TOP DOLLAR Dollar stores lead the way when it comes to growth, and many are adding space for high-turn frozen and refrigerated items that boost basket size and drive store visits. Once viewed primarily as a home for overstocks, off-brands and cheap trinkets not expected to survive the ride home, dollar stores have become a retail force to be reckoned with. Annual sales are approaching $55 billion, with compound annual growth rates averaging 6.5% since 2000 — well above the 4% recorded by conventional grocery, claims one report. And the growth shows no signs of slowing. “We forecast the discounter channel will grow approximately 6.6% annually through 2020,” says Mike Paglia, director of retail insights for Norwalk, Conn.-based Kantar Retail. “That [makes it] the fastest growing channel of brick-and-mortar trade that we track.” He adds that, from a dollar volume perspective, that’s a $14 billion growth opportunity for edible groceries. Yes, manufacturers have taken notice. In fact, CPG More than twice the size of a traditional store, Dollar General’s new Dollar General Market format features expanded frozen and refrigerated sections. DECEMBER 2015 www.frbuyer.com 41 giant General Mills reported sales of its products in the dollar and drug channels jumped 8% in 2014. While mainstream supermarkets continue to increase their focus on better-for-you foods and beverages, dollar stores still move a lot of belly filler — the lowerpriced processed foods more affluent shoppers are trying to avoid but lower-income consumers can afford. While there are certainly challenges associated with selling in the dollar store space, “Manufacturers realize there’s only so much growth to be found,” says Don Stuart, managing partner at Wilton, Conn.-based Cadent Consulting. Many legacy brands in particular have hit their limit in traditional grocery, “So they’re searching for growth in ‘less comfortable’ formats like dollar stores where they may have to make some adjustments to their product or packaging [to hit a certain price point]. But we’re talking about 25,000 stores with growth versus the same number of grocery stores with no growth,” so it’s kind of a nobrainer. He adds, “I think most of them will find something in their portfolio that works.”
 AND THEN THERE WERE TWO… Almost 70% of dollar-store revenue is controlled by two players: new No. 1 Dollar Tree, Chesapeake, Va., which completed its acquisition of former No. 3 Family Dollar this summer, and Goodlettsville, Tenn.-based Dollar General. While the Dollar Tree-Family Dollar merger has been a bit bumpy — shares have fallen 20% since July and forecasts for the third quarter have been lowered — industry observers expect big things once the integration is complete in 2018. In the meantime,
Dollar General is working overtime to reclaim its leadership position. It expected to open 730 new stores by the end of this year and 900 more in 2016 for a total of 13,400-plus (versus more than 13,800 for Dollar Tree). Even more significant are plans to add space for frozen and refrigerated. “Dollar General has been working hard to expand the cooler presence in its stores for several years now,” says Paglia. “New stores have about eight to 10 doors each.” He adds that the company is also retrofitting existing stores to boost the number of coolers from four to five to eight to 10. While a Dollar Tree spokesperson declined to discuss the chain’s plans for Family Dollar’s frozen and refrigerated departments, CEO Bob Sasser said in a second quarter conference call Sept. 1 that the company had installed freezers and coolers in 255 additional Dollar Tree stores so far in 2015, bringing the total number of stores under that banner that offer frozen and refrigerated products to 3,875 (out of 5,583) or 69%. That’s up from 43% in July 2010. Why the additional emphasis on frozen and refrigerated? Sasser says that although frozen and refrigerated products are generally lower-margin, they’re fasterturning. “
The increase in shopping frequency provides Dollar Tree the opportunity to drive incremental sales across all categories, including our higher-margin discretionary products.” Indeed, one report indicates that, at Dollar General, baskets with a perishable item are 50% larger than the chain’s average — a pretty powerful motivation to add space for those products. But there’s more to it than that. By offering a wide variety of foods, including frozen and refrigerated products, dollar stores in underserved rural and urban areas in particular can make the jump from fillin to secondary or even primary retail destination. That appears to be the thinking behind Dollar General’s new Market format. More than double the size of its average store with expanded frozen and fresh offerings, including produce, Dollar General Markets are like mini Walmarts, making them more of a threat than dollar stores to traditional supermarkets, says Stuart. He adds that because they sell national brands, these hybrids are also well-positioned to compete against hard discounters like Aldi and newcomer Lidl, which is already setting up shop in the Mid-Atlantic ahead of its 2016 arrival. “The value end of the retail spectrum is getting more crowded and more competitive,” adds Paglia. “But at the same time, it’s giving shoppers more choices than ever… Conversely, it creates additional competitive pressure for ‘traditional’ outlets seeking to attract that low-income shopper. They’ll either have to differentiate to attract that consumer or shift their efforts to more affluent shoppers.” n