CHICAGO -- More and more, the magic $1 price is popping up in supermarkets, discount chains and convenience stores as retailers react to the phenomenal growth of dollar stores, reported the Milwaukee Journal Sentinel. Rooted in the South as a shopping venue that appealed mainly to low-income shoppers, the format has become mainstream and popular with consumers at all income levels, according to Mary Pietsch, vice president and Homescan group director for AC Nielsen.
The number of dollar stores in the United States has increased from 11,000 to 17,000 [image-nocss] since 2000, Pietsch said. New stores are being built in neighborhoods that are convenient to shoppers, and they are cutting into the number of trips they make to grocery stores, she said. "Everybody loves a bargain," she told the newspaper.
Earlier this month, Pietsch taught a class in defending against dollar stores at the Food Marketing Institute (FMI) trade show in Chicago. She suggested conventional stores adopt a copycat strategy and add dollar-price items, either in a dedicated space or scattered throughout the store.
In the past two years, retailers such as ShopKo Stores Inc., Target Corp. Roundy's Inc. and Albertson's Inc. have jumped into the dollar price game, although they are loath to admit that they are responding to dollar stores, according to the Journal Sentinel report.
"Originally it was done because of customer requests; then we were approached by vendors," John Vigeland, spokesperson for Green Bay, Wis.-based ShopKo, told the paper. ShopKo devotes 24 feet of display space to dollar items at the front of the store. The company rolled out the idea last year, offering dollar-priced food, health and beauty products, cleaning supplies and general merchandise. The merchandise mix frequently has new offerings. "This whole category is growing by leaps and bounds. For us it's growing like crazy," he said. "A lot of manufacturers are coming out with stuff for this aisle."
Target started testing the "One Spot" in January 2004 and extended the dollar-price section to all stores in September. "We realized that our guests are always looking for values," spokesperson Aimee Sands told the paper. Target changes its dollar offerings every six to eight weeks, selling items not found elsewhere in the store, in an effort to create a treasure hunt experience for shoppers. Jumping insects, flashing spiders and refrigerator magnets, at four for a dollar, were on shelves last week.
Milwaukee-based Roundy's recently started promoting "10 for $10" items in its Pick 'n Save stores, the report said. Unlike the discounters, Roundy's keeps its dollar-price foods in their normal shelf space and calls attention to the specials with fliers and shelf signs. "They're simply taking product they're already selling and making it a dollar," said consultant Neil Stern, a partner at the McMillan & Doolittle retail consulting firm in Chicago, about the typical "10 for $10" promotions now in many supermarkets. Some of the dollar items might have been marked up from 94 cents, he told the paper.
As dollar stores have seen growing success, retailers are responding with the dollar aisles or dollar-pricing, the report said. But that may not be a silver bullet, some retail consultants say. "What makes the dollar stores a significant factor is there's so much stuff in there for a dollar," Britt Beemer of America's Research Group in Charleston, S.C., told the Journal-Sentinel. It's less compelling when you take the concept and put it in a grocery store, a Target or a Wal-Mart, he said.
Stern said he believes that even with the dollar pricing, the best that grocers and discounter are going to be able to do is to reduce the number of trips people are making to dollar stores. "But you always have to be careful when you copy somebody's format," Stern said. Dollar stores typically have annual sales of $150 per square foot, while supermarkets do about $400 per square foot, he said. So a grocer or discounter could end up trading customers down by using floor space for dollar items instead of higher-margin items.