Dollar stores and some limited assortment stores are successfully capturing a certain amount of packaged goods business from supermarkets by using a combination of low prices and a "treasure hunt" approach of in-and-out merchandise to keep customers intrigued.
According to a new study conducted by The Gallup Organization for the Private Label Manufacturers Association, New York, consumers are shifting their buying in traditional and alternative formats, with as many dollar store purchases now as there were warehouse club purchases in 1996, when a similar study was commissioned. Supermarkets are the most affected by this crossover, says the report, "Store Brands Come of Age." Compared to the earlier study, weekly or more frequent supermarket visits in the United States dropped from 86% to 77%. At the same time, "two relatively new kids on the retailing block, dollar stores and no-frills, limited assortment 'box' stores, are showing healthy visitation patterns," the report says.
And, even though these formats have not penetrated the entire country yet, they are being viewed as a fourth channel of trade "that may well be gaining consumer attention at the expense of the traditional formats."
Management Ventures Inc., a retail research and analysis firm based in Cambridge, Mass., tracks the "Value Discounter" channel, to which both dollar stores and limited assortment stores belong. Growth rates of the three main dollar chains, as tracked by MVI, showed that in 2001, Dollar General increased its sales by 14%, Family Dollar by 11% and Dollar Tree by 22%. MVI predicts dollar stores' sales will grow by 10.7% from 2001 to 2003, compared to an overall average of 5.7% for the other channels, which include club stores, supercenters and category killers, to name a few.
In terms of merchandise, dollar stores do particularly well selling Center Store goods like candy, paper products, detergents, household cleaners, snacks, wrapping materials and bags, according to Todd Hale, senior vice president, consumer analytics, for ACNielsen, Schaumburg, Ill. However, these are highly competitive categories that also sell well in the grocery, drug and mass channels, he noted.
Bo Perry, president and owner of Always 99 Cents in Milwaukee, dismisses any threat. "Our type of store and a grocery store should be in the same shopping center. We draw people, they draw people."
Perry sees his role as being "all about the merchandise. If we put good merchandise in, people come in and buy it."
Whether supermarkets want to compete with these formats or not, or want to admit it, is open to debate.
Mona Golub, manager of public relations for Price Chopper, Schenectady, N.Y., views such outlets as competitors but not as a threat.
"We offer customers choice and variety, and our offer pieces together the best of all possible worlds," she told SN." We offer the most popular large-sized products, and we offer several different sizes of grocery items, so people can make the choice for themselves."
However, limited assortment stores, like Aldi, Save-A-Lot and Big Lots (formerly known as Consolidated Stores), Columbus, Ohio, often appeal more to the lower-income shopper.
"One of the reasons they do well is that they provide the maximum amount of groceries for a weekly budget. You get more bags of groceries for $60 or $70 in these stores," said Bill Bishop, president of Willard Bishop Consulting, Barrington, Ill., speaking of both dollar stores and limited assortment formats.
"The ways to compete with these people is basically to be sure that your stores include enough aggressively priced products, on a price-per-ounce or price-per-pound basis," which could be private-label products or packer-label products, Bishop said.
However, he added that most supermarkets do not choose to compete directly. "They're going to let this business go, because it costs more to compete than they will get back. Which is why they [the alternative formats] will do well," Bishop told SN.
And, private label has a significant presence in each of the cheaper formats. On its Web site, Aldi states that 85% of the 700 products it carries are nonbranded.
For some, the future may include broadening the product mix, adding both private and national brands.
At over 20,000 square feet, Always 99 Cents is more than double the size of the standard dollar store and Perry told SN he plans to add frozen foods as the chain expands.
Grocery items bring in customers more often -- once a week, compared to once a month, said Jim Maslowski, director of operations for Perry's store. In the grocery arena, Always 99 Cents carries name brands of canned juice, pasta, noodles, spaghetti sauces, salsa, canned fruits and vegetables, and 72 feet of cookies, "probably the largest selection that you've ever seen," Maslowski bragged. "It's one of those enticing categories that make people want to buy."
A truckload of Anderson's pretzels from Pennsylvania packaged in 6.5-pound boxes was en route when SN spoke to him, just after President Bush choked on a pretzel and passed out and just before the Super Bowl, leading Maslowski to predict that the load would last about a day-and-a-half.
The dollar store is located right next to a Wal-Mart, which Maslowski said is good, "because they draw a lot of people into the area. There's nothing wrong with being next to big brother."
He said the store, which opened Nov. 2, 2001, is doing very well.
"As times get harder, people are always looking for different avenues to save money. They have to eat, and I think this gives them another niche to fulfill those needs. We are very fortunate, in that we share a wide variety of customer.
"We don't cater to just lower income. It's a mixed clientele," said Maslowski. "They don't know what they're going to find; that's what makes it so much fun for them. Are they going to find a 64-ounce bottle of Juicy Juice? I see people in here three or four times a week. Our average customer is not retired, but the 'family person,"' said Maslowski.
Christy Spoa Jr., a co-owner of a Save-A-Lot in Elwood City, Pa., said he stocks about 80% of what the customer needs on a daily basis. The other 20% is available in conventional supermarkets.
About 1,000 Save-A-Lot units throughout the country carry an assortment of 1,200 items, plus some products that come in and out called "Temporary and Terrific." Save-A-Lot, based in Earth City, Mo., is Heinz's largest customer, company executives told SN. They, too, use the treasure hunt philosophy followed on a grander scale by Costco Wholesale. "Our big thrust is our T&T sections," said Spoa. "They get a great buy on an item and every week we get a new one." He told SN his store was recently reset, sticking with the corporate program.
Spoa noted that the owners of the plaza where his store is located have been talking to representatives of a dollar store chain. Currently, the mix in the plaza includes a beer distributor, a discount department store and a family-type restaurant. "We all cater to the same demographic: a lower-income shopper looking for a value. As the economy continues to falter, that demographic gets bigger. There is always a segment looking for a bargain," Spoa said.
When the store opened nearly 10 years ago, he said it catered to those with about a $15,000 annual income. "Then it went up to $25,000. The last figure we heard was about $35,000 to $40,000."
Still, Spoa says he hopes Save-A-Lot's target doesn't get too broad. "We can't forget who brought Save-A-Lot to where they are today."
