driving them to trade down from more expensive supermarkets to find cheaper alternatives for everything from laundry detergent to dog treats.

Action stores sell branded food, soft drinks and household items, toys, kitchenware, and decorations, and it says two-thirds of its products cost less than 2 euros ($2.15).

The retailer sources from stocklot traders, importers, manufacturers, and big consumer brands, and only one-third of its product offering is fixed - which it says draws shoppers in to "treasure hunt".

"More and more people come to the stores over time because of, a) the pricing, but also b), the surprise," 3i CEO Simon Borrows told Reuters in an interview, adding that the group aims for Action to grow as big as Aldi, Lidl, or IKEA.

Action can keep prices low as it sells a smaller range of items - around 6,000 "stock keeping units", or SKUs, used to identify individual products, compared with 30,000 at a typical supermarket, Borrows said.

"We will buy enormous quantities in our SKUs, far bigger than they would buy, and we're able to achieve pricing commensurate with that," he said.

Action has stores in 12 European countries, having opened its first store in Portugal in February after adding 303 new stores overall last year. Its largest store network is in France, with Germany and the Netherlands also core markets, and it plans to open in Romania and Switzerland next year.

Action's net sales rose to 3.004 billion euros ($3.23 billion) in the first quarter from 2.485 billion a year earlier, and like-for-like sales grew by 9.8%.

Action's results were "outstanding", said Marcus Morris-Eyton, portfolio manager at AllianceBernstein, which invests in 3i.

"With Action opening 62 new stores this year whilst also growing like for like at 9.8% the growth looks set to continue," he added.

3i said Action, which accounts for the majority of its investment portfolio, generated a gross investment return of 3.718 billion pounds, or 33%, in the financial year ended March 31.

The private equity group, which invested in Action in 2011, increased its stake to 54.8% from 52.9% over the year. It has no plans to sell the business or to float it publicly. ($1 = 0.9312 euros) (Reporting by Helen Reid; editing by Jason Neely, Tomasz Janowski, Sharon Singleton and Emelia Sithole-Matarise)