An entertaining vibe and solid assortments of essentials - increasingly led by food – make dollar stores attractive.
Originally published in Facts, Figures & the Future.
Dollar stores have appeals that could grow share significantly, in our view at F3.
Similar to the way Apple and Uber could win the world of mobile payments (see related story in this issue of F3) because they bring ease and fun to consumers, ubiquitous dollar stores could win trips for several reasons: They often foster a treasure-hunt shopping experience that entertains and rewards with found essentials. This element is missing from shopping in so many channels that F3 sees this as a positive differentiator.
Also, dollar stores are convenient in two ways: small formats that people can get in and out of quickly if they choose, and accessible locations. Their food presence continues to grow, including fresh, frozen, dairy and produce. Dollar General’s expansion of perishable coolers has been “a key component” of the chain’s strategic growth, says senior director-procurement Rich Szellan. Family Dollar recently expanded its food mix by 400 items, and lowered prices on 1,000 other branded items in food, home care and other categories, across its 8,000+ stores.
F3 sees initiatives like these as direct responses to SNAP benefit cuts and the continued plight of struggling U.S. households. More than one-third of Americans (35%) currently have debt in collections, says a new study by The Urban Institute. The net worth of typical American households fell by about a third between 2003 and 2013, shows Russell Sage Foundation research.
Moreover, Pew Research Center analyzed federal government data and identified a rise in stay-at-home mothers, following three decades of decline. “The share of mothers who do not work outside the home rose to 29% in 2012, up from a modern low of 23% in 1999,” it says. “The broad category … includes not only mothers who say they are at home in order to care for their families [including some affluent moms], but also those who are at home because they are unable to find work, are disabled or are enrolled in school…With incomes stagnant in recent years for all but the college-educated, less educated workers in particular may weigh the cost of child care against wages and decide it makes more economic sense to stay home,” Pew adds.
Dollar stores could be a safety net for many, while they up their mix to add appeals further up the demographic ladder. The dollar channel is already one reason for Walmart’s lackluster sales trends. They’ll become an increasing threat to supermarkets too, as they use food increasingly to drive traffic (much as drug stores do) and retain customers they gained in the recession and post-recession years.
Although IBISWorld predicts a 4% channel sales dip in 2014, after four years of 0.9% average annual growth, according to a Yahoo! Finance account, F3 anticipates that cost cuts and industry consolidation (the pending Family Dollar-Dollar Tree merger at presstime) will make remaining dollar stores more fearsome local competitors. F3 also expects dollar stores to invest in technology to become more refined operators – and also begin to sell more goods into the $9.99 range, in order to fill more value-seeking needs of middle and upper class shoppers and build more productivity per square foot.