Dollar stores gain marketshare with consumables

Value discounters Dollar General and Family Dollar have flourished in a challenging economy between 2010 and 2012. The secret to significant sales increases nipping marketshare from traditional grocers and mass merchandisers alike is a limited assortment of everyday items at competitive price points.

This nimble store category has established itself as a destination for fill-in trips, appealing beyond the lower-income demographic to include middle income and upper income shoppers seeking to stretch dollars in new ways, according to a recent study by retail experts Kantar and CROSSMARK. This value discount channel was added to the 2012 report for the first time, so there was not comparable information to the 2010 study.

Major players such as Dollar General and Family Dollar are expanding their assortments in consumables categories while simultaneously remodeling stores to improve overall shop ability and highlight these categories.

Retailers have implemented more productive fixtures across the store that allow for more assorted products to be displayed in the same amount of space. This reduces the need for value discounters to reduce general merchandise space as other channels have done.

The study also notes the growth of lower-margin consumables has had an adverse effect on gross margin rates in this channel. This dynamic is expected to create pressure on operators to more quickly turn the higher-margin general merchandise.

$STORE COMPARISON
Dollar General devotes 22.1% of its space to dry grocery, this compares to 14% in the Family Dollar model. The dairy, bakery and frozen space allocation is comparable between the two chains.

Non-food grocery comprised 24.1% in the Family Dollar model, compared to 19.5% in the Dollar General store, according to the space study.

General merchandise hardlines allocation is similar among the two chains between 25 and 26%. Softlines, which includes apparel showed a little more spread with Dollar General at 14.2% against 17.9% at Family Dollar.

DOLLAR GENERAL
Tennessee-based Dollar General has been on an aggressive growth trajectory. Total sales revenue through the first half fiscal 2012 totaled $7.849 billion, up 11.71% from the same time period in fiscal 2011.   

Net profits totaled $427 million in the six month period, up 40.9% in the year-over-year period.

Consumable sales totaled $5.789 billion on Aug. 3, the halfway mark in fiscal 2012. Consumables rose from $5.140 billion in the same period of 2011.

The chain also had reported a 210% increase in seasonal sales to $1.061 billion in the same period. The home products and apparel categories grew sales at a substantially slower rate, up 9% and 3.9%, respectively.

In the most recently reported quarter, Dollar General posted a 5.1% increase in same-store sales.

Dollar General has more than 10,200 stores and says it plans to remodel or relocate about 575 of them this year. The value discounter stands firm with its plan to open 625 new stores in fiscal 2013.

FAMILY DOLLAR
This value discounter primarily targets the convenient, solution-driven trip as demonstrated by its tailored assortment. The core customer – 54% of Family Dollar shoppers have a household income of less than $40,000 annually – another 24% earn less than $20,000 a year.

Family Dollar’s space allocation is under-indexed against the channel in the edible food grocery and health and beauty aids categories. This chain over-indexes in the general merchandise category against the broad value discount channel, according to the study.

At the time this study was complete Family Dollar had not completed its store remodels which includes increased shelf heights.

North Carolina-based Family Dollar posted record sales for its fiscal year ended Aug. 25. Net sales for fiscal 2012 increased 9.2% to $9.33 billion, and net income rose 14.7% to $3.58.

“Fiscal 2012 was a year of great progress for Family Dollar. We expanded our merchandise assortment to increase our relevancy to our customers; we continued to improve the shop ability of our stores; and we repositioned our leadership team to better support our growth,” said Howard R. Levine, Chairman and CEO.

Family Dollar opened 475 new stores, including 41 stores in California in fiscal 2012. Another 854 stores were renovated, relocated or expanded. At the end of fiscal 2012 Family Dollar had more than 7.400 stores.

The retailer also said it substantially expanded its assortment in key consumable businesses like food and health and beauty aids in addition to new categories such as tobacco, magazines and gift cards.