Nielsen: Dollar Stores Not Just for Low-Income Shoppers Anymore
Obviously, the economy had to play a big part at the Nielsen Consumer 360 Conference this year. And, it did, with one workshop entitled "Rise of the Dollar Channel," presented by Jeff Gregori, VP of retail services for Nielsen, showing that a lot has changed recently with the channel. As consumers respond to the economic downturn by simplifying their lives, the dollar channel is providing convenience, value, and a new level of shopping consistency.
According to Nielsen, the channel has grown with consumers of all income levels, but is up the most with higher-income shoppers (+10 percent vs. YA), and that growth accelerated in the last half of 2008.
The primary dollar store shopper, however, has a lower-income with the group representing 45 percent of dollar store sales even though it represents only 29 percent of U.S. households.
Dollar stores have been gaining sales a number of ways, but one big one is that shoppers are switching from other channels. In fact, the dollar channel is a net gainer of switchers from all channels except "value grocery" such as Aldi and Save-A-Lot.
While the channel's store count is stable (growing only about two percent annually), trip growth continues. Lower-income shoppers, for example, made an average of 17.2 channel trips in 2008, up from 16.4 in 2007.
The channel's heavy shoppers are categorized as "plain rural living" - those in small town and rural areas with the second poorest lifestyles, relatively high home ownership, a high incidence of non-Hispanic whites and an index of 188.
A secondary target is "struggling urban cores" who have a low incomes, low net worth, and index at 116.
Top categories for the channel - based on dollar sales - include paper, candy, pet food, snacks, detergents, carbonated beverages, wrapping and bags, household cleaners, cookies, and laundry supplies. Many of these categories have low conversion rates, so there is plenty of upside remaining.
Light shoppers for the channel include "senior couples", "senior singles" and "younger bustling families." Light shoppers tend to stick with the basics and their conversion rates tend to be low - i.e., candy at 41 percent, paper at 32 percent, and carbonated beverages at 14 percent.
Emerging non-edible categories for the channel among mid-income shoppers include diapers (with only two percent penetration), baby needs (nine percent), and cough/cold (12 percent). Food categories that are emerging with high-income shoppers include bottled water, pet food, and carbonated beverages.
Food now represents 31 percent of channel business vs. 26 percent in 2005. Dollar General is now at 34 percent. Consumers at all income levels appear to enjoy the price and convenience of food and beverages in dollar stores. Showing how the channel has changed, Nielsen says that only 23 percent of the channel's dollars are in items that sell for less than a dollar.
HBC is a challenge for dollar stores. Most channels convert at about 80 percent while HBC converts at a 65 percent rate, possibly due to a lack of trust. Specific areas of challenge include oral hygiene, which converts at only 32 percent, vitamins at eight percent, hair care at 27 percent, and cough/cold at 18 percent.
Private label is still relatively undeveloped in dollar stores and, in fact, the channel is increasing its branded focus. Nielsen says brands of all scale are leveraging the channel for growth. While low-income shoppers have a preference for brands, assortment has to be tailored to the channel. And, assortment is changing quickly, as food and beverage products are driving a lot of the growth.
Discussion Questions: Is the growth of the dollar store channel mainly due to economic conditions or to the channel doing a better job of meeting consumers' needs? Will the channel continue to grow when the recession ends?