Dollar stores open wide for food sales

March 09, 2012

This low-priced channel, a star in the slow economy, has sharpened its food strategies.

Supermarkets that don’t yet focus on dollar stores and the trip threats they pose, absolutely should. They’ve proliferated in the down economy. As their convenience grows, they’ll likely capture more fill-in food and beverage sales. 

The top four dollar chains in the United States (Dollar General, Family Dollar, Dollar Tree and 99¢ Only) already have more stores than the nation’s major drug chains (Walgreens, CVS and Rite Aid) by a 21,500 to 19,700 margin, according to Colliers International, the global real estate services firm, in its white paper Dollar Days:  How Dollar Stores Are Growing in a Weak Economy.

And they have a voracious appetite for food sales and food-based trips – with perishables a key part of their offer to meet fill-in needs and differentiate from drug-store food assortments, which aren’t always as expansive in frozen and refrigerated merchandise, notes F3. Consumables sales have been strategic to dollar-store growth since the earliest spottings of expensive cars in their parking lots at the start of the recession. Everyone needs to eat, and everyone loves a deal, it seems.

Dollar Tree, for example, installed freezers and coolers in 376 net additional stores in 2011, including 125 new stores, president and CEO Bob Sasser told Wall Street analysts last month. This means the chain offers frozen and refrigerated foods in 2,220 stores, about half of its total – driving traffic “which provides incremental sales across all categories, including higher-margin discretionary product,” he said. Food, snacks and beverages were also among Dollar Tree’s best category performers in the latest quarter, and the chain will install freezers and coolers in 325 stores in 2012, said Morningstar.

A similar trend is evident at Family Dollar, where consumables sales advanced 12% in its fiscal Q4 2011 due to expanded assortments, more intuitive merchandising adjacencies, new fixtures, navigational signage, and more promotional activities, CFO Ken Smith and CEO Howard Levine told analysts in an autumn call, said SeekingAlpha. The result:  consumables led the chain’s 5.5% full-year rise in comp store sales, and accounted for 69.1% of sales in Q4, up from 67.3% in the same period a year ago.

Presenting at this winter’s National Retail Federation Conference, Scott Zucker, vp-business services at 7,100-store Family Dollar, noted how consumables have been a key part of the chain’s new path forward and coolers have grown to 12 per store. The coolers attract shoppers who buy more than just food, chief merchandising officer Dorlisa Flur told USA Today recently.

“Long known for the value they provide with convenience positioning, edited assortments and low prices, the four leading national chains have emerged recently as viable, rapidly expanding players in the niche food market,” wrote Colliers. The white paper detailed how the four dollar-store chains stocked a higher percentage of consumables since 2008.  At Dollar General, for example, this raised consumables to 71.6% of total sales in 2010.

“In smaller markets, it will be the local grocers who can’t compete with the economies of scale made possible by dollar stores’ national distribution networks and marketing programs.  In larger markets, dollar stores are likely taking marginal sales from larger box retailers, as some customers seek to avoid the endless parking fields and crowded stores,” the paper concluded.

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