story by Kim Souza
Family Dollar is adding more than 400 food items across its 8,000 stores as company execs prepare to defend their convenience turf against Wal-Mart and other grocers. The discounter also promised lower prices on 1,000 items, including brands like Ragu, Hellman’s and Kraft.
“It’s important for us to constantly evaluate our assortment, making sure that we have the products and national brands that are relevant to her and her family, always at a great everyday value,” CEO Jason Reiser said earlier this month.
The dollar store format has exploded with growth in recent years capitalizing on the consumer’s desire for more convenience — which equals time savings. This quick trip market is valued at $415 billion and comprises some 40% of the consumers’ grocery spend, according to Bill Simon, CEO of Walmart U.S.
He said Walmart U.S. has been able to garner just 10% of this market, which is why they are aggressively rolling out more smaller format stores this year and next. These quick trip market competitors include dollar, drug and convenience stores that have grown by 16,000 units since 2005. In response to the growth, Simon said Wal-Mart is ready and able to deliver convenience with several formats including drive through depots for online orders which are filled at the closest Supercenter or Neighborhood Market.
“Quick stops to pick up a few items or get gasoline are the primary reasons that consumers visit convenience stores. Many are improving their offerings to provide healthier alternatives appealing to shifting consumer tastes, hoping to encourage more visits,” said Ali Lipson, senior retail analyst at Mintel, a Chicago-based research firm.
As product offerings improve at dollar stores, so has the perception of the discount chains, according to recent research from Mintel. Half of survey respondents who earn $150,000 or more said they are shopping in dollar stores the same amount as they did the previous year, and 10% said they are shopping in dollar stores more.
Convenience and price drive shoppers to dollar stores, but more than half of survey respondents also said the stores are pleasant to shop in, and they find brands and products sold there to be as good as those found in other retailers. Still, one in three of the high-income shoppers expressed dissatisfaction with the selection.
Family Dollar isn’t the only discounter adding grocery offerings. Dollar General has expanded the number of coolers in its stores to sell perishable products. Additionally, the company launched a more grocery-oriented Dollar General Market format to compete with conventional supermarkets. Both retailers added tobacco last year which they report has driven more store traffic and incremental sales.
Dollar Tree also mounted its own level of competition in recent months. Dollar Tree has increased the number of freezer and cooler installations to 550 additional stores, up from the chain's original plan of 475. Bob Sasser, CEO and president, said Dollar Tree has refrigerated equipment at about 63% of its store base after the recent expansion.
“We like what [that] does in sales and traffic, and we like what it does in raising the sale of our variety merchandise also. We are also committed to our consumable business. We’re going to drive that part of the business too,” Sasser said. “Our inventories are fresh and our stores are full of exciting merchandise for the spring season."
Analysts expect the competition will continue between the various small format convenience formats given the dollars at stake.
Wal-Mart’s recent opening of Walmart To Go, a hybrid convenience store in Bentonville, is a signal to competitors that the retail giant isn’t going to blindly stand by and concede sales to smaller stores, said Jason Long CEO of Shift Marketing Group.
The retailer said there are no other Walmart To Go stores planned, saying it is merely a concept store. Analysts think the format has plenty of potential.
“Given Wal-Mart’s highly-developed supply chain, particularly in fresh (food), it will go in with a huge advantage. This is particularly true as convenience stores evolve from selling beef jerky, cigarettes and hot dogs on metal rollers and into becoming destinations for healthy snacks and meal occasions,” Carol Spieckerman, CEO of NewMarketBuilders, said of Wal-Mart’s convenience store launch.