Family Dollar Seeks Grocery Advantage
It’s been a saying for a long time in grocery circles that people need to eat even during rough economic periods. Today, it is the certainty of knowing that people will purchase food even if they’re not buying anything else that gives Family Dollar optimism for its prospects in the near-term.
While low-income consumers, the core customer for Family Dollar and other dollar stores, have been the hardest hit by rising energy prices and other economic disruptions in recent years, they also remain the most likely to shop a store based on price.
It is that price motivation along with the knowledge that more consumers will trade down during times when the economy is lagging that has Family Dollar believing it is ideally positioned to differentiate itself from its competitors and drive company sales and profits.
“Food has been a big part of our evolution because customers spend a lot of money on food,” Kiley Rawlins, vice president of investor relations and communications, at Family Dollar told The Charlotte Observer. “For some families, it takes up 10 to 15 percent of their budget.”
Edward Jones analyst Stephanie Hoff said Family Dollar is so well positioned in the marketplace that it often avoids direct competition with Wal-Mart. “They don’t even really have to compete with Wal-Mart because Family Dollar is positioning itself in urban markets,” she said. “Wal-Mart isn’t even in 20 percent of those markets.”
Discussion Questions: Does food become more of an asset for Family Dollar during slow economic periods such as the one the country is currently going through? Will Family Dollar and others see a big uptick in consumers trading down to purchase products in their stores? How can Family Dollar use food to generate sales of higher margin items even during financially challenging times?
Family Dollar’s food conundrum: gross margin versus risk. Food stamps help food retailers, not just poor customers. There aren’t any national subsidies for nonfoods. But food tends to have a much lower gross margin percentage than nonfoods. So food can drive traffic, but if the cherry-pickers predominate, higher volume won’t be profitable. Out of necessity, a lot of poor folks have to be cherry-pickers. That’s why dollar stores aren’t 100% food.
Food can be a key to success for Dollar stores.
We have studied the role of candy and other snack items in dollar stores. In many dollar stores, candy is among the top selling categories. Why? Because, unlike many categories, every shopper is a potential buyer of candy and it is an affordable indulgence even for the low-price shopper. Beverages can offer a similar benefit.
More recently, many dollar stores have been adding staples such as bread and milk to their offerings. In many of these neighborhoods, convenience stores are either not close by, or are too expensive. With the cost of gasoline, it makes sense for many shoppers to combine trips instead of making multiple stops.
By carrying bread and milk to draw shoppers, and candy and snacks to add to their baskets, dollar stores can use food as a key to their success.
Competing with Wal-Mart has killed many rural grocery chains and created opportunities for dollar stores as quick-trip, fill-in trip alternatives for household basics. Food requires in-store labor and an element of customer service that the dollar stores are severely lacking. In their quest to become “mini- supercenters” they face the danger of having an aspiration that their business model will not support.
Another Dollar Channel (Value) chain that should be on FD’s radar is California operator, .99 Only Stores.
Having recently visited several of their locations, it is clear that food is their trip driver (they are targeting both the quick and fill-in trip of the “Value Seeker”).
They offer a broad selection of (dry) grocery products and perimeter departments including Dairy, Deli, Frozen and Produce–nothing is priced over $.99. What they lack is mass–currently 251 stores in 4 states.
Family Dollar has a real opportunity to expand its customer base and margins through food if it sticks to essential/staple food items and is in stock 100% of the time.
I say in stock because the Family Dollar shopper does not have the luxury of making several shopping trips due to the lack of disposable income and the high price of gas.
I like the prospects of what the Dollar Channel can accomplish during this recessionary period.
Sorry, I didn’t feel I could vote in the poll this morning due to the emphasis on loaded “trading down” language. Since when is finding a different, less expensive place to buy cat food, canola oil, or canned beans “trading down” as long as the quality is acceptable? I was raised to view that positively, as good stewardship of family funds.
That being said, I first set foot in one of the “Dollar” stores a little over a year ago when I was searching for sparkly giveaways for a child’s party. Until then, I had no idea they even sold any food products there. I don’t make it a regular habit to shop at dollar stores due to location, but the staples I picked up to try out that first day, and at several subsequent times since then, have all been quite satisfactory. When I served the food, I daresay my pets, family and guests were blissfully unaware I had “traded down.”
First lets forget about these perceived financially challenging times. The economy is great as usual for our country. It’s only difficult for operationally challenged retailers.
I was in New Orleans recently and saw where huge neighborhood areas have been left without a supermarket due to the floods. Family Dollar was sometimes the only thing close to a food market. In other difficult urban areas around the country where chain supermarkets cannot operate profitably, Family Dollar has an opportunity to increase food sales. I’ve seen Family Dollar pick up some grocery market share in rural areas where there was no supermarket. Family Dollar’s uptick in food sales to me has little to do with the economy but more to do with capitalizing on underserved areas.
Most remarkable is the results. None (maybe a few later) of the savvy (and old?) PR pros participating in this thinks times will get better? Is it us or is it the economy we watch in the media–as spun by other PR pros?
Wow, a brand-spanking-new discovery that low-cost bread and milk attracts shoppers! Will wonders never cease? Let’s write this one down.
Family Dollar seems to take advantage of the disadvantaged. Just my opinion. Family food purchases have historically returned to their previous levels very quickly during economic downturns. You could look it up. For Family Dollar or anyone else to take credit for this classic phenomenon is ludicrous, disingenuous, and historically unschooled.
Disposable diapers in Toys R Us, bath tissue in drugstores, etc. Innovative loss leaders all. Food in Chinese-supplied Dollar Stores qualifies also. As a former hay baler, I’m familiar with the practice of making hay while the sun shines.
Food will become more of an asset although margins are very thin on food items, and the average consumer with a very tight budget prefers a one stop shop. Food and household staples such as cat food and cleaning products are more affordable and of good quality.
Family Dollar’s competitor, Dollar General, has had food items for several years. These stores are inflation proof. While they maintain their current customer base during tough economic times, they also gather percentages from other demographics wanting to stretch their dollar. These stores are small and convenient and usually in rural communities close to the consumer. There will be a down trend of consumers driving to destination shopping areas.
Family Dollar can use loss leader food items (milk and bread) to get the rest of the items on the shopping list. One thing that is not mentioned here is perception. It’s a dollar store, so the perception is the best buy–whether it truly is or not.