Dollar, drug stores refine food strategies

Supermarkets that fail to compel shoppers with competitive prices, convenient meal solutions and other choice elements of a preferred food store become more substitutable

Supermarkets that fail to compel shoppers with competitive prices, convenient meal solutions and other choice elements of a preferred food store become more substitutable – and more vulnerable to encroachment by dollar stores, drug chains and other non-traditional food outlets.

The Lempert Report has written often about how consumers’ search for cheaper food has changed their buying habits and has them more willing to visit different stores for a deal. As item merchants, dollar stores play this to the hilt – and Rite Aid, like Walgreens and CVS before them is segmenting opportunities for its food presentation.

For instance, Bob Sasser, president and CEO of the 3, 925-store Dollar Tree Stores, told securities analysts recently that, “food and health and beauty care were among their top performers….We’re vigilant about understanding what our customers need, and we do our best to give it to them….We’re not locked in to any specific item. We do not use planograms…that gives us the flexibility to move quickly from item to item….We’re in control of our mix and…margins….We are consistently able to manage through economic cycles and buying cycles by changing the product or changing the source.”

It is hard for more consistent category-driven supermarkets to compete against such pure price opportunism since expectations of variety, brand availability and service are so much greater in their stores. More to contend with: Dollar Tree is also continuing its measured expansion of frozen and refrigerated products, currently in 1,677 stores.

“In markets where the economy is especially bad and…unemployment is especially high, we do see an increase in our share of needs-based products,” added CFO Kevin Wampler in the Dollar Tree call, showed the Morningstar.com transcript.

Other low-priced operators are also making food advances: 

• The 99 Cents Only chain is six months into an improved quality and presentation program for perishables that includes produce, bread, milk, deli, ice cream and other frozens, CEO Eric Schiffer told analysts.
• The 9,000+-store Dollar General chain has expanded food offerings and saw performance of its private label food line, Clover Valley Foods, contribute to a rise in PL consumables penetration this past fiscal quarter to 21.7%.

Meanwhile, Rite Aid and Save-A-Lot entered into a licensing agreement to add the discount, limited-assortment grocery store concept to Rite Aid’s ten stores in the Greenville, SC market. Rite Aid will continue to own and operate the co-branded Save-A-Lot Food Stores/Rite Aid Pharmacy sites. The format will include fresh meats and produce.