Whether it’s due to the popular “treasure hunt” experience, desire for convenience or a growing assortment of products, discount shopping is growing at an unprecedented rate. According to IRI data, as reported by Beverage Industry Magazine, the dollar channel grew 2.2% in dollar sales and 1.3% for unit sales last year. These discount shoppers are mostly comprised of those from middle- and low-income households in need of products that are affordable and easily accessible. And leading dollar stores are positioned for continued growth, as they are seeing higher foot traffic and increased spending on packaged foods, groceries, home essentials, clothes, and personal care products.
Leading Dollar Store Brands
Low price points didn’t stop this retailer from earning the 51st spot on Fortune’s 100 Fastest Growing Companies list for 2018. In fact, this is likely due to the chain’s relatively strict adherence to discount pricing. Unlike at other chains, their items don’t exceed $1. There’s no separate dollar section or high-value items mixed in—walk in with five dollars (plus tax, of course) and you can walk out with five or more items. Stores are heavily stocked with groceries and personal care items to serve as a regular destination for shoppers who tend to be in the lowest income bracket. This strategy works, as Dollar Tree sales reached more than $20 billion in 2017.
Ranked no. 123 on the Fortune 500 list for 2018, Dollar General operates more than 15,000 retail locations in 44 states (with plans to open 900 stores by the end of the year), and reached $23.5 billion in sales in the 2017 fiscal year. To drive its expansion, Dollar General has been enthusiastically blazing growth trails across rural America to increase access to underserved shoppers. However, the discount retailer isn’t limited to rural areas – it’s also moving into larger, urban areas with its DGX concept, as it aims to have 40% of its locations in metro markets. The DGX format is more compact and will appeal to urban shoppers.
Though the national retailer is undergoing a transition, Family Dollar is still putting up impressive numbers. As the company continues its integration with Dollar Tree after being acquired in 2015, recent sales from the Family Dollar banner represented nearly 50% of the company’s consolidated sales. As part of the acquisition, the stores are also being revamped to attract more shoppers and regain sales momentum. So far, the company has renovated 109 Family Dollar stores and re-bannered 17 stores to Dollar Tree stores, for a total of 285 projects. The goal is to undertake 500 Family Dollar store renovations by the end of fiscal 2018.
What Are the Dollar Store Success Factors?
Beyond price and convenience, there are other factors that have led to dollar store success. One, in particular, is its wider product assortment. While grocery stores still have an advantage in terms of fresh produce, dollar stores are gaining market share in other food categories: shoppers can find milk and eggs in Dollar Tree and Dollar General stores, for example.
Furthermore, national brands have also learned there’s no stigma associated with product placement in dollar stores – high-quality items can be offered in smaller quantities or specialty packaging to avoid brand dilution and increase penetration across lower-income households. One consideration for major brands, however, is that dollar stores are increasing their assortment of private-label brands, which will be competing in terms of both shelf space and share of pocket. This also gives them an edge, as store brands go premium and appeal to more shoppers.
What Does Dollar Store Growth Mean For Other Retailers?
One subtle benefit of the dollar store channel’s rapid growth is the data and insight that retailers can leverage in their research and development. The success of the leading dollar store chains tells the story of a shopper who is pressed for time and conscious about their spending. Not surprising, convenience has emerged as the overarching theme for these retailers. Whether it’s the ease of navigating a smaller-format store or the proximity to their homes, dollar stores are positioned to offer convenient shopping trips for discount shoppers.
Also, large retailers can analyze current trends and apply them to their own growth strategy. For example, understanding the type of products that shoppers are looking for in their dollar store experience can provide insight into the products other retailers should offer. The trend towards healthy eating has made grab-and-go dinners and fresh produce even more appealing to shoppers. Presenting these options – items that dollar stores can’t offer in quantity – can help to further attract these shoppers.
Dollar stores also continue to enhance the in-store shopping experience, with lighter and brighter stores, higher quality merchandise and increased offerings of fresh and frozen foods. These areas are likely to continue expanding, making it crucial for larger competitors to understand these trends and look for ways to outdo them. For instance, incorporating click-and collect technology for shoppers to order items online and pick them up at the store meets one of the primary needs of discount shoppers: convenience. Dollar stores are lagging in technology – making it an ongoing point of differentiation for larger retailers.
Dollar stores are emerging as the preferred channel for discount shoppers. In particular, Dollar General, Dollar Tree and Family Dollar has experienced unparalleled growth in the past few years. But as these stores continue to expand, other retailers can analyze their tactics and strategies, and incorporate them to attract their shoppers and see similar success. The key, however, is to put the shopper’s needs first – with convenience topping the list – and find ways to meet their needs in ways that dollar stores can’t match.