Through a special arrangement, presented here for discussion is an excerpt from a current article from Newmarketbuilders' Blog.
Both Walmart and Dollar General have recently made it clear that high-low price shenanigans are off the table and that building trust through price consistency is of the highest values. In a presentation at last month's William Blair Growth Conference, Rick Dreiling, Dollar General's CEO, claimed that "price integrity is building loyalty" with its customers and that those customers "truly trust" the retailer's everyday low price positioning.
But dollar stores are facing new competition from big-boxers -- from Best Buy to J.C. Penney, Staples, Target and Walmart -- who are determined to downsize their way in by shoving small formats into previously unexplored urban and rural markets, many of which are already populated with the original small format specialists. At the same time, rising fuel and raw material prices are pressuring margins. Combining the inflationary dynamics with the encroachment by the big boxes, and dollar stores' inherently narrow wiggle-room on both price and physical space, dollar stores' sovereign reign over some urban and rural fiefdoms may be at risk. Yet they aren't betraying much vulnerability.
Dollar General's Mr. Dreiling, for instance, recently spoke of the company's "radical shift" to "proudly" selling national brands alongside private brands. However, the more Dollar General focuses on procuring the same national brands that Walmart and others carry, the more they will have to obsess over comparative value, especially since local price adjustments are standard operating procedure for both Target and Walmart.
Family Dollar's CEO, Howard Levine, noted in the company's Q3 2011 earnings call that "so far, our market and price checks are confirming that our competitiveness remains strong" and went on to say that Family Dollar is looking at the competitiveness of various markets and taking advantage of "higher pricing opportunities" in those that aren't as competitive. He added that Family Dollar is continuing "to learn more about these opportunities, particularly as we open up more and more stores in urban markets where that's a lever that we can pull to help the margin." In other words, Family Dollar is banking on localized pricing winning the day, even as others who have arguably had more practice at it head their way.
Dollar stores have a very defensible position as they are thousands of stores ahead of the interlopers, but the nagging exceptions (markets that the big boxers have taken a shine to) have the potential to upset their apple carts as everyone attempts to adjust pricing to increasingly complex local market dynamics. Throw in Walmart's Site-to-Store and Pick Up Today services, which have the potential to transform every Walmart Express location into an endless aisle delivery mechanism (the brands and products in the store may eventually represent only a fraction of the actual item transactions that occur in the store), and you have a multi-layered, localized moving target. So how will dollar stores be able to carry out a balancing act and live up to price consistency claims as others encroach and as the continuous upward crawl of commodity prices adds even more complexity to the picture?