The Value of a Dollar Store-Within-a-Store
By George Anderson
Dollar stores and dollar stores-within-a-store are popping up in all the expected places and some unexpected ones, as well.
Jarron Springer, president of the Tennessee Grocers Association, said dollar store-within-a-store sections are becoming common in supermarkets, “but it’s very popular in convenience
stores also.”
According to a report in the Knoxville News, Exxon is testing a dollar store-within-a-store in its Tiger Marts in Nashville and may roll it out chainwide.
The reason for the popularity of the dollar store-within-a-store concept isn’t difficult to understand, said Mr. Springer. “It enables stores to maximize retail sales.”
The state association’s 2005 convention held this weekend at the Knoxville Convention Center included a speech, Value Retailing, Creating a Dollar Store Within a Store, by Steve Dillard, vice president of corporate sales development for Associated Wholesale Grocers (AWG).
According to the Knoxville News report, AWG recommends stores set aside a separate destination for dollar items rather than integrating them throughout the store. Placed side-by-side with other items may give consumers the impression that items sold above a dollar are priced too high.
Moderator’s Comment: Based on your experience, are dollar stores-within-stores helping the retailers that have them drive greater sales and profits?
What do retailers need to do to succeed with dollar items? –
George Anderson – Moderator
Seriously, what’s sold in retail grab-bag bins for a dollar? Lots of Chinese-produced junk that quickly occupies landfills. “Dollar Store” is more of a low-priced retail position to challenge Wal-Mart than a description of legitimate quality products that sell for a dollar. One only has to watch Jay Leno show a collection of items from a Dollar Store to get my drift.
So now respected supermarket chains think it’s smart to emulate this phenomenon. Fortunately for them, they genuinely have lots of quality items that can be sold for a dollar or less. But, they need to resist the temptation to add plastic Chinese junk to their inventory. Albertsons in California made their entire stores into “Dollar Stores” recently with a “10 for $10” promotion. End caps devoted to this sale carried quality items from nearly every category in the store. What a concept!
The dollar store idea is OK but I think they would be better off investing in a limited assortment convenience store with quick checkout. I see many waiting in long lines to purchase 1 or 2 items. Frustration and resentment builds in long lines and, by the time one finally gets to checkout, no amount of “nice” from the cashier will remove the frustration of the wait.
Grocers need to quit looking for “quick fixes” like dollar stores and focus on taking care of their current customers. I know this isn’t popular because it isn’t flashy and won’t get headlines, but it will produce a much larger return.
The thread here seems to be that the SWAS concept for dollar stores is a bad one…and I agree.
In particular, I question the “in order to maximize retail sales” rationale. Oh really?
Unless these items are 100% unique to the store, they usually represent a trade down. Even if they are merchandised in a separate location, I’m not likely to purchase two of something just because I can get the second one for a dollar.
Even if these purchases are “incremental,” they still occupy space that could be merchandised with a higher value offering; one that might reinforce the store’s base differentiation versus dollar stores rather than blurring it in consumer’s minds.
The last possible benefit to supermarkets would be to keep consumers out of the dollar stores all together. Based on the latest trip data, it doesn’t look like that’s going to happen either.
Specialize in it or don’t do it at all. Having a $1 section just because you think you need to isn’t the right reason, and it will yield few results and be simply taking up space.
I think this one is behind the trend and we’re about ready for the next big thing…
I agree that dollar stores-within-a-store are the retail fad of the moment. As with many good ideas, the retailers with the ability to execute and sustain this format will extend the lifecycle, while those without will flame out quickly.
Dollar formats within a store require relatively rapid merchandising turnover. Unlike many “normal” assortments, these MUST be fresh each time the consumer returns to shop. That’s extremely hard in a supermarket, where the shopper can average 1.5 trips a week. In a Target, where the shopper averages 2 trips per month, the challenge is still extraordinary. “Sameness” will extinguish the desire of the customer to shop the section….very rapidly.
Here’s the challenge in a nutshell: let’s say there are 20 Dollar bins in the section. And in order to maintain anything like freshness, you have to turn them 6 times a year. That’s 120 different products, each with compelling value at $1. Further, ideally, these are 120 products which are not currently merchandised anywhere in the store.
The reality is that most assortments will start out with relatively good value, and then decline rapidly over time. The market is not built to supply an endless number of unbelievable values for $.60 wholesale and $.40 manufacturing cost. Honestly….if you’ve never tried it, don’t!
Will the format last? For awhile. In supermarkets? For a far shorter time than in other footprints.
Good to see I wasn’t the only person in Knoxville over the weekend. Seems retailers have been getting more into dollar items over the past few years. To me, they seem to be there as a convenience. Personally, I have found only a few bargains (i.e. cell phone car adapter). As inflation continues, the focus of dollar stores will need to change, just like it did with the “dime stores” a century ago. Their life cycle will only last so long – for both the dollar stores or the dollar items inside retail stores. I’ve seen quite a few dollar stores close over the past year – and have a lot of junk in my house to prove it (most of it bought for 50 cents). I predict a wave of these stores closing over the next few years.
Remember generics?
This is the retailing fad of the moment. And like others, the grocers confuse the product and price point with the actual value delivered by a dollar store.
Value discount retailing is a fundamentally different in-store consumer experience from a supermarket, and all the dollar sections in the world won’t change that.
Giant “hernia packs” didn’t stop Costco, and these dollar sections won’t stop Dollar General or Family Dollar. Some will make money, some won’t. In ten years they will all be gone.
The challenge with dollar stores-within-stores is in continued execution. There is a tendency among retailers to let these spaces lapse into a state of mediocrity, with uneven product assortment and sloppy merchandising. I saw a dollar section in a Philadelphia area supermarket a few weeks ago that was downright dirty, even when the rest of the store looked OK.
Retailers need to make a commitment to the section, not only in stocking an assortment appropriate for the marketplace, but in keeping the area clean, attractive and inviting. I agree with the comment that mixing dollar selections into the broader category doesn’t work, but neither does having a dollar store-within-a-store that is developed as an afterthought.
For anyone owning a supermarket, the best thing we ever did was to set-up a $1.00 door in our frozen food dept. Everything is a buck. Now, we had to expand it to 2-doors. Gross margins range between 20-35%, which is super because the turns are tremendous.
Brown & Serve sausage, Jeno’s pizza’s {all 3 varieties}, Old Orchard lemonades and fruit punch, Pillsbury 12 oz. waffles, Michelina Zap-Em entrees, TJ Farms hash browns, and sliced strawberries, Banquet TV dinners, Budget Gourmet entrees, and El Montery XXL burritos. Ore Ida extra crispy microwave fries do well also.
We’re considering adding a couple of $2.00 doors, and I’ll let you know when we do. Sales in the frozen dept. are up 20% overall. Dollar General can not duplicate this at this time, so it’s a great profitable niche for us.
Give it a try.
Rather than dollar store sections, I think there is greater opportunity for grocery retailers to use the “10-for-10” programs being used by Albertsons and Kroger. These programs get consumers to shop the entire store looking for “dollar deals.” ACNielsen Homescan research shows that dollar stores are immune to Wal-Mart. In fact, we see higher dollar store shopping frequency in Wal-Mart’s high share states. Dollar store retailers have done a great job of using Wal-Mart and major grocery chains as their anchor stores. What dollar stores offer are low prices and convenient in-and-out trips – something that supercenters and grocery stores don’t offer.
Dollar stores might be below their potential on the retailing/merchandising side, but they are a godsend to the supply chain/closeout side. They make for the perfect dumping ground for overstocks and discontinued product. It’s easy to see even at the consumer level – just look at how much stuff is near or past its “best before” date in the dollar stores.
Were it not for these dollar retailers, the distributor or the manufacturer would have to eat the discontinued product, which would find its way back to even the NON-dollar store shopper in the form of higher prices.
The consensus seems to be that a lot of these dollar stores won’t make it. But be careful what you ask for, you might get it.
I think the minds of RetailWire would be more helpful to the retailing community if we discussed ways for a few winners in this segment to survive and thrive. The rest of retail NEEDS this segment if they are to have low prices and an efficient distribution system.
Possibly the opportunities for additional footfall have proved irresistibly tempting. But are the customers who come for the trashy goods sold by dollar stores really likely to buy other products once they’re through the door? I think it far more likely that dumpbins or even just pointers to things the store normally sells for $1 or less are a much better bet than letting in rubbish just for the sake of it. A bargain is only a bargain if it has some value.