Is a dollar store price war coming?

Discussion
Jun 18, 2015

For the majority of regular dollar store shoppers, the appeal is largely about price. So what else can a chain that has lost market share in the discount space do but lower its prices? That appears to be the scenario set up for Family Dollar as the company awaits the closing of its merger with Dollar Tree.

According to analysts at Sterne Agee, via The Charlotte Observer, in a comparison of 42 items purchased at Dollar General, Family Dollar and Walmart, the Family Dollar basket came to $151 compared to $150 for Dollar General and $149 for Walmart. Family Dollar’s prices have been higher than its main competitors for several years, according to the research.

"Clearly, going forward, once the Dollar Tree merger closes in early July, we would expect to see more aggressive price action out of (Family Dollar) and will be monitoring this closely," wrote the Sterne Agee analysts.

Dollar store price war

Source: Family Dollar

While lower pricing may be coming, it may take more than that to reinvigorate Family Dollar’s business. In April 2014, Family Dollar announced it was cutting prices on about 1,000 items in an effort to become more competitive following a quarter in which the chain’s sales fell about six percent.

Since then the company has seen some improvement, but has continued to lose ground to stronger competitors within and outside of the dollar channel. When the company reported its second quarter financials this past April, overall sales were up three percent while comparable store sales were up just 0.5 percent. Family Dollar reported trips to its stores were up, but average rings were down.

Do you expect to see Family Dollar lower its prices following the completion of the merger with Dollar Tree? Will the company have the resources post-merger to stick with the strategy if competitors, including Dollar General and Walmart, do the same?

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Braintrust
"Where do you go from here, when a dollar store has to cut prices to win back some customers? There are way too many brick-and-mortar retailers now and more new ones are coming, so since price is their only draw, I guess you lower them until nobody makes money."
"With the aggressive growth of the dollar store channel, it does not surprise me that the channel has reached some level of market saturation and has prompted consolidation. With that, Walmart and other "price" retailers have worked to defend their turf."

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8 Comments on "Is a dollar store price war coming?"


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Dr. Stephen Needel
Guest
3 years 10 months ago

The shocker in this story, to me, is that Walmart was cheapest in the price comparison. Perhaps showing again that it’s pretty hard to out-Walmart Walmart. And it makes you wonder how low they can possibly go.

Family Dollar has closed a lot of stores here in Atlanta, in anticipation of its merger with DT. That may have something to do with sales losses if that’s happening elsewhere.

Tony Orlando
Guest
3 years 10 months ago
Where do you go from here, when a dollar store has to cut prices to win back some customers? There are way too many brick-and-mortar retailers now and more new ones are coming, so since price is their only draw, I guess you lower them until nobody makes money. The race to the bottom is a no-win for anyone except the consumer and as a retailer it is difficult, no, actually impossible to be all things to all people. With Amazon developing private-label staples delivered free to your door, the dollar stores are scrambling to keep the heat on each other. Walmart has the resource to undercut anybody they choose to go after, but even Walmart has been raising prices to help offset the new wages and mandates for the ACA. Somewhere somehow a profit must be made, and just lowering prices across the store is a losing strategy, as the dollar store concept is built mostly on price. It is not easy to separate yourself as a retailer from similar competitors, but it can… Read more »
Chris Petersen, PhD.
Guest
3 years 10 months ago

It is very difficult to “price your way” to growth and profitability.

If you keep lowering prices, you have to make it up on volume. Which means attracting more shoppers, increasing more trips per shopper and/or increasing basket size.

The data quoted in the article suggests that lower prices have increased some Family Dollar traffic, but did not increase the critical metric of increasing average ring.

According to this article Walmart is already competitive on pricing, and they won’t stop lowering prices if they are losing core customer traffic. Walmart definitely has a lot more “staying power” and clout in negotiating prices with suppliers. Walmart also has the ability to leverage its house brands which have more margin than branded products.

There is an old adage, “be careful not to wake sleeping giants,” especially if you are playing in their home field that they know best.

Lee Kent
Guest
3 years 10 months ago

We are talking about a $2 spread here. For the price difference do we really think the consumer thinks about whether to go to Walmart, Dollar General or Family Dollar for these particular items based on price?

The regular Walmart shopper is going to buy at Walmart because they are already there for their weekly or monthly shopping day and they know the price is good. Otherwise not so likely to make a trip to Walmart and go through the hassles parking in the crowded parking lot, waiting in lines, and playing bumper carts.

No, they would prefer to drop into the convenient strip shopping center and dash in and out of Family Dollar or Dollar General, whichever is closer or on their way.

That’s my 2 cents.

Mark Heckman
Guest
3 years 10 months ago

With the aggressive growth of the dollar store channel, it does not surprise me that the channel has reached some level of market saturation and has prompted consolidation. With that, Walmart and other “price” retailers have worked to defend their turf.

Lowering prices or offering “basket-building” coupons in a dollar store seems a bit off strategy to me, given the premise of the format is already cheap stuff at cheap prices. Conversely, I would look to recover and build the business by first reviewing in-store merchandising and SKU rationalization to make sure they are offering the right products and sharpen the merchandising and shopper flow in the store to help shoppers find items faster.

Further, I would look at new categories and product lines that could infuse some new interest for defecting shoppers. Lastly, I would consider expansion of refrigerated perishables to the effect of making a dollar store a more viable substitute for a quick trip in a supermarket.

Mihir Kittur
Guest
3 years 10 months ago

Continuing to lower prices may have worked for Family Dollar in the short term, but it does not guarantee a long-term path to success over likeminded competitors. Price matching is a losing race to the bottom.

Resources are always a constraint; the question is where are the resources being focussed? Following its acquisition of Dollar Tree, it might be wise for Family Dollar to re-look and re-validate its customer proposition. This will require investment in customer analytics, better market intelligence and incorporating deep tacit knowledge within their employees (often an ignored source of knowledge).

Sid Raisch
Guest
Sid Raisch
3 years 10 months ago

If they’re smart they will increase prices. This is a difference that the core consumer of these businesses will never notice. The dollar store format is one more of convenience and price perception than of low price reality. They are cheaper than traditional convenience stores, but there are more of them in many areas of the country. Most towns of 1,000 or so have one and a town of 5,000 can have three or more. They are out Walmarting Walmart on convenience, not price.

Quentin Smelzer
Guest
3 years 9 months ago

This is a frustrating question for me because I market software that allows retailers like Family Dollar to improve their price perception while maintaining or even improving their profitability. Competitive price matching doesn’t have to be a race to the bottom.

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Braintrust
"Where do you go from here, when a dollar store has to cut prices to win back some customers? There are way too many brick-and-mortar retailers now and more new ones are coming, so since price is their only draw, I guess you lower them until nobody makes money."
"With the aggressive growth of the dollar store channel, it does not surprise me that the channel has reached some level of market saturation and has prompted consolidation. With that, Walmart and other "price" retailers have worked to defend their turf."

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