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[19 comments]

Family Dollar: Same as Grocery Store, Just Cheaper

November 4, 2009

By George Anderson

Family Dollar Stores has benefited from tough economic times as it has grown its base of customers, including those with higher incomes than the chain's traditional shopper. Now, it is looking to expand on those gains with a new ad campaign that tells customers that the items they normally buy at the supermarket can be found at Family Dollar but at a cheaper price.

James Kelly, president and chief operating officer of Family Dollar, told Reuters that more affluent consumers (those with household incomes up to $70,000) are shopping at the chain's stores but they're "not shopping the whole store."

Family Dollar's answer includes store remodels and its new ad campaign. Store changes include regrouping items to link complementary products and categories, such as baby products, in adjacent positions on the shelf. Stores are also looking to remove clutter and clean up signage to provide a less chaotic shopping experience.

The company's new ad campaign shows popular national brands such as Kraft Macaroni & Cheese with copy that reads: "Exactly the same as the grocery store. We just price them lower."

Discussion Questions: Will Family Dollar's new ad campaign have success in moving consumers from supermarkets to its stores? What are the biggest challenges that Family Dollar faces in its attempt to expand its shopper base?

FINANCIALS:     [NYSE:FDO]

Discussion Questions:

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How successful do you think Family Dollar will be in capturing dollars from grocery store competitors?

Comments:

Family Dollar will probably gain some but I don't think it will be significant. I've been studying their advertisement and found that the items they sell are cheaper that the high-priced conventional supermarkets, but they don't seem to be undercutting Wal-Mart. And even if they did, Wal-Mart will ad match.

I do find that their close-outs, nearly out-dated, or unheard of brands are price competitive. However, there is always that skepticism; wondering how many years ago the product was produced and who really made it.

Family Dollar seems to be filling some voids, especially in the blighted, inner-city areas where supermarkets prefer not to open.

David Livingston, Principal, DJL Research

FD has a very specific and targeted strategy--come in for the advertised specials and pick up a few other items while there. The company has honed its systems and culture to support new growth. It doesn't want ALL your grocery dollars--just some of them. Even Walmart is a target. I think the company will continue to do well.

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Paula Rosenblum, Managing Partner, RSR Research

Two factors will keep Family Dollar stores from huge gains--assortment and location. Dollar stores in general (okay, sorry for the pun) have some stuff that we would find in grocery stores and they sell it cheap. But they have neither the variety nor the breadth of categories that we find in grocery stores. While we are fairly saturated with grocery stores in most trading areas, we are hardly inundated with dollar stores. To have to go out of our way to get to these stores will limit their growth.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

Family Dollar's campaign will likely generate more sales to its existing customer base and may even attract more customers, but its physical plant will prevent it from becoming a major source of groceries for most people. The stores are too small to carry a large variety of items and grocery shoppers are not known for their treasure-hunt mentality. It is more likely to continue to be a competitor to the c-stores than the supermarkets.

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Steve Montgomery, President, b2b Solutions, LLC

Family Dollar should do well with this campaign because it's totally true. The hurdle is to help people understand that the in-store atmosphere and shopping experience is tolerable, or better! Within 5 miles of my office there are two FD stores. One is new and is actually delightful to shop. The other is, well, not so great. But the merchandise and the prices are pretty much the same. One store would get my return visit, the other one might turn me off to the brand completely. That's the risk to this campaign, because shopper experience still counts.

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Anne Howe, Senior Vice President, Shopper Solutions, part of Acosta Mosaic Group

The program will be somewhat successful, but not monumental. FD attracts a certain demographic. That demographic is loyal and will continue to frequent the stores and the advertising serves as a reminder to "oh yeah, pick up some of those grocery items." Don't think it will be a boon to their business but if it increases by 10%, that's huge in this economy.

Attracting new customers should be the focus. The stores are crowded and usually unkempt. Once they get a new prospect in with the advertising, they need to focus on getting them back!

Susan Rider, President, Rider and Associates, LLC

We keep talking about limited variety and selection holding back dollar stores. Meanwhile, the focus on supermarkets is SKU rationalization that aims to do much the same thing.

Food accounts for 20% of Family Dollar's sales. Dollar General is moving in the same direction and planned to add 450 new stores this year. Aldi has over 1,000 stores and is aiming to be national. You can't afford to ignore or downplay this periphery of retailing.

Len Lewis, President, Lewis Communications, Inc.

It may but this strategy comes at a price. As they compete with grocers, they will not be able to lease space in grocery-anchored centers anymore, leaving them with fewer options for convenient locations for their customers.

John Crossman, President, Crossman & Company

This is the time for the dollar store's resurgence. The stigma associated with dollar store inventory is still there and will never leave but consumers are voting with their dollars and if they can get Kraft Macaroni and Cheese for less, they will buy it. More affluent shoppers will come in for the brands but stay away from things like canned plankton or 'Kreast' Tooth Cleaner.

I like Family Dollar's current marketing campaign. Straightforward and to the point. As more retailers fold, you will see more name brands get into the mix at dollar stores.

Doron Levy, President, TheMortgageMachine.ca

A great strategy to sell more to existing customers; attract customers who have fallen on hard economic times; and maybe attract a curious tourist or two. No threat here to mainstream supermarketing.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Someone points out quite correctly that the dollar store strategy is to "get you to come into the store for one or two advertised specials and then pick up a couple of other items while you are there." That was the basic strategy on which traditional mass merchandising was launched.

A decade or more ago, David Glass called dollar stores the single greatest competitive threat to Walmart. He suggested they could usurp Sam's original value proposition of offering consumers the opportunity to save big on necessities so they could afford another little luxury or two. Looks like Family Dollar is still "on message."

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Ben Ball, Senior Vice President, Dechert-Hampe

This campaign is going to miss the mark. It may get some immediate attention but one visit to the store will tell the potential customer that:
1. This is not the environment I want to shop in.
2. Most of the items are, if not close out, outdated or off brands and are not any cheaper. In fact, per unit volume they are actually higher.

I look for the promotion to fail in the long run.

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Mel Kleiman, President, Humetrics

Family Dollar is a very cool place to shop, especially their new standalone stores.

I find them to be highly competitive with both supermarkets and drugstores.

Can't beat the convenience and the price.

'weo'

Family Dollar is a mini Walmart in many of the communities it serves. You probably don't realize it but many many rural communities don't have Walmart stores. Family Dollar and Dollar General pick up the slack in these communities and provide consumers with "chain pricing" where the only alternatives are independent grocers and hardware stores who don't benefit from the savings of an integrated supply chain.

As for upscale shoppers, they buy what they need, using Family Dollar to fill gaps until they can get to their provider of choice.

Ed Dennis, president, Dennis Enterprises

Just like Aldi wouldn't have an impact on conventional groceries? Just like Sav-A-Lot wouldn't have any impact either?

Start counting up the stops that the average consumer is making regularly to save and to have more options and it's mind boggling. There is no such thing as a one-stop shopper anymore. Consumers today are more and more willing to try as many alternatives as are available to meet their needs, especially if they see value. If that were not the case, Costco and Sam's wouldn't exist either. Not to mention places such as PetSmart, Pet Supplies Plus and others for pet supplies. Then take into account the conventional supermarket categories that Walgreens, Rite Aid, CVS and the like cut into the every week.

While the choices increase every day for the consumer, so do the trips they are willing to make. What's one more if they consider it a value? The slices of the pie are getting thinner and thinner with all the choices. Breaking in is the challenge, as well as is convincing the consumer that you actually are an alternative.

'Scanner'

Wonder if shoppers will begin to shop numerous outlets for groceries, rather than one or two? What if each weekend promo ad brought in shoppers who were interested only in specials, and not in staples? There's a potential for disruption in the entire supermarket model here, especially with high unemployment, where shoppers have more free time.

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Cathy Hotka, Principal, Cathy Hotka & Associates

Family Dollar shines in their niche, and they are growing their customer base in a disciplined fashion. This advertising strategy is perfectly timely to reinforce their message with their existing consumer base, AND, it will bring new trial. Family Dollar isn't trying to focus just on grocery--they are getting close to home, with the consumer and in the process, they will have those consumers buying some grocery items, and then crossing over to other areas--that shows up consistently in the monthly Consumer Intentions & Actions Survey (CIA), 8,500 Adults.

While many of the commentators on this blog may not find time to shop Family Dollar, you want to capture an understanding of what they represent to consumers, their associates, and Wall Street. They are:

FLEXIBLE -- you'll find their stores in-stock, and ready to do business -- consistently; they know how to work with vendors, and are proud of it.

AVAILABLE -- there are over Family Dollar stores across the country.

RELIABLE -- original family members are still involved after 50 years, they develop their people and create careers along with them, and they permit their stores, merchandise, and offerings to evolve to meet the marketplace needs.

VALUABLE -- Consumers can walk in, and find brand-name merchandise, at a sharp, competitive price.

DEPENDABLE -- this chain represents GROWTH; comp store sales grow consistently, they add stores, capture market share, build added distribution, improve stores, and their stock has appreciated consistently over the years.

These guys are good!

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Roger Saunders, Managing Director, Prosper Business Development

I decided to walk down to my nearby Family Dollar after reading all the comments. What I found were competitive prices but certainly not lower than Aldi.

Family Dollar has been selling groceries for years and most competitors don't care. Volume per store is just too low to worry about. They had some very competitive private label prices but I just don't know about the quality. Aldi proved to me they had good quality but it took a few years to convince me.

Going forward, I will keep my eye on Family Dollar. Now with Walmart emphasizing ad matching, it will only encourage me to take their ad to Walmart first.

David Livingston, Principal, DJL Research

It is all about store proximity, the atmosphere, and clientele they already have in their store. I think this is going to be a challenge. I know where the stores are, but the perception of the people who shop there and the products they offer are going to take some time to become accustomed to.

Mark Johnson, President and CEO, Loyalty 360

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