Dollar Stores Grow Food Sales
By George Anderson
Not every company in the dollar store space is convinced that food sales are the way to go, but the Dollar Tree and Dollar General chains are finding that grocery items help drive customer traffic and improve average ring in locations where they are sold.
“It’s an additional sale,” Bob Sasser, Dollar Tree’s chief executive officer, told The Virginian-Pilot. “When people shop with us now, it’s one more thing they can buy from us.”
Dollar Tree reports that stores where grocery items are sold have experienced an average five-to-six percent gain in sales. In comparison, stores without refrigerators and freezer cases have seen sales move up about one percent.
Perry Curry, manager of the new Dollar General Market in Madison, Ala. compared his store to Wal-Mart’s Supercenter format. “We’re the same thing, just on a lot smaller scale,” he told the Madison Spirit. “We’re a lot cheaper than a regular grocery store.”
Alicia McDaniel, a consumer who shopped at Mr. Curry’s store, said, “I just came in because we’re out of food at the house. We needed something for lunch so I bought several days’ worth.”
“I like it (Dollar General Market). It’s got a lot of variety,” she said. “It’s fast and quick to run in and get something.”
Holding to its dollar price point, said Dollar Tree’s Sasser, means his company won’t be trying to replace grocery stores.
“I can’t sell you a gallon or even a half-gallon of milk for a dollar,” he said.
Moderator’s Comment: How significant a presence have dollar stores become in the grocery products business? Which of the dollar stores selling groceries
has been most effective in this area? – George Anderson – Moderator
Just returned from the 2006 Dollar Store Summit here in Chicago this morning to find this thread on the wire. Uncanny. For what it’s worth, a few facts to throw into the thinking. Dollar Stores (who now prefer to be called “Extreme Value Retailers” since most have abandoned $ price points) have grown HH penetration by 16 points and increased trip frequency by 3 trips per year over the past 3 years. Much of that is due to food in their stores. That’s the good news. The bad news is that the EVR’s are finding that the 30+% GM from Grocery does not translate into the 8-10% Operating Margins they are used to netting off a similar GM. It’s still better than the 2-3% Supermarkets get — due to EVR’s substantially lower operating costs — but it still adds up to Operating Margin depression, and Wall Street isn’t too happy about that. But here’s what my dad calls “the $64,000 question” — What happens when a 22,000 sq. ft DG Market meets a 22,000 sq. ft. Neighborhood Market? I’m a Wal-Mart believer, but no less than David Glass himself said the biggest threat to Wal-Mart this decade would be the dollar stores — so I’m thinking long and hard before betting on Bentonville this time.
What an opportunity for low cost producers to build a product for just this market. While the mass market brands zig and zag trying to protect their own image and margins, as well as their current channels, a fast moving supplier could do wonders in high volume categories such as soda pop, snacks, lunch box items, cookies and crackers, bread, and bottled water. The packaging and brand name need only emulate the look and feel of the mass market brand leader, and the product quality approach private label levels. And of course the price must match the claim of the store banner.
With brand loyalty ebbing among mass market leaders due to lack of product innovation and effective advertising an almost pure “price play” against a predisposed consumer sounds like a winner.
Dollar stores are a very big deal in the food biz, what with the growing number of outlets on top of an already critical mass. And frozen/refrigerated builds sales and frequency. It was over two years ago that Dollar General revealed that adding refrigerated and frozen foods to its stores bumped up the average basket by about 50% to 60%, with 60% of the gain coming from refrigerated and frozens. And yet I had other dollar store operators telling me since then that adding refrigerated and frozens would be a waste of time and money. Duh! Tell that to Dollar General. A friend told me awhile ago that getting a SKU into full distribution at Dollar General was as good as getting a SKU into any of the top few leading supermarket chains. And some manufacturers tell me they’re happy to be in dollar stores because even though margins going in are tighter, dollar stores don’t beat you up with slotting, allowances, MDF etc.
Dollar stores are very important to their steady customers and their major suppliers. They serve millions of people at thousands of locations. They’re just not important to all suppliers or all people. The big challenge: even though food helps sales it usually doesn’t help margins.
Based on my very limited observations of a dollar store in Escondido, the food offerings are not only a draw but an impulse purchase. Fresh and refrigerated products were deliberate purchases because they were fresh and reasonably priced. Some of the shoppers I talked to had gone specifically for that reason and were buying other products once they had got through the door. Others were just the opposite – they came to browse and see what looked like good value but then bought some of the fruit and vegetables that caught their eye. The shoppers were a cross section of seniors and mothers with kids; some but not all were Hispanic. The one thing they had in common was that they all seemed to be looking for bargains.
Offering food products helps dollar store shoppers save time in two important ways. First, shoppers can satisfy more of their requirements in one store trip. Second, shoppers save additional time by avoiding larger format stores and their size and checkout time tax. Increasing fuel costs add to the benefit of consolidating purchases from multiple categories in one location.
There will be a steady increase in sales in food departments at dollar stores as regular customers learn to rely on the availability of food products and as the dollar stores fine-tune their offerings. While food may be an impulse item for some today, frequency of purchase in food categories and reliability of product offerings will cause food categories to be visit drivers. Other categories will benefit from impulse purchases and greater visit frequency.