MATTHEWS, N.C. -- Family Dollar, the country's second largest dollar operation with 7,100 stores, will start selling cigarettes and tobacco products in the next several months.
While the other major dollar chains--Dollar Tree, Dollar General and 99-Cents have stayed away from cigarettes--Family Dollar sees a ripe opportunity to garner share from convenience stores and drug chains.
"Tobacco is about a $90 billion business that drives very frequent trips," Family Dollar president and COO Michael Bloom said recently on a conference call with analysts.
Noting his chain's core consumer earns $40,000 or less, Bloom added, "Our customer research tells us that Family Dollar customers over-index on cigarettes and tobacco products. Soon, our customers will be able to come to our stores for these products."
Unlike some of its competitors, Family Dollar does not confine itself to items $1 and less. To the contrary, it boasts an assortment of major brand products with rings well above $1, such as garden hoses for $10, 75-ounce liquid Tide for $9, Hefty trash bags for $4.50.
C-stores and tobacco shops should take note of Family Dollar's latest foray into their core category.
"This shift is notable because of the size of the dollar store footprint," Christina McGlone, tobacco analyst at Deutsche Bank, says in her note, pointing out Family Dollar's store count is larger than 7-Eleven, the c-store channel's largest operator.
She also sees the move benefitting the tobacco sector. "While this is clearly not a game changer, we expect it could be a slight positive for tobacco industry over time.
"While we expect it would largely cannibalize other channels, it could expand distribution, with tobacco consumers lining up particularly well demographically with dollar stores; [and] help pricing/margin leverage of tobacco companies when negotiating with retailers, particularly if tobacco is more of a loss‐leader in some dollar stores."
Calls Monday to Family Dollar were not returned. While it remains unclear which brands Family Dollar will carry or the amount of back-bar space it will allocate, the move continues the company's transition into becoming more of a discount grocer, where consumers can purchase frozen goods and staples.
The Huffington Post recently reported that Family Dollar had increased its inventory of "consumables" by 18% since January 1 and that it planned to double its freezer and refrigerator space by end of 2012.
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