Nielsen: Dollar Stores Not Just for Low-Income Shoppers Anymore
By Al McClain
Obviously, the economy
had to play a big part at the Nielsen Consumer 360 Conference this year.
And, it did, with one workshop entitled "Rise of the Dollar Channel," presented
by Jeff Gregori, VP of retail services for Nielsen, showing that
a lot has changed recently with the channel. As consumers respond to the
economic downturn by simplifying their lives, the dollar channel is providing
convenience, value, and a new level of shopping consistency.
According to Nielsen,
the channel has grown with consumers of all income levels, but is up the
most with higher-income shoppers (+10 percent vs. YA), and that growth
accelerated in the last half of 2008.
The primary dollar store
shopper, however, has a lower-income with the group representing 45 percent
of dollar store sales even though it represents only 29 percent of U.S.
households.
Dollar stores have been
gaining sales a number of ways, but one big one is that shoppers are switching
from other channels. In fact, the dollar channel is a net gainer of switchers
from all channels except
"value grocery" such as Aldi and Save-A-Lot.
While the channel’s store
count is stable (growing only about two percent annually), trip growth
continues. Lower-income shoppers, for example, made an average of 17.2
channel trips in 2008, up from 16.4 in 2007.
The channel’s heavy shoppers
are categorized as
"plain rural living" – those in small town and rural areas
with the second poorest lifestyles, relatively high home ownership, a high
incidence of non-Hispanic whites and an index of 188.
A secondary target is "struggling
urban cores"
who have a low incomes, low net worth, and index at 116.
Top categories for the
channel – based on dollar sales – include paper, candy, pet
food, snacks, detergents, carbonated beverages, wrapping and bags, household
cleaners, cookies, and laundry supplies. Many of these categories have
low conversion rates, so there is plenty of upside remaining.
Light shoppers for the
channel include "senior couples", "senior singles" and "younger
bustling families." Light shoppers tend to stick with the basics and
their conversion rates tend to be low – i.e., candy at 41 percent,
paper at 32 percent, and carbonated beverages at 14 percent.
Emerging non-edible categories
for the channel among mid-income shoppers include diapers (with only two
percent penetration), baby needs (nine percent), and cough/cold (12 percent).
Food categories that are emerging with high-income shoppers include bottled
water, pet food, and carbonated beverages.
Food now represents 31
percent of channel business vs. 26 percent in 2005. Dollar General is now
at 34 percent. Consumers at all income levels appear to enjoy the price
and convenience of food and beverages in dollar stores. Showing how the
channel has changed, Nielsen says that only 23 percent of the channel’s
dollars are in items that sell for less than a dollar.
HBC is a challenge for
dollar stores. Most channels convert at about 80 percent while HBC converts
at a 65 percent rate, possibly due to a lack of trust. Specific
areas of challenge include oral hygiene, which converts at only 32 percent,
vitamins at eight percent, hair care at 27 percent, and cough/cold at 18
percent.
Private label is still
relatively undeveloped in dollar stores and, in fact, the channel is increasing
its branded focus. Nielsen says brands of all scale are leveraging the
channel for growth. While low-income shoppers have a preference for brands,
assortment has to be tailored to the channel. And, assortment is
changing quickly, as food and beverage products are driving a lot of the
growth.
Discussion Questions:
Is the growth of the dollar store channel mainly due to economic conditions
or to the channel doing a better job of meeting consumers’ needs? Will
the channel continue to grow when the recession ends?
I think that the growth is primarily due to the current economic situation. Consumers are looking for value, and the dollar stores offer it.
When the economy recovers, dollar stores will not lose all of their new-found customers. Consumers who feel comfortable shopping at dollar stores will continue to return, as this recession has been deep enough to change basic shopping preferences.
Dollar stores are evolving and it’s not just about the economy. I recently wrote about Dollarama and how they went beyond the dollar price point. The merch looks great on the shelf and really takes the store up a few notches.
Poisonous crayons and shampoo from Honduras are no longer the stigmas for the dollar store. When I walk into chain dollar stores, I see name brands, I see outdoor and a real seasonal section. I see associates working in the store. I’m seeing structure which is great. A dollar store I was involved with some years back just signed a deal for their own private label. China has become very accommodating to lower volume retailers and that has opened up new markets for the dollar shop. My writings about dollar stores are here http://gocaptus.com/blog/?p=209 and here http://gocaptus.com/blog/?p=67.
There is still some confusion about how the industry uses the term, “dollar stores.” Are dollar stores the retailers such as Dollar General and Family Dollar; basically small department stores that offer deep discounts and lower tier brands? Or, are Dollar Stores the “Deals” types of stores where most of the offerings cost literally about one dollar?
I do believe that economic conditions are driving more business to both types of retail operations, however, the typical “dollar store” in the strip mall, where almost everything cost a “dollar,” has always appealed to consumers in all income brackets; more so than the lower tier offerings of the small department store chains.
Dollar stores, especially the major players FD and DG, are both investing in professional resources to help them improve the shoppability and shopping experience in the stores. The new Family Dollar format is an outstanding example of what they are accomplishing. The ambiance is worth a visit and the product experience continues to improve, which to me, means they will certainly be able to retain new visitors in many of these new stores.
There seems to be a desire by these retailers to engage more directly with the consumer. Always a good sign! I plan to visit for household staples, with college son in tow for another good lesson in budget management. This millennial opportunity should be exploited more, IMSMHO (in my shopper marketing humble opinion). The channel could “teach” via experiences millennials would talk about on Facebook, etc.
My mother was the social secretary to a multi-millionaire socialite who re-used envelopes and cut uncanceled stamps from letters. Affluent people can enjoy a deal, too. Don’t underestimate the consumer swing away from goods that are unnecessarily overpriced, and toward goods that provide value and convenience. Now that the stigma associated with saving is lifting, full-price retailers in all segments should examine ways to safeguard their market share.
Customers are undoubtedly going to dollar stores for economic reasons. But, some of the customers now venturing into the stores are going because of the new cachet in being frugal. What better way to prove that you are really into saving and doing more with less than to brand yourself as a dollar store shopper?
The dollar stores will give some of this customer base back as the economy improves and customers feel less inclined to prove that they are part of the modern recession generation. They should be able to keep some of these customers, however, given the improved appearance and product quality offered.
We live in a society that recently viewed owning a private jet as success and admired those who had them. Then it lost popularity and now it is seen as a negative to have a private jet. On the opposite end, it was seen as an embarrassment by some to shop at a dollar store not that long ago. Now, it is not only seen as acceptable, but admirable.
The growth of the Dollar Store is a result of the current economic conditions. But, the leading retailers in this category have proven themselves to be deft marketers and they are likely to turn the trial upscale shoppers into regular customers. The same goes for this demographic of shopper in Mass & Club. Perhaps, when the absolute numbers of those transitioning shoppers are viewed, the most eye opening statistic is the move to Mass.
The major Drug chains have been among the worst retail marketers in the country. Their pricing is out of line as they have relied on store growth and acquisition to grow. They have tried to be a convenience “go to” place akin to Convenience stores. If the high income shopper who purchased diapers, cough/cold and baby needs in chain drug, as a convenience, finds that in the same strip mall that they can go to the Dollar store and save anywhere from 30% to 50% on an everyday basis, they will never return to the chain drug.
Net, net, the channel will continue to grow as the recession ends and the troubles of Chain Drug will only accelerate.
No doubt, the recession has helped improve the image of dollar stores, positioning them as a smart choice for recession shoppers. The big unanswered question is what will happen when those recession shoppers once again feel confident about spending. That day of reckoning means the dollar store shopper must decide whether they want to continue to patronize the dollar store channel or switch their spending (or a portion of their spending) to other channels.
Smart dollar store chains are treating this downturn as an opportunity, not only to serve a more thrifty consumer, but also to create a better shopping experience so consumers will continue to shop the channel even after they enter the post-recession. Thus, I expect we’ll see the big dollar store chains continue to benefit in the post-recession as shoppers adhere to their thrifty ways (especially on non-discretionary items).
The post-recession will usher in a more confident shopper willing to migrate some of their recession-era spending to new nameplates and channels. But I’d bet quite a few dollars that the dollar store will still show up on shopping lists.
More food = better sales trends. Food stamps are the saviors. If there were clothing stamps, a lot more retailers would be healthier.
The collapse of store rents means more dollar stores in formerly “expensive” locations. These locations are more convenient to higher demographic shoppers.
Coming soon: Family Dollar on Fifth Avenue, Rodeo Drive, Michigan Avenue, and Newbury Street. Under construction: the 2 million square foot “99 Cent Mall” next to Bill Gates’ house. By the end of this year: Tiffany installs a fridge next to the front door selling milk, eggs, and high caffeine energy drinks.