CHICAGO -- Dollar-store proliferation continues as Dollar General Corp. last week opened its 11,000th store, becoming the retailer with the most stores in the United States. Goodlettsville, Tenn.-based Dollar General said it anticipates opening 650 new stores in 2013. But it is not just discount shoppers taking advantage of the discount prices at dollar stores, which are enhancing their convenience offers and merchandise mix.
According to Mintel, just under one-third (32%) of respondents from the highest-income households (more than $150,000) claim not to shop at dollar stores, and half (50%) in this income group say that they are shopping at dollar stores the same amount this year compared to last year. But a further one in 10 (10%) are doing so more than last year. This is compared to only 8% in the lowest income group (under $25,000) who say they don't shop at dollar stores.
Some 78% of dollar store shoppers say that stores are conveniently located, making it easy for them to shop in this channel, and almost three-quarters (74%) of dollar store shoppers think that dollar stores offer better prices than other retailers; however, convenience and price are not the only features driving consumers to these retail havens. Indeed, 59% of Mintel respondents say these stores are pleasant to shop in, while 54% believe brands and products sold at dollar stores are just as good as other retailers.
"Dollar and discount stores benefit from continued consumer caution regarding spending, as well as an improved level of acceptance and satisfaction of the products offered and the shopping experience in these channels," said Ali Lipson, retail analyst at Chicago-based Mintel. "However, some consumers do have a perception of lesser quality offered at these retailers, thus choosing other channels over dollar and discount stores. In order to reverse this perception, dollar and discount stores need to promote brand name offerings to those who are unaware that well-known brands are offered at these stores."
While it's not surprising that dollar store shoppers in lower-income households are likely to say that dollar stores offer better prices than other retailers, those in the highest household income group are likely to agree with this statement as well. Some 60% of respondents who have shopped at dollar stores and live in households earning $150,000 or more agree with this; however, this group does tend to have an issue with the brands and products sold. Dollar store shoppers who live in households earning less than $25,000 are satisfied with the selection (64%), while only 34% of those in $150,000-or-more households find the brands and products at dollar stores just as good as other retailers.
Younger men and women, those aged 18 to 34, are more likely than those in other age groups to say they are shopping at dollar stores more often this year compared to last year (33% of men and 31% of women versus 24% of all respondents).
"Younger consumers are an important group to target for dollar and discount stores. This group is likely to be from lower-income households as many may be students and others who are starting out in their careers and could benefit from the discount prices and convenience of these venues," said Lipson.
And the channel continues to become more competitive with convenience. BusinessWeek reported that Family Dollar, Charlotte, N.C., is expanding its cigarette and food offer. It found that many of its customers smoke, and smokers tend to make frequent trips to buy cigarettes. Food is also something people buy frequently, so the combination hopefully would boost traffic. The chain has teamed up with distributor McLane Group, Temple, Texas, to add refrigerated and frozen foods such as DiGiorno Pizza, Eggo Waffles and Stouffer's Lasagna.
So far, it's working, said the report. The company reported that in the past year, "sales were strongest in the consumables category," which includes food and tobacco as well as health and beauty aids, paper products, household chemicals, hardware, and pet supplies. The category, by far the company's largest, increased 16.9%, to $7.5 billion, in the 12 months ended in August--driven primarily by strong growth in food, tobacco, and health and beauty aids.
The discount chain's typical tobacco sale is $13. About 60% of shoppers who buy tobacco buy an additional $4 worth of goods, COO Michael Bloom said. That's a boon to a store where many items are $1 or less, and most items are less than $10.
"The reason we did tobacco was to help solidify our refrigerated and frozen-food supply chain, and it has done that," Bloom said.
The 7,900-store chain plans to tweak its food assortment every year based on consumer feedback. CEO Howard Levine hinted at "a major food set coming that will impact the back half of our year," the report said.
But it's not all the dollar channel's windfall. A separate report by The Hartman Group Inc., Bellevue, Wash., said that today's consumers shop across channels. Consumers turn to dollar stores for standard items on their grocery list--often from national brands. For many consumers, the dollar channel is a regular stop on the consumer's stockup trip. They browse for items they typically buy at a regular grocery store and are rewarded with significant savings without compromising on the products and brands they prefer.
But while 42% of all primary shoppers frequently shop dollar stores (more than once a month), consumers are more likely to make use of other channels for purchasing food and beverage ahead of the dollar store channel, the report said.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.