PL Buyer: Family Dollar Goes Gourmet

Discussion
Oct 24, 2011
Carol Spieckerman

Through a special arrangement, what follows is a summary from a current article from Private Label Buyer, presented here for discussion.

By using warm, vibrant colors on its private label packaging and investing in an extensive marketing campaign, Family Dollar has managed to post big private label sales gains and provide lessons others can use.

“Family Dollar was really ahead of the curve with the color trend and other retailers such as Walmart, Target and Kmart are changing their private label packaging along the way to get closer to what Family Dollar did from the beginning,” said Carol Spieckerman, president of newmarketbuilders. “They really got that one right.”

Family Dollar stores typically range from 7,500 to 9,500 square feet. Just over half of its shoppers have annual household incomes under $40,000 a year and about a third are African-American or Hispanic. Its private labels include Family Gourmet, Family Pet, Kidgets, Family Chef, Interiors by Design, Outdoors by Design, Tropic Sun, Highland Outfitters and Extremely Me!, among others.

Rather than follow a tiered approach with a premium, national brand equivalent and value private label, Family Dollar has opted to dramatically increase its assortment of name brand products and complement that with a growing assortment of national brand equivalent products, said Family Dollar spokesperson Joshua Braverman.

“Family Dollar is quite bold in its compare and save promotional campaigns, going directly against name brands,” said Jim Hertel, managing partner of Willard Bishop. “It communicates that it has confidence in its own label’s quality and that’s powerful.”

While the dollar store format will see continued growth, the key for dollar stores such as Family Dollar will be to get the assortment right, added Mr. Hertel. “It needs to continue its push toward regularly-stocked staple items including consumables so as to remain relevant and competitive.”

Family Dollar also needs to ensure that its private brands are competitive, not just with comparable national brands, but also with other retailers’ private brands.

“Customers are going to start comparing Family Gourmet to Walmart’s Great Value and Dollar General’s Clover Valley and even Walgreen’s Delish brand they brought in from Duane Reade, instead of just comparing them to the national brands,” said Ms. Spieckerman. “Family Dollar is going to start getting hit on all sides and so its going to have to make sure it’s value proposition is very clear.”

Discussion Questions: How important is a strong private label program for dollar store formats like Family Dollar? What is your assessment of the approach being taken by Family Dollar?

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17 Comments on "PL Buyer: Family Dollar Goes Gourmet"


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Richard J. George, Ph.D.
Guest
9 years 6 months ago

Any food retailer needs a private label strategy which complements its “go to market” strategy. No one ever questioned Family Dollar’s extreme value positioning. This private label strategy is about positive differentiation relative to other price and value retailers like the big guys (Walmart and Target), Save-A-Lot, Aldi, and the other dollar stores.

It also gives permission for non-dollar store shoppers to visit Family Dollar. While some consumers need to save money, everyone loves to save money. The Family Dollar tiered approach to private label branding is an opportunity to attract households with income levels higher than its current target market.

Carol Spieckerman
Guest
9 years 6 months ago

Family Dollar is on the right track, not only re-visioning its existing private brands but creating new ones that will balance out the story store-wide. Although I’m not in the camp that believes white packaging is passe or ill-advised, Family Dollar’s use of color will help its products gain awareness and drive a “better” perception. With Walmart, Target, Walgreens, Dollar General, and potentially many others coming to a neighborhood near Family Dollar with their well-honed concepts or new small format ventures, competing national brand-to-national brand will be a race to the bottom.

At the same time, rising commodity prices call for margin-grabbing strategies, particularly for dollar stores which have far less wiggle room than traditional discounters. Family Dollar is taking that to another level by simultaneously increasing its focus on direct sourcing – a great one-two margin punch.

The only thing missing at this point is a site-to-store strategy and major foray into pharmacy.

Gene Hoffman
Guest
Gene Hoffman
9 years 6 months ago

My take on Family Dollar’s bold PL program is this: Family Dollar’s customers are buoyed up when they know that they are being treated as well as — or better than — customers in other chains. As Jim Hertel noted, “It communicates that it (FD) has confidence in its own private label’s quality and that is powerful.”

Kudos to Family Dollar.

Doron Levy
Guest
Doron Levy
9 years 6 months ago

Private label is important to any type of retailer but in Family Dollar’s case, it’s more important as margin and allocation are critical for profitability in this realm of retailing. Looking at the packs provided in the article, I feel they have a huge uphill battle competing with brand names and other house brands. On the other hand, their particular customer base may appreciate and embrace the simplicity of the labeling and as long as they are price competitive in terms of quality and size, they should do well with the program.

Mark Price
Guest
Mark Price
9 years 6 months ago

The consumer segment that shops frequently in dollar stores is seeking discounted items; we should never assume that discounted items = “cheap.” Consumers often judge the quality of the product by the quality of the packaging; a more elaborately packaged item is usually equated with higher end. And what parent does not want to purchase better quality items for their family?

Given that most dollar stores tend to have generic and second-rate packaged items, a more premium look to their store brands should (and is) differentiating Family Dollar from their competitors.

Hayes Minor
Guest
Hayes Minor
9 years 6 months ago

Family Dollar’s efforts are spot-on for private label. Hopefully they’ve watched their competitors (Walmart, Walgreens, etc) who’ve gone through product assortment and shelf organization challenges in the past few years enough to learn what ‘not to do’ at retail. What shoppers have come to expect from Family Dollar will continue to be delivered with this new venture.

That said, shoppers are not going into Family Dollar stores blindly. With mobile apps and mobile shopping on the rise, to Lynn’s point, shoppers will continue searching and seeking the ‘best of the best’ in private label. Why? Because they can. Private label is now an expected feature in any retailer but this also means it’s a line of products that can be compared across channels and retailers.

Hopefully, Family Dollar will stay on top of their assortment and most importantly, listen to their shoppers! Being receptive to feedback and nimble with changes will ensure a win-win with private label offerings.

David Slavick
Guest
David Slavick
9 years 6 months ago

There is a certain amount of trust that goes along with buying PL goods. For those loyal Family Dollar shoppers they will sample it and as a result the average basket size will rise. Will FD loyalists recommend these new goods to their equally frugal friends? The proof is in the quality of the goods. One more challenge for FD’s merchant buying/planning organization to offer great selection at incredible prices.

Charlie Moro
Guest
Charlie Moro
9 years 6 months ago

The dollar store format seems to attract a consumer not looking to pursue branded opportunities but looking to fill in consumable items at a fair price for products that may or may not have brand recognition. To pursue private label as a destination seems to have little upside when the consumer quest is value only.

David Biernbaum
Guest
9 years 6 months ago

I like Family Dollar’s gourmet initiative but I don’t believe it appears to be all that different than what many other retailers are already doing.

Nikki Baird
Guest
Nikki Baird
9 years 6 months ago

In some ways I see this development almost the reverse of what is happening in outlet stores for brand manufacturers. In their case, the outlet is so popular that they sometimes have to make products specifically for the outlet.

In Family Dollar’s case, and for all discount retailers, there’s always a built-in tension around the availability of national brands. But instead of asking a brand to “make for” Family Dollar, they have an opportunity to create their own brand — lessening their dependence on the availability of national brands for the discount model.

Maybe I’m reading this wrong, but I can’t see that there is a “lose” in this proposition anywhere — even if Family Dollar goes hard after national brands, I don’t think those brands are overly excited to see a lot of their products in a discount setting. This alleviates both issues, and gives Family Dollar a leg up on margin opportunities too.

Anne Bieler
Guest
Anne Bieler
9 years 6 months ago

Family Dollar is right to make its value statement very clear, and deliver the “goods” in a well structured assortment of name and Private Brands.

The economy changed the value equation, creating opportunities for some, like Aldi and strong growth in the dollar store segment. The segment is crowded, and the more successful are reinventing themselves as “to be trusted” marketers, away from offering limited selections and overstocks at very low prices.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
9 years 6 months ago

Let’s get something straight: Posting “big private label sales gains” in any kind of store that also sells national brands is not a function of consumer desire. It’s also never a response by retailers to shopper demand. You will never see any kind of consumer research indicating their clamoring for store brand merchandise. Instead, PL is always a play by retailers for more profit (that’s their job, after all), and any sales “growth” by PL is always a function of retailers removing national brands from their shelves in favor of their own PL products. Additionally, the customer appeal of PL is always price and never quality. The idea that retailers can hire a third party to design and manufacture products for them that are superior to those produced by decades-old branded manufacturers is ludicrous.

Family Dollar shoppers are there for price only, so PL makes lots of sense for those stores. Again, it’s just a profit play, not a brand equity play.

Ed Rosenbaum
Guest
9 years 6 months ago

Dollar Store customers are more price conscious; and looking for the bargain products giving them more value for the dollar. Family Dollar has the right idea to mix vibrant collar to their packaging. It will attract more buyers and add to the average total spend.

Gene Detroyer
Guest
9 years 6 months ago

Now hear this. Once we stop looking to the Boomer generation as the drivers of retail, every retailer must develop a strong private brand program. The coming generations are no longer dedicated to the elements of broadcast marketing. If anything, they are rejecters of it. They buy on quality and and price and have no connection to the brands of Kraft or P&G. It doesn’t matter if it is grocery (note Whole Foods or Trader Joe’s) or apparel (note H&M or UniGlo). Retailers that do not offer equal quality and complete private brand programs will lose to other retailers.

Paul Flanigan
Guest
Paul Flanigan
9 years 6 months ago

At the end of the day, Family Dollar needs to put out a great product. Brand value in highly competitive places like foods and household goods continues to diminish as money-conscious (and savvy) people realize that “Shells and Cheese” is identical to Kraft’s offering that is three times the cost.

At some point, Family Dollar stops competing with everyone, and just rakes in the dough. (Pun intended.)

Lee Peterson
Guest
9 years 6 months ago

Family Dollar need look no further than Walmart or Target for the answer — you can go private for many things, but not all. Consumers love the major brands at a price — that’s the #1 draw. Still, if done right (and yes, design is a major factor), the leverage created with PL can cause margin improvement across the board. Just keep this in mind: you’re not Trader Joe’s!

Carlos Arambula
Guest
9 years 6 months ago

I believe it to be critical. Dollar store consumers are looking for savings and willing to take home a bargain. A PL program provides the consumer the ability to feel good about a purchase that while missing the brand name is still a quality product — or looks and feels like one.

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