©viktoriyakraynyuk via Canva.com
November 11, 2024
Should e.l.f. Beauty Be Selling to Dollar General?
e.l.f. Beauty, which prides itself on selling affordable makeup and skincare products, is taking a step downstream by opening up distribution to Dollar General.
On the company’s second-quarter analyst call last week, CEO Tarang Amin said e.l.f.’s products will be available at a “subset” of Dollar General’s locations later in November in a test of the brand’s rollout potential across the dollar channel. The move fits e.l.f.’s mission to “democratize access” to beauty.
“Our mission is to make the best of beauty accessible to every eye, lip and face. And the accessibility is quite important to us,” Amin said on the call. “Dollar General’s stated strategy of serving the underserved fits perfectly. If you think about 80% of their stores are in rural areas with less than 20,000 consumers. Previously those consumers only had access to some of the legacy mass brands. And so, our ability to bring them access to the best of beauty we think works really well.”
e.l.f.’s largest three customers are Target, representing 25% of sales in its latest fiscal year; followed by Walmart, 17%; and Ulta Beauty, 16%.
The brand’s value proposition has been a key pillar to its success, which includes average price points for e.l.f.’s product at about $6.50 currently, compared to nearly $9.50 for legacy mass cosmetics brands and over $20 for prestige brands.
A second pillar is its “holy grail” innovation approach, which focuses on making products usually available only in the prestige market accessible at mass for a fraction of the price. Examples, according to its recent 10-K report, include e.l.f.’s Power Grip Primer at $10 versus a prestige item at $38 and the Halo Glow Liquid Filter at $14 versus a prestige item at $49.
The formula helped drive 40% revenue growth in the latest quarter, making e.l.f. the fastest-growing U.S. color cosmetics brand in both units and dollars among the top 20 brands across both mass and prestige. Particularly popular with Gen Z, e.l.f. ranks as the No. 1 U.S. color cosmetics brand in unit share and the No. 2 brand in dollar share.
At Dollar General, e.l.f. products will be displayed on end caps, and the product assortment will not be modified versus other accounts.
“We’re bringing our best products, our ‘holy grails,’ to the dollar channel,” Mandy Fields, SVP and CFO, told analysts. “And we feel great about the assortment, about the presentation, the merchandising that we’ll have as we enter the Dollar General stores.”
When asked about risks to brand equity, Amin said e.l.f. also works at the prestige level, noting that e.l.f. has ranked as the No. 1 brand on both units and dollars at Sephora Mexico since its October launch. He said, “From an overall brand equity standpoint, what we find is e.l.f. is highly elastic. We can play in value. We can also play in prestige.”
Discussion Questions
Do you see more benefits than risks to e.l.f. Beauty’s move to sell to Dollar General?
What factors should go into any brand’s decision to sell at perceived lower distribution or more price-driven channels?
Poll
Loading …BrainTrust
Georganne Bender
Principal, KIZER & BENDER Speaking
Richard Hernandez
Merchant Director
Neil Saunders
Managing Director, GlobalData
Recent Discussions
More Discussions
How Can Retailers Crack the Gen Z ‘Riddle’?
Gen Z is becoming an increasingly important consumer demographic, but an elusive one to map. How…Does Bath & Body Works’ Scented Holiday Campaign Pass the Sniff Test?
Bath & Body Works is kicking off a new campaign with scent being at the fore…Which Tech Will Solve In-Store Inventory Woes?
Three major tech lineups are looking to solve retail inventory problems. Which is most suited?
Elf is simply trying to be where the customer is, and the fact is Dollar General has fantastic reach and shopper penetration – including being able to expose elf to some lower-income shoppers who are not currently in its customer base. Dollar General also has a strong presence in rural areas where beauty retailers are few and far between and where drugstores are increasingly shutting up shop. As elf has a value positioning, I don’t think it will suffer from being in Dollar General. And let’s face it, if it can go into messy, down-at-heel drugstores like Walgreens, then there are not many places it can’t go!
I hope they can present/merchandise the brand the same as the big boxes. Anything done to cheapen the presentation will make the product brand unsellable, no matter how well it sells, especially if you want to bring in new customers to the brand in Dollar General stores.
While I’ll claim the bro exemption for not being familiar with e.l.f., I didn’t really need any familarity once I reached this comment: followed by Walmart, 17%. No offence to either party, but when you channel thru WalMart, “downmarket” loses any meaning; Dollar General may work, or it may not, but there’s no squeamish “should” involved here.
Taking advantage of Dollar General’s distribution channel makes complete sense-so much so that I hope this was a quick decision to make.
I have only seen e.l.f. cosmetics sold at value retailers like Old Navy, so why not? Besides, it’s chic these days to shop at stores like Dollar General. It’s a fit for those seeking a bargin, and also for those with limited access to e.l.f. and other brands. And it’s a move that is sure to be shared by Insta and TikTok users who are excited about saving money.
It might be naive to assume that a beauty brand won’t lose brand equity once it hits Dollar General. Prestige is very important to beauty product consumers. Many beauty brands have very little difference in their actual ingredients.
Brand equity values arise from design, style, packaging, price and image, but it is a mistake to underestimate the inadvertent significance of where the brand can be purchased.
However, e.l.f. Beauty isn’t a Neiman Marcus brand entering Dollar General. As a mass markets brand, Dollar General is not a shock. Price points at Dollar General are what e.l.f. Beauty should be concerned about.
In situations like this, I have taken one of two approaches.
a) Come up with an alternate brand name for Dollar General. At Dollar General, the alternate brand can be sold at a lower price without harming the primary brand. The recommend the alternate brand can include the words, “from the makers of e.l.f. Beauty.”
In case the brand decides to keep the name the same, I recommend a smaller size (smaller) to reach a lower price point. That approach has been very successful for me.
e.l.f has established a loyal base of customers, a strong value proposition and brand name. My concern would be the experience within a Dollar General. Let’s be real, it usually suck. I think there is a risk it will degradate the brand. I echo David’s recommendation to have an alternative brand, like “from the makers of e.l.f. Beauty”
There should be no debate that market penetration requires Dollar General be part of the conversation. Now that I live in Tennessee, I can truly say DG has “cornered” the market.
Should e.l.f. be in such settings? Yes. The old adage, “Location, location, location” applies to retail merchandising, also. Put products where the shoppers are … and that means DG.
Do they need to be concerned about presentation? Yes. (From our company’s experience working in the beauty space and helping retailers determine assortment, shelf positioning, and merchandising fixtures, I don’t think it impossible for DG to up its game.)
Will it diminish the brand? No. Although DG shoppers may be more price conscious than some (although there are many affluent earners in DG every day), they will spend to feel good and look good. That’s human nature.
The brand has clearly done its research and knows there’s significant overlap between its target and the Dollar General consumer. Other beauty brands have pursued Amazon strategies with the same aim. More channels, when strategic, is usually better, so I trust that this is a smart move.
Selling in Dollar General will help e.l.f Beauty expand its reach and accessibility among its target of Gen Zs where they already spend time and money. As inflation erodes our cost of living, dollar stores will continue to be packed. This move helps Dollar General differentiate and liven up its assortment with a beloved beauty brand.
Elf’s move into Dollar General seems like a natural fit. Given their value-driven brand, this expansion seems to align well with their mission of making beauty more accessible, without compromising their image.
e.l.f. Beauty’s move to Dollar General has more upside than risk.
Expanding to underserved areas makes their products accessible to more people, which aligns with their brand mission. But any brand considering a “lower-tier” retailer should be cautious about potential brand dilution.
It’s important to have a clear strategy that protects the brand’s image—think consistent product quality, controlled pricing, and maintaining appeal across various market levels.
Any brand considering lower-priced channels should prioritize staying true to its value proposition and ensuring product consistency so that customers see it as accessible, not cheapened.