What Happens to Dollar General When Walmart’s Neighborhood Market Opens Next Door?

Discussion
May 03, 2013

What would happen to the dollar store business if consumers searching for deals learned that they could get lower prices shopping in Walmart? The answer to that question may be coming now that a 22-month research study by Bloomberg Industries points to Walmart offering better prices almost all the time.

According to the research, Walmart had lower prices than Dollar General 100 percent of the time in household goods. It also beat its dollar store competitor 85 percent of the time when it came auto supplies, grocery, health and beauty care and pharmacy.

So what is behind the success of dollar stores?

According to Poonam Goyal, a senior analyst at Bloomberg Industries, the answer lies in dollar stores’ positioning in residential areas. That advantage will disappear, she told Bloomberg News, as Walmart opens its own small format stores in the same areas.

Dollar stores have long been on Walmart’s radar. David Glass pointed to the channel as the biggest challenge facing the chain when he was CEO of Walmart in the ’90s. Back in 2011, the New York Post reported the retailer had approached suppliers in search of lower opening prices. The reason given was that dollar stores were eating Walmart’s lunch.

Will dollar stores suffer as smaller Walmart stores move into the same neighborhoods? How should dollar store chains respond?

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26 Comments on "What Happens to Dollar General When Walmart’s Neighborhood Market Opens Next Door?"


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Paula Rosenblum
Guest
9 years 21 days ago

Well, is it an accident that Tesco couldn’t make Fresh & Easy work? Or that Walmart has been talking about neighborhood markets for a decade?

It seems to me that we ascribe abilities to Walmart that the company just doesn’t have, and I’m not sure it has the appetite or ability to buy. “Tonnage” stores don’t do curated assortments well. From the logistics (all LTL vs. full-truckloads), to the curated assortments, to replenishment, to staffing—it’s just a different business.

And do we remember when Walmart was going to put “$1.00 only” stores within a store a couple of years ago? That went away too.

If I were Dollar stores I would be very careful to mind my knitting, keep the stores convenient and manageable, and staff them well. Walmart just doesn’t have the customer loyalty it thinks it does.

David Livingston
Guest
9 years 21 days ago

I don’t follow dollar stores much but from my experience with Save-A-Lot, the Save-A-Lot stores get hit very hard. On the other hand, I’ve seen Aldi stores actually go up in volume when a Walmart opens nearby. I conclude that Aldi has lower prices, the consumers know it, and Walmart simply brings more traffic to the area. In fact, Aldi tends to want to locate stores near a Walmart.

Dollar stores tend to do well in small trade areas where no other competitor will operate due to lack of population. Or they will go into low income areas. When WM moves in, the response for dollar stores should be to focus on categories Walmart is not going to match in the areas of smaller sizes, off brands, low quality junk food, and greeting cards.

Joan Treistman
Guest
9 years 21 days ago

Perception is reality.

Here I am the quant person, and I can’t wrap my head around this article. When I enter the Dollar Store, I know that all the products will cost $1.00. It’s easy to assess the value for the money. I can be as satisfied a customer as I allow myself to be.

This article says that Walmart is cheaper on all household product items and on 85% of other products. If Walmart opens a store near me and everything in the store is less than a dollar, my reality changes. But if I enter Walmart and some items cost less and others cost more than a dollar, I have to calculate and discriminate. Why would I give up Dollar stores for Walmart?

What am I not taking into account? I leave it to others to clarify.

Max Goldberg
Guest
9 years 21 days ago

If Walmart can maintain its edge on lower prices, dollar stores will suffer as WM moves into the same neighborhoods. Dollar stores’ claim to fame was low prices and neighborhood locations. They build their brands on this core story. Suddenly a key tenet of the story will no longer be true.

It will be hard for dollar stores to staff-up to make the argument for better customer service. Since most dollar stores are regional or national, it will be hard to position themselves as being local vs. Walmart’s national footprint.

They should work now to build loyalty programs and strong ties with the local communities they serve. Otherwise, they could easily be challenged by Walmart.

Gene Hoffman
Guest
Gene Hoffman
9 years 21 days ago

Competitors impact upon each other. Much will depend upon whether smaller Walmart stores will be judged by consumers as small grocery stores or more heavily discounted stores than are dollar stores.

Dollar stores are already well established in any new conflict areas. They should continue to be clean and aggressive dollar stores and keep the pressure on Walmart.

Steve Montgomery
Guest
9 years 21 days ago

It is difficult for a company like Walmart to scale down to run a small format. The business model regarding assortment, logistics, etc., is different than running a large format operation, as Paula pointed out. Look at Albertsons and others who extended their stores to their out lot via building a convenience store with fuel. Even with the stores on their own lot, they found it difficult to do, and sold the sites.

George Anderson
Guest
9 years 21 days ago

While the name says dollar, a look at the current Dollar General ad shows the vast majority of items for sale are more than a dollar. In the case of branded dog food ($15), for example, much more than a buck.

Richard J. George, Ph.D.
Guest
9 years 21 days ago
Walmart has always been plagued by dollar stores. In fact, it has been argued that dollar stores are the only food retail format that can survive the scorched earth syndrome created when Walmart crushes non-competitive retailers. Walmart once referred to these formats as “ankle biters.” However, with the advent of so much food and consumables by dollar stores, the “ankle biters” became real pests. The introduction of refrigerated, frozen and fresh foods certainly has transformed these players into bonafide competitors, not only to Walmart but to every other food retailer. Walmart has reaffirmed its commitment to be the lowest price food provider. It’s “smash mouth” pricing was originally targeted at more traditional supermarket formats. Now via the Neighborhood Market, Walmart is taking steps to limit the growth trends of these stores. Currently, dollar stores and other extreme value retailers are growing faster than any other food retail format. Dollar stores will have difficulty competing directly with the previously sleeping giant on price. Now they need to find a point of differentiation beyond price. How about… Read more »
Liz Crawford
Guest
9 years 21 days ago

It will be a death match for sure. However, once location and small footprint convenience is in parity, the best price will win.

Should dollar stores respond? Stocking a locally desirable assortment, configuring merchandising for optimum shoppability and offering a rewards program may help. But only maybe.

Nikki Baird
Guest
Nikki Baird
9 years 21 days ago

I would worry about this if Walmart had actually figured out the neighborhood store concept. Since that is still in doubt — especially that Walmart can bring its famous mass-oriented logistics environment down to the more granular and discrete size required to serve neighborhood markets without destroying their cost advantage — then, if I were a dollar store, I’d be more intrigued about the possibility that Walmart will drive traffic to me, rather than steal from me.

Admittedly, the last Neighborhood Market Walmart store I saw was one they were experimenting with in Dallas over a decade ago. But as Paula points out, Tesco has proven that the model isn’t getting any easier, and the competition is only getting tougher.

Shep Hyken
Guest
9 years 21 days ago
Some retailers fear when Walmart or any big box store comes into its neighborhood. What can a retailer do? There is so much that I could write a book on it. (And I have!) Couple of things to consider. Walmart is great at what they do. What is Dollar Store great at? Stay the course! What area does Walmart not do that the dollar stores can do — or do better? Exploit those opportunities. Take the Walmart manager to lunch. Find out how you can send customers to them and how they can send customers to you. In other words, what does one do that the other doesn’t, and vice-verse. Most people who go to a dollar store are ultra-price sensitive. Keep the pricing strategy the same, but be sure to out-service Walmart. Deliver an amazing experience and build some loyalty that goes beyond just price. Focus on the local community. Get involved and build some loyalty with the neighborhood. Sponsor a kids sports league. Invite the kids teams or clubs to sell their candy… Read more »
Tom Redd
Guest
9 years 21 days ago

Well, with Paula knitting, I need to convey the point that dollar stores need to “hem in” their loyalty by making sure they keep their location selection on mark and keep service at a max.

I live in a small Michigan farm town in the summer. Two blocks down from the Friday entertainment center (Walmart) is a dollar store and it is always busy. They also run a great insert on Wednesdays (the only day we have a paper in town). I would say their insert is more popular than the Sheriff’s report where they list all the local villains and lost dogs/relatives.

So, ignoring all the fancy metrics and reports, in reality I see it as location and service. The dollar store always has the right assortment for our town.

Li McClelland
Guest
Li McClelland
9 years 21 days ago

Even when they’re in the same neighborhood, dollar stores are usually a smaller footprint in slightly off the beaten path strip malls with plenty of close-by parking. Sure, they’ll lose some business if Walmart comes in, but if the dollars are already well established, I’m betting their simplicity and quick and easy in-and-out will keep their customers coming and spending.

I’m a fairly recent convert to the charms of Walmart and their pricing, but even on a good day with good knees one can’t get in and out of there (including locating the car) in less than an hour. The “store” versus the “mart” in their respective names will keep the dollars attractive for many shoppers, I think.

Also, I concur with others who have already expressed skepticism that Walmart will open a gazillion baby sized small neighborhood stores. That approach does not seem to square with Walmart’s traditional (and necessary) stocking and warehousing model. I’ll believe it when I see it.

Gordon Arnold
Guest
9 years 21 days ago
This is great information. Walmart is now full of incentive to beat someone into dust. With their price leverage and gigantic distribution capabilities, I’m sure many feel the anxiety Walmart has pent up to take them to another level of competition. There are several unanswered questions that should be addressed prior to the attack. What stores are vulnerable to competition with a populous that will support a Walmart-Mini and provide for sustainable growth with or without the competition in close proximity? Additional consideration for minimizing the siphoning effects from existing Walmart stores and e-commerce business should be closely scrutinized to insure real growth by annexing market share solely from Mr. Dollar. There is one additional consideration that needs to be addressed in advance: distribution. Walmart has a full truckload distribution plan to its stores to maximize efficiency of scale and minimize transportation burden on the landed costs of goods sold. This strategic formula in the lowest cost to customer equation will not apply when shipping to much smaller stores in less than truckload quantities over… Read more »
M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
9 years 21 days ago

In defense of Walmart’s “mini” grocery version, one recently opened here in Lincoln, CA, and they’re rockin’. There are no dollar stores in the area, but there’s a Safeway and a Raley’s nearby. Walmart’s artisanal bread selection is excellent. It looks like they’re doing just fine.

As others voiced, I was surprised to learn that WM’s prices are mostly lower than those in dollar stores. So, I visited the nearest dollar store and, as George Anderson reported, there are many items costing more than a dollar. WM has room to maneuver in those instances.

Bill Hanifin
Guest
9 years 21 days ago

Never underestimate the American spirit to root for the underdog. I believe there is something in the pysche of the consumer that wants to defend a smaller competitor whom they like, but sense are threatened by a bigger, better funded competitor.

Call this a soft or intuitive comment, but it is one opinion. Easier parking and neighborhood connections will keep dollar store formats in part of the game as people enjoy the “search and discover” shopping experience with lower time overhead to complete their journey.

Craig Sundstrom
Guest
9 years 21 days ago

“Walmart had lower prices than Dollar General 100 percent of the time in household goods.”
I’m sorry, but this just isn’t believable. I’m not sure whether the study cherry-picked, had a bad sample or what, but “100%” is never a plausible number.

But no matter, let’s assume the “real” number is 53% or 86.5% or just “often”, the issue is still the same: Will WM be able to maintain its big box prices in a small store format? If “yes”, then dollar stores will suffer; if “no” — and there are many reasons to believe they can’t — then the answer is “maybe”.

Ed Rosenbaum
Guest
9 years 21 days ago

I recall the fear when a new restaurant moved in the same area as one that was there and successful for years. People thought the old restaurant would fail. Never happened. Both were successful and the old one even saw an increase in sales. Why can’t this happen here? It might, unless Walmart wants to drive them out of the neighborhood.

I agree with an earlier comment that Walmart’s customer loyalty is not as great as they would like to think. The cost of the items will speak volumes over loyalty.

Herb Sorensen, Ph.D.
Guest
9 years 21 days ago
This battle is a global battle, involving more and more, smaller and smaller stores. That’s where retail trade began in the “traditional trade” of mom and pops stores. Only now, it is all modern, but moving delivery as close to the door of the shopper as possible. There is a global small store movement going on. This is driven in the modern trade, also, by slow recognition by retailers of the urgent and pivotal role of the small basket, which is in turn driven by the single concept of immediacy. What you need or want right now, for consumption or use, right now, may very well be a single item purchase, or maybe 2-5 items — HALF of all supermarket shopping trips. Retailers are as slow as molasses to respond to these trends. This one virtually drove the C-store industry to success over the past 30+ years. The small store movement should have gotten a huge boost from, for example, Tesco’s Fresh & Easy stores. All the pre-press suggested that Tesco was going to build… Read more »
Lee Peterson
Guest
9 years 21 days ago

Head to head, Walmart wins. Better selection, better service, better environment, better brand and pretty much the same prices. Wally wins

However, the dollar stores (all combined) are opening up to the tune of about 4 a day across the country. It’s going to be a long time before the turtle catches that hare.

Janet Dorenkott
Guest
Janet Dorenkott
9 years 21 days ago
This is interesting because a few years ago, a Walmart went in about a block from the dollar store by my mom’s house. I wondered what would happen to the dollar store. My mom told me it’s even more crowded than before. She goes to Walmart, but she also still goes to the dollar store. Why? Perception and differentiation. Everything is a dollar. And I’ve been in there, they may not have the best price on Windex, but their jumbo jug of glass cleaner is $1. Also the store is smaller and easier to get through but they also have off things you just want to buy. Things you don’t find anywhere else. If you are heading to a birthday party and have no money, you can find something for $1. Chances are the kid will like the $1 gift best. You can also find great gag gifts and things for parties. I walk into a dollar store to get my mom paper plates for $1 and leave with a $100 bill and a car… Read more »
Shilpa Rao
Guest
9 years 21 days ago
As Paula rightly pointed out, opening a ton of neighbourhood stores and curating the assortments for local needs might be challenging for the scale of Walmart. Understanding shopper behaviour is the key for any retailer’s success. Typical customers for dollar stores could be segmented into several types. There are those who are trying to make ends meet. They like the dollar format and know that anything they pick in the store is in the price range, unlike Walmart, where some prices are higher and others lower. They shop for cheap food and household products, mostly no frills. They are highly unlikely to switch to Walmart. Then there are moms with larger families who are on a low budget and are looking for value for their family, they are typically shoppers in stationary, accessories and household categories. Though they might shop at Walmart, they surely would visit dollar formats too. Then there are browsers who like spending time at dollar stores and browse of unique products at cheaper prices. They know they are going to get… Read more »
Jerry Gelsomino
Guest
9 years 21 days ago

I worked with Dollar General just before leaving the U.S. The evolution of the two companies is very similar, only the size of the stores was the difference. The people at DG are very smart and know their customers well. They will do well against the competition. That is until Walmart begins to compete with price and quality slashing.

What can Walmart do better than Dollar General or any of the other local dollar stores? That may be the sign of who wins.

Jerry Gelsomino
Guest
9 years 21 days ago

I’ve re-read some of the comments made by others and understand the misconception with the ‘dollar’ name. From what I learned in working with DG, “only costs a dollar” stores began AFTER Dollar General started business. Please Dollar General people, correct me if I’m wrong, but I was told the name originated from a strong identity standpoint, not how much things cost in the store.

Marla Simpson
Guest
Marla Simpson
9 years 11 days ago

The “dollar” name in dollar general isn’t saying that things are a dollar or less. It stems from years ago that all the prices were “whole” dollar amounts, i.e. $10 versus $9.99. And if people would actually watch what they were buying, they would notice that they aren’t really “saving” anything.

Dollar General has a lot of the name brands and great quality, but like Walmart has things special made for their stores. So while you look at, say, a bottle of shampoo, it may be $3.50 at both a big box or drug store, but at the Dollar General the size is usually a small percentage smaller. So like everything else in every other category of shopping, you have to look at multiple things to compare. Until the consumer is willing to do that, every category of store will have a chance to make it, no matter what.

ivonne RODRIGUEZ
Guest
ivonne RODRIGUEZ
8 years 9 months ago

No. Customer service + quality products.

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