Bucking the Trend

Dollar stores, limited-assortment stores faring well in down economy

GOODLETTSVILLE, Tenn. -- Despite the poor economy that is plaguing most retailers, business is good at Dollar General Corp., with first-quarter sales and profits up in the double digits, according to a recent MediaPost report. The Goodlettsville, Tenn.-based dollar store company said its first-quarter sales rose 15.7% to $2.78 billion, and net income rose to $83 million from $5.9 million a year ago. On a same-store basis, sales gained 13.3% for the quarter. Many of these gains are due to the poor economy, as well as broke consumers looking to save money wherever they [image-nocss] can. But there is also growing evidence that consumers, especially those in higher income brackets, like shopping at dollar stores, which tend to be smaller and more manageable than other discounters.

"Customers are responding positively to the changes we are making in our stores, as well as to our continued commitment to providing convenience and great value," the company said in its earnings release, cited by MediPost. "Our loyal customers are shopping with us more often, and we believe that we are also attracting new customers."

Dollar Tree, a Chesapeake, Va.-based competitor, also reported banner results, with its first-quarter sales rising 14.2% to $1.2 billion, and comparable-store sales rising 9.2%. "As consumers are searching for ways to balance their budgets in these uncertain times, more of them are turning to Dollar Tree and finding exceptionally high-value merchandise and a fun, convenient shopping experience."

Dollar stores are increasingly appealing to many types of shoppers, said the report. Nielsen reports that high-income shoppers spent 18% more at dollar stores in the second half of 2008 compared to the prior year, and that growth at these stores is outpacing other shopping channels at both and high and low income levels, attracting an estimated 65 million U.S. consumers in 2008. Still, lower-income shoppers remain the core business, with Nielsen reporting that 45% of dollar-store sales come from households earning $30,000 a year or less, 47% from those earnings between $30,000 and $99,999, with just 9% from households earning $100,000 or more.

The most commonly purchased household items, Nielsen said, are paper goods, detergent, trash bags and cleaning and laundry supplies, with candy, snacks and cookies the most common edible purchases.

Meanwhile, Aldi, the limited-assortment grocery chain, said it can beat Wal-Mart's low prices "any day." The company just released a study showing that Aldi shoppers spend up to 26% less than those who shop at discounters like Walmart, and up to 37% less than those who shop at traditional supermarkets, reported MediaPost Marketing Daily.

The study compares the cost of 184 items considered "very important to customers," ranging from apple juice to cheddar cheese to frozen chicken breasts, and showed that the Aldi basket averaged $315.29, about $127 less than the average $442.26 for the combination of discounters, big-box stores and traditional supermarkets. More than 18 million Americans are already convinced and shop at Aldi stores sprinkled over 30 states, the report said.

In terms of other limited-assortment stores, Jon Hauptman, a consultant at Willard Bishop, based in Barrington, Ill., said Aldi's rivals includes stores like Sav-A-Lot. "But their No. 1 competitor is Walmart--they're both going after the same price-conscious shopper," he told the publication.

Limited-assortment stores face the same type of consumer resistance that warehouse stores once did, said the report, but once shoppers have "discovered" a new store, "it isn't easy to get them to switch, and I suspect many will continue to shop at these extreme-value stores once the economy improves," he added. "Shoppers are looking to stretch their grocery budgets, and they clearly get more bags of groceries at a store like Aldi. And increasingly, they are willing to trade brand and package size in favor of the absolute lowest price available," he said. "This recession has opened the eyes of many shoppers to limited-assortment stores as legitimate alternatives."

While food price increases are expected to moderate this year, according to the U.S. Department of Agriculture, shoppers are still trying to adjust to the 6.4% increase in 2008.

Supermarkets, which have seen their share of total retail food sales fall from 62.8% to 57.8% between 2001 and 2008, are finding novel ways to compete, he added. Some are varying their private-label strategy--introducing second-tier "economy" lines, priced even lower than their store brands. And some stores are becoming increasingly strategic in promoting private-label brands. Publix, for example, is in the midst of its "Brand Challenge," which it offers several weeks a year, giving consumers up to three free private-label products.

"We've built a reputation for quality private-label products that can save shoppers between 10% and 30% off national brands," a Publix spokesperson told the publication. "Since our store brands are continually evolving, the challenge concept, which we promote in circulars, in-store, and on our website, is appealing to new consumers."