Family Dollar Plans to Tap Beer & Wine

Quest for "new traffic-driving categories" follows food, tobacco initiatives

Greg Lindenberg, Editor, CSP

Family Dollar beer wine (CSP Daily News / Convenience Stores)

MATTHEWS, N.C. -- Family Dollar Stores Inc., in an effort "to strengthen its value proposition … and improve its financial performance," is planning to add beer and wine to its merchandise mix in its fiscal 2015, along with other recently implemented or pending initiatives that could increase cross-channel competition with convenience stores.

The dollar store chain, which reported net income of $81.15 million in third quarter of fiscal 2014, compared to $120.9 million in the same period of fiscal 2103, will close 370 underperforming stores by the end of the year.

"Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment," said Howard R. Levine, Chairman and CEO. "We are pleased that our comparable-store sales results in the third quarter in all four merchandise categories improved relative to our second quarter results. Although our sales results remain below our expectations, we are encouraged by the improving trends."

During the company's earnings call on July 10, Levine said, "Given the competitive and economic environment over the last couple of years, we continue to introduce new traffic-driving categories. Building on our food success and the decision to introduce tobacco, in fiscal 2015 we plan to begin a multi-year roll out of beer and wine."

He added, "From our research, we know that customers spend about $6 million on an annualized basis on adult beverages and our test has shown that our average beer and wine basket is two to three times larger than our average basket. We will have a limited number of stores selling beer and wine by the end of 2014 and plans to accelerate the rollout in fiscal 2015."

To make room for beer and wine, the stores will tighten up other "consumable categories that may not been as productive as we like as well as some of the discretionary categories," Levine said. While the chain currently is dealing with it "on a store-by-store basis," it is developing a layout plan for new and renovated stores.

"While it is a lower margin category, what we're also excited about is the size of that basket being two to three times what our average basket is," he said. "The devil is in the details … to determine what the appropriate assortment is and there's some regionality to that decision."

He said that some states do not permitted retailers to sell beer and wine, and there may be stores that can't accommodate it.

Family Dollar has been testing beer and wine in about 200 stores, and "we had our [highest] beer sales over this July 4th weekend that we've had since we started the tests, so we continue to grow and continue to build on that momentum," said Levine.

The company has also lowered prices on nearly 1,000 basic items, investing more than $50 million, on an annualized basis, "to deliver more compelling values to customers."

And building on efforts to capture more food trips, Family Dollar intends to further expand its cooler program beginning in fiscal 2015.

Matthews, N.C.-based Family Dollar has more than 8,200 stores in rural and urban settings across 46 states.