Dollar Stores Make Room for Beer

Minimal store set a bigger threat to drug stores ... for now

Samantha Oller, Senior Editor/Fuels, CSP

[Editor's Note: Channel blurring has taken a serious turn as dollar-store chains try to grow trip frequency and basket size. In this second of a two-part series, CSP Daily News looks at how and where the larger dollar-store chains are entering two categories the convenience store industry has long considered its own.]

SEATTLE-- Another complex category that has entered dollar stores' retail equation is alcohol. At Dollar General, beer has been rolled out to 3,900 stores or about 40% of the chain, with a goal of reaching 5,000 by the end of the year.

"When beer is in the basket, those stores have a 1% additional comp, so we're real pleased with what we're seeing," CEO Richard Dreiling said during an earnings call earlier this year. The company has also launched a private-brand wine and plans to begin sales of spirits.

(Family Dollar is currently testing beer, with no timeline for completion.)

Joe Vonder Haar, beverage industry consultant and managing partner in iSEE Store Innovations LLC, St. Louis, said beer is a natural way for dollar stores to build the basket.

"They've looked at their core consumer; it's not a matter of bringing new consumers in, but just converting existing consumers in their stores who are already there," he told CSP Daily News. "It's a pretty simple equation in terms of the overall opportunity given the size of the category."

After visits to St. Louis-area Family Dollar stores, Vonder Haar describes the beer offer--two cooler doors and two shelves of warm packs--as a "very limited assortment," composed mainly of premium and subpremium beer. Smaller packs are also the focus, with 12-packs the maximum pack size. Based on the assortment, he suspects that the 12-pack of Bud Light cans is the No. 1 SKU.

This compares to c-stores, where Bud Light 12-, 18- or 24-packs are typically the top selling SKU, depending on the current promotional strategy of the brewer.

Also notable: The dollar stores sell no single-serve beer, from which c-stores generate nearly one-half of their beer sales, and which also provides the highest margin. "The sweet spot for convenience is the 'for me, for now' occasion," Vonder Haar said. "There's only a small piece that [dollar stores] are going after. It is fill-in, not necessarily for immediate consumption."

It serves as a nice add-on that builds the basket for their customer, said Vonder Haar. The prices on the multipacks are competitive, he said, although not the lowest in town.

In the short term, Vonder Haar says dollar stores pose a greater competitive threat to drug stores, whose beer sales also tend to be fill-in, impulse-type occasions: "In the longer term, if they go after better merchandising ... and go after smaller single-serve pack sizes, because of their consumer profile, I think the biggest threat is in a convenience store."

To compete, Vonder Haar recommends c-stores focus on their strengths: variety, price competitiveness and promotions. For example, he highlights monthly promotions popular with beer wholesalers, such as tickets off a local baseball game or a sweepstakes. "That's an area that the dollar category is just not used to participating in," he said. "If they begin to effectively leverage the DSD system ... that's an opportunity for them."

C-store retailers would be wise to take advantage of those promotions when available.

See Related Content below to view Part 1 of the series. For more on dollar store channel blurring, see the October issue of CSP magazine.