Is inflation transforming dollar stores into bigger grocery destinations?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Will runaway inflation really drive consumers to trade down from conventional supermarkets to dollar stores for groceries?
“Our shopper data shows it’s already happening,” says Simon Johnstone, senior director, grocery, at Kantar. When faced with rising prices, “Consumers have several options, but we see channel shifting as a big strategy,” he reports.
A recent study by Symphony RetailAI confirms that many of the most price-sensitive consumers are shopping more frequently at dollar stores as they’ve been unable to make ends meet by switching to cheaper brands or smaller sizes at regular supermarkets.
For some, that means Dollar General, which has hundreds of DG Markets with expanded perishables offerings and expects to install another 65,000 cooler doors this year.
Neil Saunders, managing director, retail, at GlobalData, says middle-income shoppers are already shifting a bigger share of their spending to the dollar channel. Beyond the obvious savings, the appeal is twofold, he explains: “First, the one-dimensional nature of the shop helps people spend less. Second, for many, especially in rural areas, the dollar store is the closest option, so it saves them gas money compared to driving further afield to Walmart or another supermarket.”
One of the knocks against dollar stores, especially in food deserts where they’re the only game in town, is that they offer few healthy choices. Dollar General’s DG Fresh self-distribution initiative is working to combat that narrative.
Dollar stores also have a reputation for unkempt aisles and understocked shelves that may indicate they’re looking for too many savings on labor. Supermarkets are also well ahead on delivery, loyalty programs and electronic communication.
Still, expanded frozen and refrigerated assortment could help dollar stores hang on to new shoppers attracted by the low prices whose situations improve with the economy. During the 2008-2009 recession, explains Mr. Johnstone, “Dollar stores did good gaining shoppers but not retaining them once it was over. Back then, they only had two key weapons, convenience and pricing, which were great, but not enough in the absence of a recession. But the business model has changed since then with the addition of frozen and fresh. … It’s a much more robust offer.”
DISCUSSION QUESTIONS: Are dollar stores well positioned to grab grocery market share in the coming months? What further changes may be necessary for dollar stores to improve retention among customers that are currently trading down?