Family Dollar Antes Up On Food and More
Family Dollar recently announced plans to add tobacco, PepsiCo beverages, and name brand cosmetics from L’Oreal and Maybelline as it looks to drive traffic and capture greater share of its customer’s wallet.
The move follows the previous success of Family Dollar, as well as competitors including Dollar General and Fred’s, in increasing trips to its stores by expanding consumable offerings.
On its fiscal second quarter conference call with analysts, Michael Bloom, president and COO, noted that over the last 18 months food assortments have been expanded by about 20 percent, driving an 18 percent sales increase in the food category so far in fiscal 2012. Over the next few months, another 500 food items will be added, including new brands such as Red Bull, Wise Snacks and Gerber baby food. PepsiCo beverages, including Pepsi and Mountain Dew, will join Coca-Cola’s brands.
At the same time, refrigeration expansion will yield an average of about eight cooler doors per store in the second half. Said Mr. Bloom, "The increased capacity will enable us to offer customers more options for breakfast, lunch and dinner."
Tobacco, described as a category that drives "very frequent trips," will also be added to stores. Mr. Bloom noted that its down-market customers over index in cigarettes. (An advocacy group, Campaign for Tobacco-Free Kids and Break Free Alliance, is protesting the decision to sell tobacco.)
In a bid to increase its average basket size, HBC assortments have been expanded by about 25 percent over the last 18 months and an additional 500 items will be added over the next few months. New brands will include Maybelline and L’Oreal. Mr. Bloom said Family Dollar’s assortments aren’t broad enough for its customers. He added, "As we consider the average age of our baby boomer customer and her health-related ailments, we have a significant opportunity to increase our relevance and capture more of her wallet."
Finally, a new fixture at checkout to include candy bars, snacks, magazines and gift cards will be added to stores to drive impulse buys (magazines and gift cards represent new categories).
"The channel is growing," said Mr. Bloom. "The customer base is expanding, and I truly believe that we have tremendous opportunity to further expand our market share and take Family Dollar to new levels of profitability."
- Family Dollar Reports Record Second Quarter Earnings – Family Dollar
- Family Dollar Stores’ CEO Discusses Q2 2012 Results – Earnings Call Transcript – Seeking Alpha
- Health Groups: Family Dollar Stores Should Reverse Decision to Start Selling Tobacco Products – Campaign for Tobacco-Free Kids
- Retailer to sell more national brands, add to private labels – Charlotte Business Journal
Discussion Questions
Discussion Questions: What do you think of Family Dollar’s merchandise expansion? Which channel (supermarket, c-store, drug, discount, etc.) will likely be affected most by Family Dollar’s changes?
Michael Bloom is going to give new life to Family Dollar. Consumers that shop retailers such as Family Dollar have as much desire to buy name brands and certain specialities as do any other consumers that shop any other stores. My own clients recently had a chance to hear Mike Bloom’s thoughts and plans at NACDS Annual Meeting and I think Mike is right on the money.
As noted in the article, traffic is the rationale for the expanded food, beverage, tobacco, and other CPG offerings. Dollar stores will continue to represent small but painful “paper cuts” for traditional supermarkets.
However, I believe the greatest threat to competitors with these new offerings, especially tobacco and beverages, is c-stores. Dollar stores will be positioned as convenience stores without convenience store pricing.
Every channel will continue to be challenged by Family Dollar’s merchandise expansion as retailing continues its ever evolving process.
The thirst for more customers and more sales is insatiable in all forms of retailing. This expansive step by FD will likely be followed by more until FD becomes a member of one of those challenged channels itself. That’s evolution. To wit:
While Darwin Retailer, though out of the cave,
At best is only a hungry monkey shaved.
The dollar channel has morphed from being a place where only those willing to do a treasure hunt to find items to more of the small general stores with name brand foods and merchandise. Family Dollar’s merchandise expansion is going to impact all of its competitors but probably the c-stores the most. The National Association of Convenience Stores (NACS) just report that for 2011 the average c-store sold $52,000 worth of cigarettes a month (based on same store sample). Not all of that will go away with but having another competitor for that key category will definitely hurt.
This reflects the fact that dollar stores have arrived as a primary retail shopping location for many consumers. There are now more dollar stores in America than chain drug stores. Some two-thirds of U.S. households shop in dollar stores at least occasionally.
Family Dollar is attempting to capture more shopper trips and more completely meet the needs of their customers. They are now competing with all the other outlets for the shopper’s attention. The battle will be over consumables and dollar stores can offer a value advantage.
Outlets such as supermarkets and drug stores need to recognize the potential threat and focus on more competitive pricing and improving their shopper experience.
Many have commented on the potential for Food in the Dollar Channel, and my colleague, Ray Jones points out the value advantage the channel can offer.
I would add that Dollar also offers a considerable convenience advantage based on proximity — particularly for quick trips and fill-in trips — that exceeds even that of Drug and Convenience in their primary markets served.
“The increased capacity will enable us to offer customers more options for breakfast, lunch and dinner….” That statement indicates a move beyond snacks and beverages and the photo enclosed appears to be a basket with 2 cartons of frozen pizza.
So the competitive set may go beyond C-Stores… maybe Walmart Express? Or more broadly, how about the emerging small format retail segment? Albeit Walmart Express stores will have fresh produce, Family Dollar has over 7100 locations, somewhat larger than Walmart Express.
Family Dollar has the real estate and will not need to contend with local zoning for the most part vs. the roll out of new Walmart Express stores.
Forecasting trends is risky. Given the decline in 3 meals per day and the trend to numerous day-parts for snacking and merging meal occasions, “linner” and “brinner” dollar stores may just find their niche providing foods for the non traditional day parts.
Everyone is in the food business, so it is just another chain of stores adding convenience items for their base. Convenient stores will feel the pinch the most, but supermarkets near them will also. This is more reason to enhance the perishable selection in supermarkets today, as the dollar store people will never hire expensive labor to cut meat or have a service deli case. Change is inevitable, and no one has protected turf for the goods they sell anymore, except government, and utilities.
Family Dollar has seen how drug chains have expanded assortments providing convenience to shoppers for quick trips and fill ins … e.g. milk and bread. This takes away share from convenience stores who use gas as a draw.
Adding cosmetics, another key drug store category with high profit margins and targeted to women shoppers, improves space to sales and adds opportunities for larger baskets. I wonder how the cosmetic brands will manage these very different channels. Drug store chains won’t be happy.
Tobacco is a number one category in drug store chains and convenience store chains. Family Dollar’s core shoppers probably index high in the category. Growing space by 20% with an 18% gain in sales seems counter productive in food. Adding the tobacco will offset and dramatically improve overall space to sales. If Drug chains can sell tobacco, why not Family Dollar? Good strategic move that will improve topline sales and profits…at the expense of convenience chains and others that sell tobacco.
It will impact ALL channels. Shopping trips to other channels will decrease as the dollar channel refines the “right product at the right price in the right location.” Competitors will definitely take note.
Assortment is a huge issue in this channel and finding the right mix of items is a constant challenge given their footprint size. Refining the offerings to match shopper/consumer needs and wants will lead to improved business results.
All these moves make excellent pragmatic business sense, including and perhaps especially tobacco. From what I understand in talking to independent supermarkets, dollar stores get “class of trade” preference in pricing, which helps them. All channels will be nicked as dollar stores continue their way, but I see C-stores as being the most affected. The playing field continues to tilt.
I don’t think any of the competitors will be affected to a noticeable degree. Sounds like they are going after the “food desert” customer by offering candy bars, Pepsi, Red Bull and tobacco. A lot of that was being sold at the nearest c-store or drugstore.
Family Dollar’s aggressive expansion has the potential to thwart mass retailers’ comparatively sluggish small-format forays. I think Walmart is most vulnerable since Target hasn’t really ramped up its City Target concept (yet). Now that Family Dollar has the brands, will they make a meaningful multi-channel move? That’s when things will get interesting.
Spot on with the merchandise expansion. Adding the categories and brands will be great for the store and good for the consumer.
C-stores may be the hardest hit with tobacco being added. I haven’t been in Family Dollar lately but what is next, food on the go?
Family Dollar has been very effective at testing business changes before rolling them out across its 7000 locations. As a result Family Dollar has had good success with changes akin to this one. Therefore it’s a good bet that the retailer has done its research and has every reason to be optimistic.
I believe dollar may incur many unexpected costs thru food expansion. Utility costs for refrigeration, frozen food merchandisers and waste. These display investments are very slow to eventually break-even.
Tobacco is a huge investment in resources as well as the monitoring for internal theft. You must turn your inventory 3 times per month to be successful in this category and you have to have a huge customer count to keep it viable. And, it is a very good way to lose a loyal customer while they are waiting in line for someone to open up the secured tobacco locker.
Please poll your customer. All the experts on this comment blog are not your customers coming by daily to shop and return for more. Develop a creative suggestion box with your customers and your store-level staff to get a full snapshot of what makes your business attractive and viable in the baby boomer market today.
’nuff said!