Is a dollar store price war coming?

By George Anderson

JUNE 18, 2015

For the majority of regular dollar store shoppers, the appeal is largely about price. So what else can a chain that has lost market share in the discount space do but lower its prices? That appears to be the scenario set up for Family Dollar as the company awaits the closing of its merger with Dollar Tree.

According to analysts at Sterne Agee, via The Charlotte Observer, in a comparison of 42 items purchased at Dollar General, Family Dollar and Walmart, the Family Dollar basket came to $151 compared to $150 for Dollar General and $149 for Walmart. Family Dollar's prices have been higher than its main competitors for several years, according to the research.

"Clearly, going forward, once the Dollar Tree merger closes in early July, we would expect to see more aggressive price action out of (Family Dollar) and will be monitoring this closely," wrote the Sterne Agee analysts.

Source: Family Dollar

While lower pricing may be coming, it may take more than that to reinvigorate Family Dollar's business. In April 2014, Family Dollar announced it was cutting prices on about 1,000 items in an effort to become more competitive following a quarter in which the chain's sales fell about six percent.

Since then the company has seen some improvement, but has continued to lose ground to stronger competitors within and outside of the dollar channel. When the company reported its second quarter financials this past April, overall sales were up three percent while comparable store sales were up just 0.5 percent. Family Dollar reported trips to its stores were up, but average rings were down.